DIDI, KUAIDI, AND UBER IN CHINA

Please find below the case questions discussed and analysis expected from the case discussions with regards to
each question.

CASE QUESTIONS
1. What is the landscape of the Chinese ride-hailing market?
2. What are the different business models of Didi, Kuaidi, and Uber?
3. What are the key competitive strategies adopted by Didi and Kuaidi?
4. How can incumbent players Didi and Kuaidi compete with Uber, the new industry entrant?
5. Summarize the learning and findings from the case with respect to use of e-commerce as a
strategic tool.

ANALYSIS

1. What is the landscape of the Chinese ride-hailing market?

Didi and Kuaidi were the two dominant players in Chinas ride-hailing market. In 2014, U.S.-based Uber
entered the Chinese market by collaborating with the search engine company Baidu, creating a triangular
market landscape.

Tencent was one of Didis major investors and business partners. In 2013, Didi accepted an investment of
US$15 million from Tencent, one of Chinas largest and most popular Internet service portals, creating a
strategic alliance between the two companies. The new relationship was a convenient way for Didi to
access the most popular social platform in China. With Tencents support, users could pay for Didis ride-
hailing service through their WeChat payment accounts.

Kuaidis major backer was Alibaba. Kuaidi was the first Chinese Internet-based ride-hailing company to
be connected to Alibabas payment platform, Alipay; and it used this connection to promote its services
among Alibabas user base, which included over 500 million registered users on Taobao and 100 million
registered users on Tmall. Taobao and Tmall were the most widely used e-commerce platforms in China.
They offered various benefits to Kuaidi users, including special discounts for those who simultaneously
held Taobao and Kuaidi memberships.

As a U.S.-based transportation network company, Uber did not have roots in China. However, it
improved its position considerably by establishing a partnership with Baidu, which invested heavily in the
deal. Uber used Baidus map navigation system in the Chinese version of its mobile application (app) to
solve a problem with its in-app Google map, which was unusable in China.

2. What are the different business models of Didi, Kuaidi, and Uber?

a) Online-to-offline (O2O) commerce: How Didi and Kuaidi built their business models on O2O.

O2O commerce enables companies to attract customers through online channels and guide those
customers to use physical stores or offline services. Both Didi and Kuaidi have adopted this business
model.

Neither firm owns vehicles or employs drivers; they simply act as the matchmaker between passengers
and drivers. They gather data about demand at the passenger end and about idle resources at the driver
end. By comparing and matching, Didi and Kuaidi connect passengers with a qualified driver. For
example, when a passenger requests a taxi ride via the Didi or Kuaidi mobile app, the request is
pushed to nearby drivers who then compete to answer the request and pick-up the passenger at the
designated Global Positioning System (GPS) location, as indicated on the app. On arrival at the
destination, the passenger pays by cash or online payment. If passengers opt for online payment, they use
the services provided by Didis or Kuaidis respective online payment partners (see Exhibit TN-1).

b) Ubers business model: How it differs from Didis and Kuaidis models.

Uber has adopted a similar business model, but with some key differences in the order distribution and
payment stages. When a passenger requests a ride via the Uber app, Uber distributes the order to a nearby
driver. The driver has 10 seconds to decide whether to accept the request. If the driver rejects the request
or fails to respond, the order is distributed to another driver. When the passenger arrives at the destination,
he or she pays the fare by pre-registered credit card or online payment. Uber passengers do not need to tip
drivers (see Exhibit TN-1).
3. What are the key competitive strategies adopted by Didi and Kuaidi

The first competitive strategy that Internet-based ride-hailing companies usually adopt is fare subsidies
paid to passengers, which requires a significant financial investment. Didi and Kuaidi were at first very
successful at using a subsidy strategy. When Didi decreased its subsidies, Kuaidi launched a new round of
subsidies and won over a large number of users. Didi fought back with even with more attractive
subsidies for its passengers. The competition intensified, eventually costing the two companies more than
1 billion each. However, the subsidy competition failed to declare either of the two companies a
winner, leaving the competitive landscape relatively unchanged.

4. How can incumbent players Didi and Kuaidi compete with Uber, the new industry entrant?

a) Didi and Kuaidi are more successful than Uber in the Chinese market.

Didi and Kuaidi have enjoyed more success than Uber for three key reasons:

1. Didi and Kuaidi are native companies with a keen understanding of Chinese customers. For Uber,
China is an unfamiliar market with cultures, customs, and industry regulations that differ from than
the U.S. market to which Uber is accustomed. For Uber, breaking through the Chinese market and
rolling out its business model is not likely to go as smoothly as it did in its home country.
2. Didi and Kuaidi promote their services on social platforms that Chinese customers are very familiar
with, such as WeChat (a service similar to WhatsApp) and Sina Weibo (a service similar to Twitter).
The use of many western apps and social platforms (e.g., Twitter, Whatsapp, and Facebook) is
forbidden in China, so Uber is not a familiar brand to Chinese customers.
3. Didi and Kuaidi started their businesses in China two years before Ubers entrance in the market.
Thus, the two businesses had an opportunity to seize a dominant position in the Internet-based ride-
hailing industry and raise their brands popularity before Ubers entry. Chinese users have become
accustomed to the services of Didi and Kuaidi.

b) Didi and Kuaid have unique advantages and disadvantages over Uber, the new market entrant.

Didi and Kuaidi have the advantage of greater concentration in the Chinese domestic market. Ubers
strength lies mainly in the global market. However, all three companies have distinct advantages and
disadvantages (see Exhibit TN-2).
 EXHIBIT TN-1: BUSINESS MODELS OF DIDI, KUAIDI, AND UBER

Business Model of Didi and Kuaidi

Or

Cash Online Payment

(Compete for the order)

(Cooperate) (Employ)
Car Rental Company

Passenger Didi or Kuaidi apps

(Cooperate) (Employ)
Taxi Company
(Compete for the order)

Or
Cash Online Payment

Business Model of Uber

Online Payment
(Assign the order)

(Employ)

Car Rental Company

Passenger

Uber app

Online Payment
(Assign the order)
 EXHIBIT TN-2: SPECIFIC ADVANTAGES AND DISADVANTAGES OF DIDI, KUAIDI, AND UBER
Didi and Kuaidi
Advantages Understanding of Chinese customers
Dominant market positions (Didi and
Kuaidi claim 56 per cent and 43 per
cent of the Chinese market,
respectively.)
Post-trip, value-added services (Users
can collect Di Coins from each trip
and exchange them for products
online at the Didi Mall.)
Disadvantages Lack of international experience and
reputation (Kuaidi has started
expanding into Hong Kong; Didi has
not commenced global expansion.)
Uber
Well-funded globally successful
operation before entering the
Chinese market (Uber also raised
$1.2 billion from Chinese investors.)
Rich experience in international
business operations; global market
leader.
Established and relatively mature
business model
Lack of understanding of Chinese
culture and institutional regulations