Ride-hailing pioneer Uber has shifted its focus in China towards its new carpool service, UberPool, which allows users to share rides and split the fare with other commuters.
Uber’s head of Asia operations, Allen Penn (pictured below), said last week in a presentation in Hong Kong that UberPool, which it launched less than a year ago in China, has driven a lot of its growth in the mainland.
For a business like Uber, which is founded on the idea of making cities more efficient, Penn said the carpooling service brings another layer of efficiency to a city by putting more people in cars.
One of the stated aims of the service is to help reduce the number of vehicles on the roads, cutting both congestion and pollution. More importantly for Uber, it expands the addressable audience manifold, which is key as it faces intense competition from rival Didi Chuxing, China’s most popular ride-hailing app.
Last month Didi, formerly known as Didi Kuaidi, received a $1 billion investment from Apple, the single largest investment the firm has ever received. The Chinese app claims it completes more than 11 million rides a day, serving close to 300 million users in more than 400 Chinese cities.
Obstacles to entry
The peer-to-peer model captalises on increasing urbanisation, which in China is greater than anywhere else in the world. China has 80 cities of more than five million people. “With that density you get to an interesting spot of the efficiency levels you can reach as a business,” Penn said.
The challenge of matching a request for a car going to the same direction or place at the same time has prevented carpooling from taking off around the world. Uber did a study in San Francisco that found if you wanted to go from one block in a populated neighbourhood to a block in another populated neighbourhood, you’d have to call up about 6,000 people to find someone going in the same direction at the same time.
He said China has given it the “ultimate laboratory” to develop a system that makes carpooling accessible and affordable to everybody, because of the level of efficiency offered in dense urban areas. And its focus on improving the commuter experience is not just for China, but bringing that experience to the rest of the world.
Fifteen of the 38 cities around the world where UberPool was launched are in China, where it is doing 30 million pool trips a month. Last month it introduced its carpooling app in Jakarta, capital of Indonesia, its first launch of the service in Southeast Asia. That announcement came just days after Google expanded its ride-sharing business in the US with the launch of the Waze Rider app that lets people carpool.
Uber operates in nearly 60 cities in China. As it has scaled up its business in the country, its financial outlay per trip has dropped 75-80 per cent, but apparently it’s still subsidising fares.
Penn noted that tier-two cities often have a greater need for its services than larger cities, because there are fewer subway lines, and adoption has been extremely strong. Moreover, people’s disposable income is much lower than in major cities, putting taxi services out of the reach of the vast majority of people, thus Uber’s focus on carpooling, which for consumers means rides are cheaper and more available.
Why take a taxi when you can carpool and share the cost?
While its revenue per shared ride will drop drastically, its future rests on its volumes growing exponentially.
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