News broke late last night that Apple is investing in Chinese ride-hailing service Didi Chuxing to the tune of one billion dollars. I’m sure this investment will be over analyzed but there are a few high level points I think are worth making. First, it is important to note there is a fierce battle between Uber and Didi in China. As of now, Didi is beating Uber in terms of rideshare. Looking at data we have on apps, in this case, ridesharing apps used by Chinese consumers in the last month, we can see Didi has more regular users than Uber. I took the liberty to chart the latest results from Q1 2016 but also filtered the answers by iPhone users and Android users.
Statistically, Didi has the lead. From a Chinese consumer perspective, having the backing of Apple (along with Alibaba and Tencent who are also investors) can only help strengthen Didi’s position. Apple can more tightly integrate services like maps, Apple Pay, maybe even have Apple Music playing in the background (once they get the service restored) and expose 11m riders a day to more of an Apple experience. Given the Chinese consumer affinity toward Apple, I think this will only further give consumers a reason to choose Didi over Uber.
Some folks on Twitter last night were remarking this could be a competitive move against Uber — if we believe Uber will someday be an Apple competitor in autonomous cars. Fun speculation and game theory if true but the deeper thing I see happening is Apple making a statement about their investment in the Chinese economy and the continued relationship building Apple is doing with Chinese regulators and consumers. This move will be perceived very well within China and will continue to enhance Apple’s position in the country. They have the benefit of playing locally and feeling like a local vendor to Chinese consumers, even if they are a US company.
I thought it would be great, given the timeliness of this and the smart analysts we have on our team, to also have them chime in with a few thoughts on the deal.
Cook mentioned on the last earnings call that Apple was ready to make large investments and this is certainly substantial. It shows Apple’s commitment to the Chinese markets both to the consumers and the government. It is well known that China wants foreign vendors to spend money in China, not just make money. This is an excellent way for Apple to do exactly that. The ROI on the investment has a different form from a pure source of insight into Chinese consumers to a platform for Apple Pay to, further down the line, a testing ground for autonomous cars.
- It’s a great way to use some of that offshore cash that’s sitting around.
- There’s obviously a car connection, but it’s pretty tenuous. It’s not like whatever car Apple is working on could be used by Didi in China. There’s likely to be a fairly significant mismatch cost wise there.
- Apple doesn’t do corporate VC or anything like that. So this is a huge departure from their past pattern. It isn’t an acquisition – the valuation is around $25 billion at this point so this is a very small share. So they don’t benefit directly from the technology or revenue. On the other hand, if they did acquire Didi, it would be a fascinating extension of the services strategy. But again, a huge departure from Apple’s history.
- Car wise, this does give Apple new insights into driving in China, which could be useful for other things – maps, self-driving cars, etc.
- This also gets Apple deeper into China in ways that could be beneficial for leverage, for other services in China, and so on.
This clearly gives Apple deeper roots into the Chinese market and is a strategic move to expand their presence. It also helps them flesh out a more precise auto-related strategy to fine tune their own approach to enhancing Apple’s connections to cars.