A look at what will happen next in the world economies
Monday, June 13, 2016
Apple Invests $1 Billion in Didi, Uber’s Rival in China
Now this makes the ecosystem wars interesting. Aivars Lode
Investment in Didi Chuxing comes as tech giant’s global fortunes are flagging
By Rick Carew and Daisuke Wakabayashi
Apple Inc. is betting $1 billion on China’s homegrown competitor to Uber Technologies Inc., marking the technology giant’s largest investment in a critical market at a time when its global fortunes are flagging.
The investment in Didi Chuxing Technology Co., announced late Thursday in California, came on the day that Apple briefly ceded its spot as the world’s most valuable company to Google parent Alphabet Inc., a lingering effect of a quarterly earnings announcement that spooked investors about Apple’s future. Among the worrying signs from its earnings report last month were indications of slowing sales in China where Apple had been posting booming sales.
Didi Chuxing—which investors are valuing at over $25 billion, making it one of China’s most valuable startups—is locked in a fierce battle with UberChina to attract riders and investors in China’s ride-share market.
Apple declined to elaborate on the motivation for the deal. However, the company has been working on building an autonomous electric vehicle with a team of more than 1,000 employees. Other ride-sharing services have shown an interest in autonomous vehicles. Uber has a large team of employees working on autonomous vehicle technology, while General Motors and Lyft are planning to start testing a fleet of self-driving taxis within a year.
The investment in Didi is an unusual one for Apple, which tends to prefer to buy small startups outright and absorb their technology into its product pipeline. This is the largest investment for Apple since it acquired headphones and streaming music serviceBeats Electronics for $3 billion in 2014, a deal that helped the company launch its Apple Music service. It is also unusual for Apple to participate in a fund-raising round for a startup.
The $1 billion investment barely makes a dent in the company’s cash holdings of $233 billion.
The investment could encourage the adoption of its Apple Pay and other services in China, although the announcement didn’t elaborate on cooperation plans between the two sides.
As its second-largest market for iPhones, China is a key market for Apple. Apple Pay was launched in China in February, and it is vying against China’s leading mobile payment services from Internet giants Alibaba Group Holding Ltd. and Tencent Holdings Ltd.
But Apple has come up against some regulatory challenges in China. Apple’s online book and movie services were suspended by Chinese regulators in the country last month, as the country cracks down on online media, according to people familiar with the discussions. There has so far been no resolution.
Apple sales to Greater China, which the company designates to include Taiwan and Hong Kong, rose 84% in the past fiscal year ended September 2015, as sales of its larger-screen iPhone surged. But as the Chinese economy started to slow, Apple’s sales in the country also took a hit. In the quarter ended March, Apple said sales to the region fell 26% from a year earlier.
Apple Chief Executive Tim Cook, who has worked hard to build strong relationships in China with regular trips to the country, last month said he was more optimistic about the country’s economy. China may not provide the huge growth that it once did, Mr. Cook said, but “it’s a lot more stable than what I think is the common view of it.”
Recently, Mr. Cook has also said that Apple won’t be afraid to use its balance sheet to its advantage at a time when asset values are declining, especially among start-ups which are starting to face challenges in fund-raising.
Didi is part of the country’s boom of Internet service apps racing to build scale through subsidies. Its expansion has been fueled mainly by investments from Internet giants and investment firms so far. It is new for a maker of highly profitable hardware to invest in the sector.
“Didi exemplifies the innovation taking place in the iOS developer community in China,” said Mr. Cook in a statement. “We are extremely impressed by the business they’ve built and their excellent leadership team, and we look forward to supporting them as they grow.”
The deal came together quickly. Didi President Jean Liu said she met with Mr. Cook in Cupertino, Calif., on April 20 and hammered out the agreement in the weeks since.
“We are very confident we will benefit each other on product, on technology and on many other levels,” Ms. Liu said on a call with reporters Friday.
She declined to give further details or confirm if Apple Pay or autonomous cars will be areas of collaboration.
For Didi, the deal—which is its single largest investment so far—is a coup that adds Apple to its roster of investors that already include the two largest Internet companies in China: e-commerce giant Alibaba Group Holding Ltd. and social-and-gaming company Tencent Holdings Ltd. The two Chinese Internet giants had supported rival taxi-hailing services that merged to form Didi.
In China’s fast-growing market for ride-sharing, both Didi and UberChina are providing huge subsidies to drivers and riders to sign up for their services.
While many global startups including some in Silicon Valley have had difficulty raising money amid a slowdown in the global economy, Didi has been an exception. Its valuation has soared from just $6 billion in February 2015 when it was formed from the combination of two competing taxi-hailing companies. Investors are betting that the company will be able to eventually turn a profit after attracting more Chinese riders to its service.
Didi dominates the country’s taxi-hailing market, and has a larger share than UberChina in the private-car-hailing segment, though the two companies disagree on the exact figures. Didi has expanded its private-car services to compete more directly against Uber, while adding other services such as buses and chauffeurs who drive customers’ own vehicles. As of January, Didi was operating in more than 400 cities in China. UberChina, which operates in more than 45 cities currently in China, aims to expand to 100 cities in China by the end of this year.