KE1032

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October 31, 2017

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ALICE M. TYBOUT

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Uber China
The Marketplace
In 2015 China had 750 million urban commuters, making it the largest commuter market in
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the world, roughly five times the size of the 150 million U.S. commuter market. However, Chinese
car ownership was comparatively low, with only 69 car owners for every 1,000 people living in
mainland China versus 786 car owners for every 1,000 people in the United States in 2014. China
also had a short supply of taxis. For example, Beijing had 60,000 taxis to cover a population of 11.5
million in 2015. Taxi drivers suffered poor pay, earning even less during rush hour when heavy
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congestion left them idling in traffic instead of completing fares. As a result, taxi drivers sometimes
refused passengers traveling only short distances and elected to take their breaks during times of
peak demand (e.g., rush hour). Many urban commuters had no choice but to rely on buses, trains,
and bicycles for transportation despite dissatisfaction with the reliability, comfort, and personal
space these modes offered.

These factors made China an attractive market for new companies offering ride-sharing and
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online chauffeuring services. However, ambiguity existed around the legal status of these upstart
options. The Chinese government accused companies offering ride-sharing apps of providing
illegal taxi services, created checkpoints to fine drivers without commercial taxi licenses, and even
conducted raids of ride-share company offices, shutting them down in some cities. Nevertheless,
the government also partnered with some local ride app companies to build an integrated online
taxi-hailing service for the four major taxi companies in China.
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©2017 by the Kellogg School of Management at Northwestern University. This case was prepared by Professor Alice M.
Tybout with assistance from Broderick Lee Turner. Cases are developed solely as the basis for class discussion. Cases are
not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective management.
Some details may have been fictionalized for pedagogical purposes. To order copies or request permission to reproduce
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 Uber China KE1032

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Uber China

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Uber entered China in 2013 with a pilot program in Shanghai, the country’s largest city.
The ride-hailing app featured the UberBlack brand, the high-end service that delivered luxury
sedans for each trip. Consistent with Uber’s process in other global markets, the app assigned
drivers to requested rides using its GPS algorithms to find the closest driver. Uber also partnered

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with Baidu, China’s largest search engine, for maps and GPS and with Alipay, China’s largest
mobile payment platform. Baidu’s partnership with Uber represented one of its competitive fronts
in its effort to keep pace with the other two leading Chinese internet companies, Alibaba (Alipay’s
parent company) and Tencent.

Chinese consumers did not initially warm to UberBlack, complaining about the high price of
the service. Instead of contracting with private car owners, as Uber did in the United States, Uber

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China partnered with local car rental and chauffeur companies in an attempt to sidestep regulatory
issues, so the UberBlack rate far exceeded a typical taxi fare for similar distances. As a result, when
Uber expanded to Beijing and Shenzen, it did so with UberX, its lower-cost service that relied
on mid-size sedans. By June 2015, Uber competed in 11 of the 15 most populous cities on the
Chinese mainland, and Uber China represented the largest market for Uber outside of the United
States. Uber China logged more than 1 million rides per day in 2015.1
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To address the needs of price-sensitive consumers, Uber China dramatically reduced its prices
on UberX and introduced “People’s Uber” in October 2014. People’s Uber, a sub-brand unique to
China, was officially defined as a non-profit ride-sharing program; Uber connected passengers with
drivers but did not receive a portion of the driver’s earnings. (In contrast, Uber kept 20% of the
total fee per ride in the United States.) This structure allowed the service to operate legally when the
government cracked down on for-profit ride-sharing services. People’s Uber also helped introduce
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the Uber brand to the masses, with the hope that a portion of passengers would trade up to its
for-profit services, UberX and UberBlack. People’s Uber based its fares on the cost of owning and
operating a car, which often fell below taxi fares for comparable trips. Drivers also benefited from
the People’s Uber fare structure, as they were able to keep the total fare when driving for Uber but
had to pay licensing fees when driving a taxi.
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In its for-profit offerings, Uber China faced intense competition from local players Didi
Chuxing and Yidao, which together controlled more than 89% of the ride-hailing market in 2015.2
To compete, Uber spent more than $2 billion subsidizing rides for both drivers and passengers. For
example, one promotion paid first-time Uber users 30 yuan. Current users of Uber could receive a
10 yuan coupon up to three times a day, and drivers received a 10 yuan reward for completed rides
up to five times a day. Although this program obviously attracted both passengers and drivers, it
also led to abuse. Passengers and drivers set up fake accounts to skirt the limits on the promotion
incentives they could earn. It also initiated a brutal price war with competitors.3
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In addition to battling for customers and drivers by using price as a weapon, Uber China
diversified its services by adding green (hybrid) car services and limousine rentals. As of October
2015, Uber China had built a business valued at more than $8 billion.

2 Kellogg School of Management

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 KE1032 Uber China

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Competitors

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Didi Chuxing
In 2012, a year before Uber entered China, Didi Dache (“dache” roughly translates to “taxi

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calling” in Mandarin) was founded as a taxi-hailing app. It built a substantial customer base by
establishing relationships with the largest taxi companies in China before branching out to offer
ride shares. The company quickly became the leader in the ride-hailing market with 78.3% share
by offering aggressive subsidies to both riders and drivers and by acquiring key rivals.4 Specifically,
in February 2015, Didi completed a $6 billion partnership with its domestic rival Kuaidi Dache
to form Didi Chuxing.

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Didi Chuxing’s vision was to be the one-stop travel platform for Chinese consumers, offering an
array of sub-branded services named for their specific functions: Didi Taxi (taxi hailing), Didi Fast
Ride (sedan ride-share equivalent to UberX), Didi Chauffeur (premium car ride-share equivalent
to UberBlack), Didi Carpool, Didi Sub Driver (drivers for one’s own car when one is incapable of
driving, such as after drinking), and Didi Bus (online bus booking). To achieve this goal it built
partnerships with the three largest technology companies in China. As with Uber, Baidu provided
maps for Didi’s app, and Alipay processed the company’s payments. The third key partner was
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Tencent, China’s largest internet company, which also owned the largest social media platform
and the number one messaging service in China (WeChat). Didi users could hail cars with the
near-ubiquitous WeChat app and pay with WePay (also from within the app). Unlike Uber’s app,
which assigned drivers to passengers’ requests, Didi’s app relied on drivers to respond to passenger
requests. Drivers had the freedom to choose which ride requests to accept and which to refuse. To
entice drivers into accepting shorter, less lucrative trips, consumers could add a tip as part of the
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request. As of 2016, Didi Chuxing logged more than 10 million trips per day and boasted a value
of $36 billion.5

Yidao
A second Chinese company, Yidao, focused exclusively on its customized chauffeuring service
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and avoided competing on the basis of price. Yidao partnered with the largest car rental companies
in China with the goal of building a platform for rental companies to interface with passengers.
Unlike Didi Chuxing’s and Uber’s services, Yidao passengers submitted a request on the app, which
then returned a list of drivers who had accepted the order. Passengers then chose a driver based
on the detailed information about the driver that the app provided. As of October 2015, Yidao
covered 101 cities (24 outside of China), completed more than 40,000 daily chauffeur-driven
rides, and had over 4 million active users, with a value of about $1 billion.6
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Kellogg School of Management 3

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 Uber China KE1032

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The Sale

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On August 1, 2016, after spending more than $2 billion (13 billion Chinese yuan) of the $11
billion it had raised globally, Uber sold its Chinese operation to Didi Chuxing. Two years earlier,
Travis Kalanick, Uber’s CEO, had sought to invest in Didi, but Cheng Weng, the Beijing-based
CEO, spurned the offer. Weng predicted even then that Didi could outmaneuver Uber in China

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and even unseat it as the leading ride-share company in the world.

The sale involved a share-swap deal whereby Uber and outside investors in Uber China
received 20% of the merged company. Through Didi’s ownership stake, the deal also gave Uber an
ownership stake in Lyft, its largest U.S. competitor, and Grab Taxi, Uber’s largest rival in Singapore.
Didi committed to operating Uber China as a standalone app under the Uber brand in China.

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Post-Acquisition Reckoning
Looking back on Uber’s foray into China and its ultimate, effective exit, a few key strategic
questions remain. Could Uber have been a successful standalone company if it had adopted a
different positioning and customer acquisition strategy? What positioning and pricing strategy
should Uber China adopt now that Didi owned it?
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No
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4 Kellogg School of Management

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 KE1032 Uber China

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Endnotes

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1 Josh Horwitz, “Uber Is Logging 1 Million Daily Rides in China—As Many as the Rest of the World, Combined,”
Quartz, June 11, 2015, http://qz.com/426561/uber-is-logging-1-million-daily-rides-in-china-as-many-as-the-
rest-of-the-world-combined.
2 Xiaoke Xu, Xin (Shane) Wang, and Neil Bendle, “Uber: Managing a Ride in China,” Case #9B15A047
(Ivey Publishing, September 21, 2015).

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3 Ibid.
4 Ibid.
5 Steven Millward, “China’s Didi Now Sees 10m Daily Rides. That’s Way More Than Uber’s Global 2m,”
Tech in Asia, March 22, 2016, https://www.techinasia.com/china-didi-kuaidi-10-million-daily-rides.
6 Kane Wu, “China’s UCAR Steers for Ride-Hailing’s High End,” Wall Street Journal, August 4, 2016,
http://www.wsj.com/articles/chinas-ucar-steers-for-ride-hailings-high-end-1470312836.

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Kellogg School of Management 5

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