Why Uber China Sold to Didi

Didi and Uber’s fierce competition to dominate the growing on-demand transportation market in China culminated in one of the most significant deals of the year: Uber sold its China operations to Didi. At first glance, Uber’s swan song in China is another example of a US tech company’s failure to break into China. However, if we take a closer look at Uber’s performance in China, barriers or not, Uber China was a solid competitor to Didi and the move to sell was a sound business decision.

To better understand Uber’s decision to sell, we leveraged our unique insight into international ride-sharing via 7Park Data’s App Intelligence powered by our geographically detailed 50 million user panel in China.

As a local company, Didi enjoys a number of competitive advantages over Uber: language, payments and promotions by the wildly popular social networking app WeChat, etc. Having amassed a user base that is 4-5 times the size of the Uber’s audience, Didi has established itself as the market leader in China. By July 2016 Didi had captured at least 80% of the weekly active users (WAUs) share in most markets across the country.

Chart showing weekly active users of Didi and Uber in July 2016.

In terms of growth in WAUs, Uber was growing faster than Didi in many local markets (albeit from a lower base), but failed to make material gains in share.

Chart showing weekly active users of Uber and Didi in Chinese cities during the week of July 16, 2016.

On a market by market basis, on-demand transportation is winner take all (or most). Once Uber realized they were unlikely to outgrow, outraise, and outspend their local competitor, a merger made rational business sense.

Chart showing weekly active users of Uber and Didi in Beijing from April to July 2016.

In a bigger scheme of things, a winner-take-all dynamic highlights Uber’s challenge in winning markets where a native company has distinct advantages. How will Uber compete with Ola in India and Grab in Southeast Asia? Does the deal in China set a precedent for other local on-demand transportation apps? Well, for one thing, each of these markets is unique, with different user behavior and local business milieu.

Are we likely to see further consolidation in other international ride-sharing markets? This certainly seems possibleIs the deal a pathway to Uber’s IPO? Sound business decisions are always welcomed by shareholders, investors, and analysts alike.

As both Uber and Didi reshuffle their operations and charge forward with a new direction, we will see the full significance of the deal and its long-term consequences for Uber later.

Stay tuned for future posts on the competitive dynamics of ride-sharing. Until then, you can assess Uber’s user behavior in China and beyond with 7Park Data’s App Intelligence. Request 7Park Data’s App Data Intelligence dashboard demo and start your own research.

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