Will Uber gain traction in China's crowded market?

Illustration: Chen Xia/GT

Baidu tie-up could propel ride service to success

By now, the story has been told, retold, and is about to pass into legend. Since being launched in 2009, the private taxi company Uber Technology Inc has been introduced into over 100 cities, with Beijing being announced as the 100th city back in July by CEO Travis Kalanick.

However, the second half of 2014 has been a mixed bag to the company now valued at over $40 billion. Taxi drivers staged massive protests in London, Paris, Berlin, Milan and many more cities, protesting against a service they see as threatening to wipe out their way of life. Uber drivers in Boston and New Delhi have been charged with rape, while investigations into sexual assault have been opened into drivers in Los Angeles and Boston. To their credit, Uber has had a vigorous response to the matter, suspending the drivers and opening internal investigations, as well as announcing it will use biometrics and lie detectors to screen applicants in the US.

Furthermore, while Uber is still evolving from being a promising contender to a heavyweight champion, this slew of bad press has only helped to spread its influence. Every time a city has been unable to use taxis due to an anti-Uber protest, downloads of its app have skyrocketed.

This means that Uber now has the capital and global business savvy to time its expansions. However, some suggest that the entry into China was left until too late. After all, the infamously congested traffic in hundreds of Chinese cities means that rivals to Uber sprung up years ago already. The biggest of these, Didi Dache, is financed by Tencent Holdings Ltd, operates in 300 cities, has more than 1 million registered drivers and accounts for well over 5 million rides a day. Its second biggest rival, Yidao Yongche, has 50,000 drivers and 2 million users. This is without counting on Kuaidi Dache, the free-to-use app partly owned by Alibaba Group, which helps over 6 million Chinese people find taxis every day.

Against these juggernauts, Uber only operates in several Chinese cities to date. It may be banking on strong international name recognition to find success in China, but for every Apple success story, there are many failures. Western search engines like Yahoo and Google, before it was blocked, never looked to threaten Baidu's dominance. Amazon and eBay have been trounced by Taobao and even Walmart is losing its market share.

To counteract this effect, Uber knew it had to make a big splash to draw notice to itself. Few splashes could have been bigger than the deal it secured with Baidu. Its strategic partnership with the Chinese giant saw rumors swirling that Baidu CEO Robin Li Yanhong was investing hundreds of millions of dollars into Uber in order to help it in China. While this remains pure conjecture, it looks very likely that the alliance will see Uber integrated into Baidu's search engine, maps, and payment services. Given the near ubiquity of Baidu's use by Chinese netizens, this will do marvels for Uber's ability to scale up.

Its next challenge will be facing the far more ominous threat of regulation by the government. While its launch in cities like Portland happened over the wishes of local authorities and was allowed while car-sharing regulations were sorted out, it is unlikely to be extended the same leeway in China. Nevertheless, Uber's lightning expansion would not have happened, without its executives knowing their way around the corridors of power.

Two factors will weigh in Uber's favor. Firstly, well-established domestic competitors like Didi and Kuaidi have sorted out their regulatory issues, creating a model for Uber to follow. Secondly, the notion of nationwide competition itself may be misguided here. Uber is unlikely, even in the long term, to match Didi's manpower across the country. It is focusing on middle-class customers in wealthier cities like Beijing, Shanghai, and Guangzhou, although its People's Uber service has helped attract lower-income riders. While it will certainly compete with Chinese services for fares in those cities, China may be one of those elusive markets where there is more than enough room for everybody at the table.