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Can Didi return to its glory days after the relaunch of its carpooling service?

Didi never expected to go through tough times before two young women were killed by Hitch drivers in three months.

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China’s largest ride-hailing platform Didi Chuxing, backed by SoftBank, Tencent, and Alibaba, once expanded quickly and gained the largest market share in China after beating both global ride-hailing giant Uber and a forceful local competitor Kuaidi.

However, gaining the monopoly status in China didn’t really warrant a break for the company. The company later on ran into a series of missteps, one concerning its carpooling services Didi Hitch, which got innocent female riders killed, KrASIA reported last year.

The company eventually suspended the service late last year under social backlash and governmental pressure.

After halting the business, one of the few revenue generators for the company,  for a whole year, Didi Chuxing announced on November 6 in a press release that it would begin a trial relaunch of Hitch in seven major Chinese cities including Harbin, Taiyuan, Shijiazhuang, Changzhou, Shenyang, Beijing, and Nantong, and that the service will resume at the end of November. The trial run will allow trips under 50 kilometers in metro areas between 5 am and 8 pm for women, and 5 am and 11 pm for men. The new rule quickly sparked discussions in China as the new rule was considered discrimination against women.

Less than 24 hours after the announcement, Didi Chuxing president Liu Qing apologized on her personal Weibo for the discriminatory rule. She said that the updated Hitch is unfriendly to women in terms of functionality, but that restrictions are in place for the sake of safety. She also welcomed feedback from the platform’s users.

Didi then trimmed Hitch’s operational hours for men to 8 pm each night as well. The company also said it considered extending Hitch’s service hours for women to 11 pm as well, thought it eventually abandoned the idea due to passenger safety.

Shifting the focus to safety

Didi was in bad shape after it was linked to two rape and murders within three months back in 2018, both of which were committed by its Hitch car-pooling drivers. The company apologized for its “disappointing mistakes” and decided to suspend the Hitch service. Two executives were also removed from their positions, one in charge of Hitch and the other in charge of customer service.

Shortly after the incidents, regulators including the Ministry of Transport started on-site supervision on Didi’s safety issues. An in-house joint inspection group formed by ten departments including the Ministry of Transport, started investigating eight major players in the ride-hailing business including Didi for problems concerning passenger safety last September.

The inspectors found several safety risks in the Hitch service, including the risks of leaking passenger private information and illegal operations of the ride-hailing service. The Ministry of Transport urged Didi to halt the Hitch service until it addressed safety hazards, 36Kr reported.

Didi has shifted its focus to enhancing passenger safety on multiple fronts ever since the criminal cases, and it is reported to have invested a total of RMB 2 billion (USD 290.6 million) on safety-related work in 2019.

During the whole year when Didi’s hitchhiking platform was offline, the service had experienced several revamps and optimized 226 functions, Didi’s head of hitchhiking business Zhang Rui told 36Kr.

Didi said that Hitch had undergone a comprehensive safety review and product revamp, adding that the redesigned service now features an improved order distribution system and response processes, as well as more rigorous verification for drivers and passengers.

The “nearby orders” function has been removed, and drivers can only receive orders from locations they visit regularly. Also, Didi removed all private and sensitive information of passengers such as personalized profile photo, gender, and comments on the passenger’s appearance. The new Hitch interface will only display information relevant to the ride such as whether the passenger arrives on time, or whether he/she is polite to drivers.

The company has improved the response processes to customer calls regarding safety by setting up a separate hotline for emergency calls that bypasses the other service hotlines. Didi said it had safety experts who can intervene on-site if the situation escalates to a certain point. It is also improving the collaboration process with the police in criminal investigations.

The artificial intelligence-powered in-app experience and surveillance in the cars were also renewed. Facial recognition will be applied to the whole process while a passenger is using the app, including registering, placing orders, assignment of a driver and during passenger pickups. In addition, Didi has started to use videos to collect data regarding driver identity to prevent drivers from using fake IDs for registration.

The competitive hitchhiking market

Didi had prioritized Hitch as the service was said to be the only operation raking in profits for the company before the murders took place. Local media outlet Jiemian reported that the total revenue for Hitch in 2017 was about RMB 2 billion (USD 284.2 million) with a net profit of RMB 900 million (USD 128.1 million).

Didi’s Hitch once had its golden age when it was first released in 2015 and expanded to 11 cities in less than a month after its launch. The number surged to 137 cities one month later. The daily ride number for Hitch had reached about 2 million, accounting for 10% of Didi’s total orders, before the business was forced to shut down after the incidents.

The online ride-hailing market in China has grown steadily from 2015 to 2018, with an annual compound growth rate of 50%, according to Chinese data consultancy firm Analysys. Hitchhiking was ranked as the third-largest business sector in the ride-hailing market, with a market size of RMB 48.6 billion (USD 6.9 billion).

While Didi’s Hitch was on hiatus, other players started to make a foray into this battlefield, trying to grab a slice of this growing pie.

Dida Chuxing, which started in 2014 as a car-pooling service and was less well-known when Didi was dominating the business, said it turned profitable in September after winning over many former Hitch drivers. The company claimed to have 130 million users and over 15 million drivers registered on the platform by the end of September.

Internet behemoths have joined the competition. Back by Alibaba’s financial arm Ant Financial, Hello Chuxing launched its own hitchhiking business in more than 300 cities in China in February. Its total order volume had reached over 18 million as of July.

Acquired by Alibaba in 2014, China’s online mapping service AutoNavi started to offer car-pooling services in March 2018, which was also suspended after the Didi incidents. As one of the biggest rivals to Didi, AutoNavi relaunched the service in June, first piloting in the city of Wuhan and Guangdong Province.

What’s more, traditional carmakers have also stepped in. One example is Caocao Chuxing, backed by Chinese automaker Geely. It officially rolled out its hitchhiking services in September, and hired owners of Geely cars to become drivers. Caocao’s services have expanded to over 20 cities including Beijing, Shanghai, Guangzhou, and Shenzhen.

A tough path to travel

Didi was reportedly planning an IPO even before the murders. However, it still has a long way to go even if Hitch runs smoothly after the relaunch, as it also faces other internal and external difficulties.

Leaked financial data showed that the company generated losses of up to RMB 10.9 billion (USD 1.5 billion) in the 2018 financial year. Its founder and CEO Cheng Wei also admitted that the company suffered from an RMB 4.04 billion (USD 574 million) loss in the first half of 2018. Of all its expenses, Didi spent a total of RMB 11.3 billion (USD 1.6 billion) on subsidies and incentives to attract qualified drivers.

The company had laid off more than 2,000 employees at the beginning of this year, which led to a 15% decrease in its workforce. Didi claimed that the dismissals were part of a normal restructuring as the company reshuffles its corporate structure to provide a “safer” experience for users. The layoff targets employees in divisions that are considered to be “non-core businesses” or those who were rated as under-performing in the year-end evaluation.

Didi is also facing problems from regulators as it has failed to remove unqualified vehicles from the platform. The Shanghai Municipal Transportation Commission said Didi enabled its car drivers to register their cars outside Shanghai and dispatched ride-hailing orders to them while they were in Shanghai to pick up passengers. Didi was fined 100 times, which added up to a total of RMB 10 million (USD 1.4 million) since early July.

While the Chinese ride-hailing company is defending its dominant market share in China and seeking IPO opportunities, other international ride-hailing companies such as Uber and Lyft are also suffering from losses in market capitalization after listing in the US.

Uber was listed on the New York Stock Exchange in May with an estimated value of USD 82.4 billion. However, the company’s market capitalization almost halved to USD 46.1 billion as of November 20. Its latest financial results show a net loss of USD 7.4 billion in the first three quarters of 2019. Lyft, the main US competitor for Uber, also had a decrease of over 50% in market capitalization to USD 13.1 billion. The company had an estimated value of USD 24 billion when it was listed on the Nasdaq in March.

36Kr is KrASIA’s parent company.