As an emerging business model in share economy, ride-hailing services in China has long been dominated by DiDi. As the market grows, other IT giants and Auto brands participate the war on market share. Will the monopoly of Didi be terminated as capitals and unicorns join the wild game?

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Meituan Dianping, one of the most valuable private tech firms in Asia, is gearing up to challenge the monopoly of ride hailing giant Didi Chuxing, a move almost certain to trigger a new price war.

Unicorn Meituan Swore the ‘Warrior’s Oath’

Beijing-based Meituan, known as the Chinese Yelp for its O2O business model offering services from restaurant reviews, food delivery, movie ticketing and travel bookings, is expected to launch a national expansion of its ride-hailing business after debuting the service in Nanjing city last December, according to a Meituan source.

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The source confirmed that the company will soon launch ride-hailing services in at least five cities including Beijing, Shanghai and Xiamen in South China’s Fujian province.“A warrior’s oath has been sworn at internal meetings,” said the source, referring to a motivational technique to spur employees to battle it out for the ride hailing market.

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Didi, which counts tech giants Apple, Alibaba Group Holding and Tencent Holdings among its biggest shareholders, has been the dominant player in China’s ride-hailing market after acquiring Uber’s China operation in 2016. Didi and Uber engaged in a destructive price war for dominance in China, with billions of yuan invested to buy loyalty from riders and drivers, effectively giving consumers free rides to win market share.

“Didi and Uber splurged money to cultivate user habits, and by coming to the market late we can save this cost,” the Meituan source said. “As Didi begins to profit by charging a higher commission from drivers, we stand to gain public favour.”

Meituan raised US$4.1 billion(AU$5.82 billion) in its latest funding round in October, providing a war chest for future investment in existing businesses and new business development. The company’s private valuation of US$30 billion (AU$42.60 billion) puts it behind Uber, Didi Chuxing and Xiaomi, and ahead of Airbnb, as the world’s fourth most valuable start-up unicorn, according to venture capital research firm CB Insights.

With a strong player such as Meituan joining the nationwide ride-hailing market, a new price war is inevitable, said Zhao Xiang, an analyst at Beijing-based consultancy Analysys.“As a late mover in the market Meituan will need to invest money to make its name in the ride-hailing business, especially given DiDi well-established position in China,” she said.

Meituan is reportedly offering drivers low commission fees and high bonuses to switch them to its app, and incentives to lure consumers are set to follow, according to Zhao.

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Didi is not afraid of the competition, according to its chief executive Cheng Wei. “Didi has withstood the fiercest competition in history, from Kuaidi to Uber. We have competed countless rivals,” said Cheng. “Meituan may not be the weakest, but it may not be the strongest either”.—edited from Meng Jing, Sarah Dai, South China Morning Post

To respond the challenge from Meituan, Didi adjusts its combat strategy from domination to alliance, which is set to embrace its minor competitors in order to stifle the major one.

Invest in Competitors to Expand Strategic Alliance

Didi Chuxing has invested an undisclosed amount in OnTime, a new ride-hailing service provider backed by Tencent Holdings, in a move that widens its strategic alliances as competition in the domestic market.

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Apart from the direct investment, it also announced that deal as part of an agreement with Guangzhou Automobile Group Co (GAC Group) to expand their partnership into areas such as ride-hailing operations, fleet management, autonomous driving and other smart vehicle-related technologies, according to a joint statement from both parties. “Didi is committed to building an open, inclusive, mutually beneficial mobility ecosystem,” said company founder and chief executive Cheng Wei in the statement.

OnTime, which also counts GAC Group and Guangzhou Public Transport as investors, was set to launch its service later this month in Guangzhou, the capital and most populous city in the southern coastal province of Guangdong.

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As an investor in OnTime, Didi said it will provide its expertise to support the new ride-hailing player in areas such as technology development, transaction strategy, and customer service and response mechanisms.

Didi had opened its platform to smaller rivals in May, under a pilot programme in Chengdu, capital of Sichuan province in southwest China, where users can also choose to hail a ride dispatched by Miaozou, a mobility unit under online travel platform Tongcheng-Elong.

Zeng Qinghong, chairman of GAC Group, said in the statement that the company’s expanded partnership with Didi represents the broader industry trend of “progressive integration” between the automotive industry and new hi-tech players.

Meanwhile, an increasing number of car-makers have also been piling into the ride-hailing market. Last month, electric vehicle start-up Xpeng Motors launched a mobility service in Guangzhou. BMW announced last November that it had secured a ride hailing permit for Chengdu, making it the first global car-maker to gain such access in China. A ride-hailing platform backed by state-owned car-maker Shanghai Automotive Industry Corp also started similar trial operations in Shanghai last year.

Although Didi has an estimated market penetration of 88 per cent in China’s ride-hailing sector, the company revealed in April that it was still losing money on many trips. Didi pocketed about 19 per cent of each fare in China on average in the three months ended December 31, while its overall cost per journey was about 21 per cent.

The disclosure was made after privately-held Didi moved to enhance transparency in the wake of two passenger deaths last year and amid greater regulatory scrutiny.edited from Sarah Dai, South China Morning Post

Apart from the financial collaboration, Didi opens up also its very technology and user bases to lure the car marker to use its services instead of their own ones.

Welcoming its Competitors to Its app, 

Didi is welcoming three major Chinese car makers to its platform, at the risk of helping develop its own future rivals.

Didi announced on July 15 that passengers will soon be able to order services provided by newcomers to the ride-share industry, including Guangzhou Automobile Group (GAC), First Automobile Works Group (FAW), and Dongfeng Motor (DFM) on Didi app. The services are expected to be available by the last quarter of the year.

Didi said opening up its platform would help “automotive partners build capacities for connected vehicle operations.” That’s coming both from internet giants like Tencent-backed delivery app Meituan Dianping and Alibaba-backed mapping service Gaode, as well as from traditional car makers that have launched ride-hailing services as car sales decline.

Meituan’s daily ride orders are at about half a million and Gaode picks up around 700,000 daily rides, compared to DiDi 24 million rides per day, according to Sohu news. 

Again, the bold move could also put Didi at risk by allowing car-makers to grow their own ride-sharing services with DiDi user base and drivers.—edited by Echo Huang, QUARTZ

DiDi may not has another choice, facing the challenge of world’s fourth biggest unicorn, the private company is at its toughest battle fighting countless newcomers and listed players. The moment DiDi opens its app, it opens the growth potential in domestic and overseas markets, but also made itself vulnerable in the race of user data, which it leads for now.

Edited by Joreal Qian