One of tech’s fiercest rivalries is ending. Uber, the biggest ride-hailing company in the world, is set to merge its business in China with Didi Chuxing, the homegrown ride-hailing favorite in the world’s most populous country, according to multiple reports.
More specifically, Didi will buy Uber China, Uber’s Chinese branch, acquiring all its operations. Uber will exit the country, though Uber will continue to oversee its own app. After the merger, Didi will be worth $35 billion, a significant lift in valuation even after the financial boost it got when Apple agreed to invest $1 billion back in May. (It’s unclear for now how Apple’s investment in Didi fits into the larger deal.) Meanwhile, Uber China investors will get a 20 percent stake in Didi Chuxing. News of the deal was first reported by Bloomberg on Sunday night.
“As an entrepreneur, I’ve learned that being successful is about listening to your head as well as following your heart,” Uber CEO Travis Kalanick reportedly wrote in a blog post explaining the merger. “Uber and Didi Chuxing are investing billions of dollars in China and both have yet to turn a profit there.”
The move also brings to an end the often ferocious spending competition between Didi and Uber in China, as each raced to gain a share of the world’s biggest market. Both companies reportedly spent in the tens of millions of dollars every month to attract more riders and drivers onto their platforms. With about 750 million potential riders—roughly twice the total population of the US—China represents the world’s most lucrative market for ride-hailing. And that market is only expected to grow as hundreds of millions of Chinese enter the middle class over the next decade. Even as the second-place competitor, Uber’s top 10 cities by ride volume were all in China.
But Didi remained far ahead in the ride-hailing race. The company said it was operating in more than 400 Chinese cities as of January, and analysts estimate that it had captured 87 percent of the private ride-hailing market.
So far, no US tech company has successfully figured out how to unseat its Chinese counterpart.
Because of strict regulations, it’s not unusual to see many of Silicon Valley’s top companies mirrored by a tech counterpart in China: Baidu instead of Google, Weibo instead of Twitter, Xiaomi instead of Apple. Uber is unique in that it is one of the only large US tech companies to have truly tried to muscle its way into the country even when homegrown alternatives already existed. (Back in 2013, when Uber began testing its service in China, it faced two competitors, Didi Dache and Kuaidi Dache, China’s top taxi hailing-apps. By February 2015, these two services had merged in a $6 billion deal, putting Uber firmly in second place.) Still, after the Chinese government effectively legalized ride-hailing last week, Uber seemed to have a legitimate path forward.
Now, it seems, Uber is essentially admitting defeat—at least, operations-wise—a first for a proud company that has staked its brand to defying resistance in any new city where it seeks to operate. Yes, this deal will halt Uber’s monetary losses in China while still allowing it to keep a financial stake in the country. And for now, Uber still has a much higher valuation on paper than Didi—$62.5 billion. And this may be entirely justified: Kalanick told The Financial Times in June that it was profitable in its all its developed markets, including North America and Europe. This merger, Uber may well be thinking, could be the necessary concession on its path to total global ride-hailing domination. (Uber and Didi didn’t immediately respond to request for comment.)
Still, this is the first battle Uber has truly lost. And it shows that at least so far, no US tech company has successfully figured out how to unseat its Chinese counterpart in China, no matter how hard it was willing to try—or how much it was willing to spend. But that’s all between Uber and Didi now. To those who enjoy startup carnage, the news may have been a bit of a letdown. The ride-hailing wars in China had promised to be a spectacular show. Now that’s all ended; and not with a bang, but a boring merger—which in hindsight, at least in the world of business, is exactly what everyone should have expected.