Taxi hailing app phenomenon Uber gave into shareholder pressure and merged its loss-making Chinese business with local rival Didi Chuxing, as it separately invested $500 million in a global mapping project.
The merger pulls together Didi’s car hailing business, valued at $28 billion, and Uber China, worth an estimated $7 billion.
Uber Technologies of the US receives a 5.89 per cent stake in Didi as a result of the deal, although it will acquire economic interests equivalent to 17.7 per cent with another 2.3 percent interest going to Uber China shareholders, including Baidu.
The move is perceived as an admission of defeat for Uber, whose shareholders had grown wary of an expensive battle in China with rival Didi. Sources told Bloomberg that Uber had lost more than $2 billion in the country, gaining small market share. However, until recently, the firm was still bullish about its prospects in China.
“This is a clear signal that despite its marketing message, Uber is the weaker player in China and was suffering from being a foreign company competing with a local champion,” noted analyst Richard Windsor.
Windsor also pointed out that Didi will invest $1 billion in Uber at a valuation of $68 billion.
The analyst claims the deal “makes complete sense” as both companies are “haemorraging money because they are offering discounted rides to millions of customers to try and win them over.”
As they become one company, argued Windsor, there will be only one go-to place to hail a car via a smartphone for both passengers and drivers. “Hence, there will no longer be any need for discounts to win share and the result is very likely to be higher fares going forward,” he predicted.
Uber CEO comments
“As an entrepreneur, I’ve learned that being successful is about listening to your head as well as following your heart,” said Uber CEO Travis Kalanick in a blog that was leaked before its official publication.
“Uber and Didi Chuxing are investing billions of dollars in China and both companies have yet to turn a profit there. Getting to profitability is the only way to build a sustainable business that can best serve Chinese riders, drivers and cities over the long term.”
Mapping out Uber’s future
Separately, the US firm will invest $500 million in a global mapping initiative, according to the Financial Times. The project is already running in the US and Mexico and will move onto other countries.
The report follows a blog by Brian McClendon, Uber’s VP of Advanced Technologies, in which he wrote: “Last year we put mapping cars on the road in the United States. This summer they hit the road in Mexico. Our efforts are similar to what other companies including Apple and TomTom are already doing around the world.”
The initiative will also lessen Uber’s dependence on another potential rival, Google (McClendon is a former head of the search giant’s mapping unit). The two are working on rival technologies for driverless cars, so using Google Maps less makes sense.
Also, Uber wants to develop bespoke maps that are particularly suited to its own requirements, such as traffic patterns and pickup and dropoff locations.
The investment follows Uber’s previous attempts to build mapping expertise through acquisition. It was in the running when Nokia sold off HERE, the Finnish firm’s mapping business, but lost out to a consortium of German carmakers. Audi, BMW and Mercedes-manufacturer Daimler paid $2.8 billion to acquire HERE.
Uber was more successful in acquiring mapping assets in June last year from Microsoft. It bought part of the business that dealt with imagery acquisition and map data analysis and processing, taking on 100 Microsoft employees.