The dust on China’s once bloodily contested ride-hailing sector has long settled after Didi Chuxing acquired two of its largest competitors—Kuaidi and Uber China—and then solidified its market leader position in 2016. Since then, Didi has been driving largely unchallenged in the country until it steered its way onto the US bourse Nasdaq in June in a move that opened up Pandora’s box for the company.
Following its US listing, the Cybersecurity Administration of China launched a probe into its data collection and usage practices over national security concerns, suspended user registration for the Didi app, and ordered the Didi app’s removal, alongside more than twenty other apps developed by the company, from app stores.
All that déjà vu
Didi’s unexpected IPO fiasco, unexpectedly, kicked up the long-settled dust.
In the six years from 2016 to 2021, despite Didi’s domination, small players were still sprouting up. According to data from China’s Ministry of Transport, as of June 2021, there are a total of 236 ride-hailing platforms that have obtained permits to operate in the country, with around 3.5 million ride-hailing driver licenses issued and another 1.3 million issued for vehicles.
However, none of these platforms have managed to grow to a scale that would cause Didi to worry.
According to its recently filed prospectus, Didi has around 377 million annual active users and 13 million annual active drivers and provides 25 million rides a day in China. At the same time, Shouqi Yueche, Caocao Chuxing, and T3 Go, three of the largest alternative ride-hailing platforms, have up to tens of millions of active users, respectively, while a majority of smaller players only have hundreds of thousands of users.
Now, with the ordered removal of Didi from local app stores, these platforms see a rare chance for them to flank the market leader for the first time since 2016, and they wasted no time in doing so.
In the same week that CAC investigated Didi, more than a dozen small and medium-sized ride-hailers started splashing subsidies to lure Didi customers and dangling incentives to woo drivers—both were common practices adopted by the first batch of ride-hailers in China to compete for their domination. It’s like the old days have come back.
T3 Go is one of the most hard-hitting Didi bashers these days. It recently announced on Weibo, China’s version of Twitter, that it has entered more than 20 cities in China and will eventually expand into 48, covering all major Chinese metropolises. The company also spoke about “going all out” next month, as it believed that the opportunity window would only be open for 40 days. It began implementing its 007 work regime (working around the clock throughout the month), targeting to expand into 15 more cities this month and increasing daily rides to more than 1 million, according to information leaked on Maimai, a professional social networking service.
In addition, Meituan and a bevy of other players have also been advertising aggressively to lure customers.
“Ride-hailing has strong market demand. With Didi’s removal from app stores, some users will migrate to other platforms. Its rivals will also mount an attack for market share,” an industry analyst pointed out.
The Didi alternatives, including T3 Go and Caocao Chuxing, have seen their downloads spike in the past few weeks, per data tracked by app intelligence service Qimai. Gaode’s daily orders, after the subsidy boosters, have now grown to 4 million from around 2.3 million before.
In their uphill battles with Didi, luring customers was the most basic tactic. Whether these platforms can successfully take the industry leader by surprise hinges more on whether they can woo Didi’s 13 million annual active divers. At the end of the day, ride-hailing platforms are all about matching drivers and riders.
Beijing-based market researcher Analysys International pointed out in a report that the success rate of ride-hailing is only 75%, meaning there is still 25% of unmet demand. Whatever company has the capacity to meet that demand will get more orders and, thus, more market share.
The Matthew effect is apparent in China’s highly concentrated ride-hailing market, with Didi controlling much of the market’s transportation capacity. In some places, Didi owns over 90% of that capacity with an overwhelmingly dominating position.
“However, the situation has changed. No one wants to put all the eggs in the same basket. The drivers are willing to give the alternative platforms a try, which is a great opportunity for them to expand their mobility capacity,” an industry insider told Shenran.
Meituan is now recruiting drivers in over 34 cities, including Shanghai, Beijing, Nanjing, Huizhou, Quanzhou, among other major cities. It announced limited-time incentives, including taking fewer commissions, to try onboarding drivers. The high commission Didi levies has put Didi and its drivers in a love-hate relationship.
Gaode, meanwhile, also announced a conditioned “summer commission-free” campaign, signing up more than 100 third-party ride-hailing platforms.
Drivers started to take notice and began to receive calls from these platforms, such as Meituan, which has been calling to poach ride-hailing drivers with generous incentives. Some drivers started to use Meituan Taxi in parallel with Didi.
The removal of Didi barely impacts its incumbent users. Some users interviewed by local media Shenran said they didn’t feel anything (of the impact) and will “keep using it when needed.”
“The ride-hailing sector is rather established at this point; building a user base is less of a concern (for the whole industry in general). It’s become commonplace to hail rides from apps, with Didi being the preferred choice. Now, some users would turn to aggregator services, like Gaode,” Zhuang Zhiqiang, CEO of Xiehua Chuxing, told Shenran in an interview.
Both Gaode and Meituan integrate various third-party ride-hailers on their apps for an aggregator model. And thanks to their strengths in their respective areas, both apps enjoy a huge influx of user traffic every day that could be re-directed towards their ride-hailing features. Other services like T3 Go and Shouqi Yueche, on the other hand, are backed by a larger corporation.
With Didi’s downfall, these platforms have another shot at the market, despite a limited window.
“It all depends on how long the rectification process will last. If it’s just one or two weeks, then the market isn’t likely to see significant changes. If the process drags on, then they might have a chance to grab a bigger piece of the pie from Didi,” an analyst told Shenran.
Zhuang is more optimistic; he estimated that “20–30% of the market will be redistributed (among smaller players).”
But he also pointed out that offering subsidies to get users is only viable at the dawn of the industry. Now that the market has matured, burning more money won’t add more new users.
Furthermore, customer loyalty isn’t particularly great in the ride-hailing sector. Some users told Shenran that they made the switch to other apps because they offer subsidies.
User acquisition through subsidies is expensive, and a big platform like Meituan might be able to do it for a while, but ultimately, it is not sustainable.
“Compliance, operational efficiency, the supply chain is the core (of the competition),” according to Zhuang, who believes that ride-hailing platforms need very strong integration and refined management. “(Ride-hailing) is an industry that relies heavily on management refinement. You can’t count on extorting the drivers or increasing your prices. You should leverage better management of your transport capacity, provide excellent customer service, etc., to improve efficiency and lower your costs.”
Regulation and compliance are the two main concerns that no one can run away from. And compliance means considerable costs. As such, platforms need to find a balance between cost control and excellent service. They will have to wade through all the difficulties that Didi has trekked through before, knowing full well that there is no shortcut to success.
This piece originally appeared in Shenran, and was written by Zhou Jifeng.