What Is Going On In Ridesharing?

Strategy is best understood when you take a holistic look at what is going on. It is hard to parse the complete rationale for good strategic moves in isolation. But, take a step back, zoom out and the view becomes a lot clearer. That is definitely the case when weighing moves in ride sharing these days.

News broke this week that Uber is planning on selling its South East Asia unit to rival Grab. This is similar to what they did in China with Didi. So, it seems to make sense.

But, in the spirit of stepping back, let’s take a look at the state of global ridesharing relationships.

Once you look at this, is it any surprise to hear Uber might be partnering with Grab?

Uber, Softbank, Didi, Grab are part of a web of relationships that brings together some of the biggest global ridesharing players. This is particularly important for Grab at a time when its battle with Go-Jek is intensifying in Indonesia – one of the most important South East Asian markets. Go-Jek is armed with a partnership with Waymo (Google’s autonomous car unit) thanks to its latest funding round.

Now, such battles in the ride sharing world are expensive and distracting. Why have Grab fight Uber AND Go-Jek? Especially when it is Softbank’s money at stake?

Didi is the global ride-sharing powerhouse. In an August note on cars titled “From Daimler to Didi,” I’d called out the fact that I was long Didi in the global ride-sharing game.

In the race to dominate ride sharing, Uber raised massive amounts of funding and attempted to obliterate its rivals. Didi, on the other hand, took a different approach. It first merged with its biggest rival in China, then persuaded Uber to get out of the country (in return for a 20% stake) and has since been using its war chest of funds to invest in ride sharing networks in South East Asia (Grab), the Middle East (Careem), Europe and Africa (Taxify). Didi may be creating the ultimate network of ride sharing services.

For the longest time, ride-sharing seemed to be a battle between two opposing styles personified by Travis Kalanick of Uber and Jean Liu of Didi. While Travis focused on a testosterone fueled fight, Jean Liu used her considerable deal making acumen and an almost collaborative approach to competition to sway the pendulum decisively toward Didi.

In the ride-sharing world, 2017 was as much about the self-destruction of Uber as it was abotu the rise of a dominant Didi. A newly added $9.5 Billion Dollar war chest has since been deployed to make acquisitions like 99 Taxis in Latin America, investments in bike-sharing, car-sharing and autonomous cars. Didi – without question, is the world’s foremost ride sharing superpower.

Didi has handled its rise with style and PR smarts. The firm’s PR engine has ensured all attention has been focused on Jean Liu, its popular President. Jean Liu, with her impressive deal making acumen, has also been the anti-Travis figure that ride-sharing and Didi needed. Here’s an example excerpt from a recent piece on Wired that served as both a profile about Didi’s ambitions as well as Jean Liu –

Where Uber and its US peers talk of upending established economic models, she wants Didi to be seen as a calming force. “You talk about why we’re different from Silicon Valley firms, why we don’t just talk about disruption,” she says, suggesting some tech companies are insulated from the real-world risks her drivers and passengers face. “When you order something from an e-commerce company you don’t expect to be killed or robbed, right? In this business, you do.”

“You cannot afford to be disruptive, if you haven’t thought about everything,” Liu says finally, summing up the anti-Uber philosophy that will guide her during the battles ahead. “I think the key is: be humble. And be open minded. And not to think you know everything.”

Very. Smart.

So, what lies ahead in the world of ride-sharing? I suspect the Softbank playbook would look something like –

  • Uber does indeed go ahead with selling its Asia Pacific operations to Grab.
  • Uber also sells its India unit to Ola to focus on North America and Europe.
  • Didi, on the other hand, would have plenty on its plate with China, South America (99 Taxis) and Africa (Careem, Taxify).
  • Over time, we’d see more consolidation with Didi possibly buying Grab and operating à la P&G/Unilever/Volkswagen.

As it stands right now, the main obstacle to the success of this global ridesharing happy family dream is Waymo.

Why Waymo matters – understanding the real battle. To understand why Waymo matters, we must step back further. There are two massive upcoming changes in the world of transportation –

  • Internal combustion engines to electric
  • Human driven to autonomous

While traditional car companies are focused on staying relevant in the era of the electric car, the end-game is likely going to be all about ensuring survival in the age of the autonomous vehicle. Here, it helps to take apart a useful speculative analysis by Ark Invest on the revenue per mile from autonomous cars. They predict the following –

  • 70% of revenue goes to fleet operators (e.g. Avis, taxi companies)
  • 20% of revenue goes to platform providers (e.g. Waymo, Baidu, Tesla, etc.)
  • 5% to hardware manufacturers (e.g. traditional car companies)
  • 5% to lead generators (e.g. Didi, Lyft, Uber, etc.)

However, these are just revenue projections. Traditional car companies and fleet owners stand to simply provide the commoditized hardware. The winner, in terms of profitability, is going to be provider of the software platform. With more autonomous test miles In California in 2017, Waymo is perfectly positioned to be that platform.

But, that’s assuming ride-sharing companies (and traditional car manufacturers) are content being “lead generators.” Everyone will want to move up the food chain.

This is also where ride-sharing companies are uniquely positioned to compete with Waymo/Google. Building the world’s best machine driven platform requires engineering prowess AND vasts amounts of data. Google may boast the engineering prowess but ride sharing companies possess treasure troves of data. While Google will get a taste of some of that via its partnership with Go-Jek and Lyft, it will be be tough to compete with a partnership that shares data across Didi, Careem, Taxify, Grab and Uber.

And that, to me, is the game Softbank is playing to win.

Links for additional reading

  • Uber planning to sell South East Asia unit to Grab – on CNBC
  • Waymo Go-Jek – on Reuters
  • Didi buys 99 – on Bloomberg
  • Didi raised $9.5B in 2017 – on Quartz
  • From Daimler to Didi – on Medium (prior Notes by Ada)
  • Didi’s global ambitions (part Jean Liu profile)- on Wired
  • Autonomous car revenues per mile – on Ark Invest
  • Autonomous miles in California – on The Verge