Author(s): Raghu Gopal
Last week, Apple announced an investment of $1 billion in Chinese ride-hailing service Didi Chuxing, a move that Apple chief executive Tim Cook said would help the company better understand the critical Chinese market. This investment makes Apple a strategic partner, joining other Didi Chuxing investors including Alibaba and Tencent (see Alibaba Expands Its Uber Partnership).
Didi Chuxing, formerly known as Didi Kuaidi, and Uber have become rancorous rivals in the Chinese ride-sharing market during the past few years. Though Uber is one of the largest private companies in the world — its last funding round valued the company at $65 billion — Didi Chuxing currently dominates the market in China. It had previously raised several billion dollars of funding, which put its valuation at about $25 billion. The company says that it completes more than 11 million rides per day and has more than 87 percent of the market for private car-hailing in China, with services covering more than 400 Chinese cities. The market statistics are difficult to ascertain; Uber claims to have 30 percent of the Chinese ride-hailing business, and other smaller players would dilute Didi Chuxing's declaration further. But CCS Insight believes that Didi Chuxing has a solid lead over its competitors.
Despite Didi Chuxing's dominance, Uber is still a threat. It hasn't just disrupted the taxi market: it disrupts ride-sharing competitors in many international markets. In December 2015, we wrote about the coalition formed to counter Uber's rise. Four of Uber's biggest rivals — Didi Chuxing, GrabTaxi, Lyft and Ola — formed a partnership in order to create some sort of market balance (see The Anti-Uber Alliance). Didi Chuxing is also an investor in Ola, its equivalent in the rapidly developing Indian market.
Apple's investment in Didi Chuxing doesn't just provide it with money, but also more market clout. China has become Apple's second-largest market after the US, and though iPhone sales have declined during recent quarters, Apple's brand is still uniquely revered among Chinese consumers. However, it has come across some problems among regulatory agencies in China, which shut down its online book and film services. By aligning itself with Didi Chuxing and, by extension, the Chinese government, Apple should regain some of its footing with regulators. Partial ownership of Didi Chuxing will also allow it to better understand the country and its consumers, and potentially give it an easier way into the same position in India.
These are some of the pragmatic motivations behind Apple's investment. And there's also the straightforward issue of making a return on equity. Apple is cash rich and faces slowing sales: although Apple isn't a venture capitalist firm, it needs to do something with its money.
But Apple's stake in Didi Chuxing has enhanced existing speculation about Apple's plans to enter the market for autonomous cars with its rumoured Project Titan. It's tempting to over-examine Apple's every move, even ones which, for most companies, would be considered mundane.
There's certainly validity to the point that access to China would give Apple autonomous automobile exposure to a very large audience. But this is a highly regulated industry and one that's not particularly profitable. Shifting from a high-margin business to a low-margin one doesn't fit Apple's modus operandi. There's no doubt that a market for autonomous vehicles is developing and Apple has an interest. We expect the investment in Didi Chuxing to provide Apple with its place in the transportation landscape without getting into automobile manufacturing.