PART 2 UBER CHINA KILLER:
Advertisement
In late 2013, Kalanick and a team of Uber executives toured China to size up prospective partners and rivals. They visited Didi's offices. Cheng kicked things off by telling Kalanick, "You are my inspiration," after which the mood became tense. Emil Michael, Uber's senior vice president for business, remembers what may have been some psychological warfare: "They served us maybe the worst lunch I've ever eaten," he says. "We were all just poking at our food, wondering, Is this some kind of competitive tactic?" (It wasn't. Liu, Didi's president, later apologized to Michael for the food.)
At one point during the meeting, Cheng walked over to a whiteboard and drew two lines. Uber's line started in 2010 and went up sharply and to the right, depicting its rapidly rising ride volume. Didi's started two years later, in 2012, but had a steeper curve and intersected Uber's line. Cheng said Didi would one day overtake Uber, because China's market was so much larger and many of its cities restrict the use and ownership of private cars as a way to manage traffic and pollution. "Travis just smiled," Cheng recalls.
Kalanick raised the possibility of Uber investing in Didi, but he demanded a 40 percent stake, Cheng says. "Why would I take it?" he replies, when asked if he considered the offer. Uber's executives were impressed. Kalanick, Michael says, "told me that among all the ride sharing founders, Cheng Wei was special. He was just a massive cut above anyone else in the industry." Uber and Didi were going to have to settle the matter in the market.
By the beginning of 2015 it seemed that Uber had an insurmountable advantage. It had a better app, powered by more stable technology. Investors valued it at $42 billion, about 10 times Didi's valuation at the time. While Didi was consumed with its merger with Kuaidi, Uber was catching up: It controlled almost a third of the private car-hailing market in China within a few months. "At that time we felt like the People's Liberation Army, with basic rifles, and we were bombed by airplanes and missiles," Cheng says. "They had some really advanced weapons."
Cheng is a student of military history, particularly such heroic events as the battle of Song Shan during World War II, when Chinese nationalist troops tunneled under a mountain to surround the invading Japanese army. Cheng held morning meetings with his senior staff, which he called the Wolf Totem. The name, based on a popular novel set during the Cultural Revolution about urban students sent to live in Inner Mongolia, connotes aggression. The Wolf Totem studied Didi's daily results and adjusted the amount of subsidies given to drivers and riders. Cheng would regularly warn employees, "If we fail we will die."In May 2015, Cheng went on the offensive. Didi said it would give away 1 billion yuan in rides. Uber matched it. Cheng and his advisers searched for ways to fight the American company on its home turf. Uber, they reasoned, was like an octopus-its tentacles were everywhere in the world, but its mantle was in the U.S. Wang, the early investor and former board member, suggested at a meeting that Didi "stab Uber right in its belly."Wang says Didi contemplated expanding into the U.S. Instead, in September 2015, itinvested $100 million in Uber's American rival, Lyft. According to Wang, it was less about undermining Uber than about gaining negotiating leverage. "The purpose of them grabbing a lock of our hair and us grabbing their beard isn't really to kill the other person," he says. "Everyone is just trying to win a right to negotiate in the future."
It was widely suggested in press accounts that the Chinese government helped Didi in its battle against Uber. Cheng rejects that, noting that as the largest ride-hailing company, Didi had to shoulder most of the regulatory burden and paid tens of millions of yuan to cover driver traffic citations and other fines. He also points out that state-connected companies such as Guangzhou Automobile Industry Group and China Life invested in either Uber or its China operations.
At the peak of hostilities, Didi and Uber were each burning through more than a billion dollars a year, giving unprofitable subsidies to drivers and riders. Both companies were desperate for new capital. Apple invested $1 billion in Didi in May 2016. A month later, Uber raised $3.5 billion from Saudi Arabia's Public Investment Fund. The message to both sides became clear: They were going to have to wage this destructive money-losing battle for a very long time.
Cheng says the initial call for peace came from Uber; Michael from Uber contends that the Saudi money forced Didi to the table-the investment suggested there was simply no end to the capital Uber could tap. Regardless, both sides agreed it was time to stop the bloodletting and focus on building their businesses. "It was like an arms race," Cheng says. "Uber was fundraising, we were also fundraising. But in my heart I knew our money needed to be put into a more valuable field. This was why we were able to join hands with Uber in the end."Michael and Liu hammered out the deal terms in two weeks and then met Kalanick and Cheng at a hotel bar in Beijing to raise glasses of baijiu, a traditional Chinese spirit made from sorghum. Over drinks, the CEOs spoke of mutual respect and their admiration at how hard both sides had competed. "We are the craziest companies of our times," Cheng says. "But deep in our heart we are logical. We know this revolution is a technology revolution, and we are just witnessing the very beginning."
 He genuinely seems to admire Kalanick-to a point. "His alcohol tolerance is just so-so," Cheng says, smiling.
"On the global market, we will also have competition. We hope that this competition won't be as malicious"
Didi now has about 5,000 employees, about a quarter of them in a collection of prefabricated five-story buildings on the periphery of Beijing's Zhongguancun technology district. IBM and Lenovo have campuses nearby. Adorning the walls are pictures of a smiling cartoon taxicab, the company's mascot. In the main building, a slide no one seems to use connects the fourth and fifth floors. Legions of young engineers hunker over their PC screens. One engineer wears an Uber T-shirt. "Surreal," says a PR person, who still can't get over seeing the former enemy's logo on Didi property.
Uber and Didi each have one seat on each other's board-without voting rights-and, Cheng says, "will also learn from each other." The deal hasn't closed yet; China's Commerce Ministry is still examining the merger. But Chinese legal experts say the odds are slim that the antitrust agency will nix such a high-profile deal involving a well-connected national corporate champion. There are no restrictions on the two companies competing with each other in other countries. "On the global market, we will also have competition," Cheng says. "We hope that this competition won't be as malicious."
The steep discounts of the past two years have come to an end, which means fares are going up and payouts to drivers are going down as the company attempts to become profitable and establish favorable numbers for an initial public offering. "The industry is slowly getting into a more rational state," Cheng says.
Drivers and riders in Beijing have noticed, and their complaints mirror the grumbling about ride hailing in other parts of the world. The private cars "are more expensive to use than a taxi now," says Christina Chen, an internet company employee who was taking a crowded Uber carpool in Beijing, with three other passengers, in late September.
Her driver, Sun Can, worked in construction before driving but says these days, with fewer special bonuses and incentives for drivers, he often prefers to just stay at home. "Who wants to be on the road when you are not making money?" he asks.
Cheng is already thinking about replacing his drivers. Didi is hunting in Silicon Valley for data scientists to develop a self-driving car, which will put it in competition with companies such as Google, Baidu, Tesla, General Motors, and, of course, Uber. He's also held conversations with Gansha Wu, the former director of Intel Labs in China and founder of a Beijing-based driverless car startup called UiSee Technology, which is developing road-scanning systems for autonomous cars. "We share the same vision that driverless cars can do wonderful things for society," Wu says.
For Cheng, this is what constitutes peacetime. The Wolf Totem is no more. He and his wife of four years are expecting a baby, their first. And that chart he drew a few years ago for Kalanick? Cheng says that when the total amount of money spent on rides on Didi and Uber China is combined, it will exceed the total spent on Uber rides around the world. The prediction he made to Kalanick has come true, and he believes it's a turning point for his country: "This means China will become the leading country in the world for the sharing economy."
Advertisement
In late 2013, Kalanick and a team of Uber executives toured China to size up prospective partners and rivals. They visited Didi's offices. Cheng kicked things off by telling Kalanick, "You are my inspiration," after which the mood became tense. Emil Michael, Uber's senior vice president for business, remembers what may have been some psychological warfare: "They served us maybe the worst lunch I've ever eaten," he says. "We were all just poking at our food, wondering, Is this some kind of competitive tactic?" (It wasn't. Liu, Didi's president, later apologized to Michael for the food.)
At one point during the meeting, Cheng walked over to a whiteboard and drew two lines. Uber's line started in 2010 and went up sharply and to the right, depicting its rapidly rising ride volume. Didi's started two years later, in 2012, but had a steeper curve and intersected Uber's line. Cheng said Didi would one day overtake Uber, because China's market was so much larger and many of its cities restrict the use and ownership of private cars as a way to manage traffic and pollution. "Travis just smiled," Cheng recalls.
Kalanick raised the possibility of Uber investing in Didi, but he demanded a 40 percent stake, Cheng says. "Why would I take it?" he replies, when asked if he considered the offer. Uber's executives were impressed. Kalanick, Michael says, "told me that among all the ride sharing founders, Cheng Wei was special. He was just a massive cut above anyone else in the industry." Uber and Didi were going to have to settle the matter in the market.
By the beginning of 2015 it seemed that Uber had an insurmountable advantage. It had a better app, powered by more stable technology. Investors valued it at $42 billion, about 10 times Didi's valuation at the time. While Didi was consumed with its merger with Kuaidi, Uber was catching up: It controlled almost a third of the private car-hailing market in China within a few months. "At that time we felt like the People's Liberation Army, with basic rifles, and we were bombed by airplanes and missiles," Cheng says. "They had some really advanced weapons."
Cheng is a student of military history, particularly such heroic events as the battle of Song Shan during World War II, when Chinese nationalist troops tunneled under a mountain to surround the invading Japanese army. Cheng held morning meetings with his senior staff, which he called the Wolf Totem. The name, based on a popular novel set during the Cultural Revolution about urban students sent to live in Inner Mongolia, connotes aggression. The Wolf Totem studied Didi's daily results and adjusted the amount of subsidies given to drivers and riders. Cheng would regularly warn employees, "If we fail we will die."In May 2015, Cheng went on the offensive. Didi said it would give away 1 billion yuan in rides. Uber matched it. Cheng and his advisers searched for ways to fight the American company on its home turf. Uber, they reasoned, was like an octopus-its tentacles were everywhere in the world, but its mantle was in the U.S. Wang, the early investor and former board member, suggested at a meeting that Didi "stab Uber right in its belly."Wang says Didi contemplated expanding into the U.S. Instead, in September 2015, itinvested $100 million in Uber's American rival, Lyft. According to Wang, it was less about undermining Uber than about gaining negotiating leverage. "The purpose of them grabbing a lock of our hair and us grabbing their beard isn't really to kill the other person," he says. "Everyone is just trying to win a right to negotiate in the future."
It was widely suggested in press accounts that the Chinese government helped Didi in its battle against Uber. Cheng rejects that, noting that as the largest ride-hailing company, Didi had to shoulder most of the regulatory burden and paid tens of millions of yuan to cover driver traffic citations and other fines. He also points out that state-connected companies such as Guangzhou Automobile Industry Group and China Life invested in either Uber or its China operations.
At the peak of hostilities, Didi and Uber were each burning through more than a billion dollars a year, giving unprofitable subsidies to drivers and riders. Both companies were desperate for new capital. Apple invested $1 billion in Didi in May 2016. A month later, Uber raised $3.5 billion from Saudi Arabia's Public Investment Fund. The message to both sides became clear: They were going to have to wage this destructive money-losing battle for a very long time.
Cheng says the initial call for peace came from Uber; Michael from Uber contends that the Saudi money forced Didi to the table-the investment suggested there was simply no end to the capital Uber could tap. Regardless, both sides agreed it was time to stop the bloodletting and focus on building their businesses. "It was like an arms race," Cheng says. "Uber was fundraising, we were also fundraising. But in my heart I knew our money needed to be put into a more valuable field. This was why we were able to join hands with Uber in the end."Michael and Liu hammered out the deal terms in two weeks and then met Kalanick and Cheng at a hotel bar in Beijing to raise glasses of baijiu, a traditional Chinese spirit made from sorghum. Over drinks, the CEOs spoke of mutual respect and their admiration at how hard both sides had competed. "We are the craziest companies of our times," Cheng says. "But deep in our heart we are logical. We know this revolution is a technology revolution, and we are just witnessing the very beginning."
 He genuinely seems to admire Kalanick-to a point. "His alcohol tolerance is just so-so," Cheng says, smiling.
"On the global market, we will also have competition. We hope that this competition won't be as malicious"
Didi now has about 5,000 employees, about a quarter of them in a collection of prefabricated five-story buildings on the periphery of Beijing's Zhongguancun technology district. IBM and Lenovo have campuses nearby. Adorning the walls are pictures of a smiling cartoon taxicab, the company's mascot. In the main building, a slide no one seems to use connects the fourth and fifth floors. Legions of young engineers hunker over their PC screens. One engineer wears an Uber T-shirt. "Surreal," says a PR person, who still can't get over seeing the former enemy's logo on Didi property.
Uber and Didi each have one seat on each other's board-without voting rights-and, Cheng says, "will also learn from each other." The deal hasn't closed yet; China's Commerce Ministry is still examining the merger. But Chinese legal experts say the odds are slim that the antitrust agency will nix such a high-profile deal involving a well-connected national corporate champion. There are no restrictions on the two companies competing with each other in other countries. "On the global market, we will also have competition," Cheng says. "We hope that this competition won't be as malicious."
The steep discounts of the past two years have come to an end, which means fares are going up and payouts to drivers are going down as the company attempts to become profitable and establish favorable numbers for an initial public offering. "The industry is slowly getting into a more rational state," Cheng says.
Drivers and riders in Beijing have noticed, and their complaints mirror the grumbling about ride hailing in other parts of the world. The private cars "are more expensive to use than a taxi now," says Christina Chen, an internet company employee who was taking a crowded Uber carpool in Beijing, with three other passengers, in late September.
Her driver, Sun Can, worked in construction before driving but says these days, with fewer special bonuses and incentives for drivers, he often prefers to just stay at home. "Who wants to be on the road when you are not making money?" he asks.
Cheng is already thinking about replacing his drivers. Didi is hunting in Silicon Valley for data scientists to develop a self-driving car, which will put it in competition with companies such as Google, Baidu, Tesla, General Motors, and, of course, Uber. He's also held conversations with Gansha Wu, the former director of Intel Labs in China and founder of a Beijing-based driverless car startup called UiSee Technology, which is developing road-scanning systems for autonomous cars. "We share the same vision that driverless cars can do wonderful things for society," Wu says.
For Cheng, this is what constitutes peacetime. The Wolf Totem is no more. He and his wife of four years are expecting a baby, their first. And that chart he drew a few years ago for Kalanick? Cheng says that when the total amount of money spent on rides on Didi and Uber China is combined, it will exceed the total spent on Uber rides around the world. The prediction he made to Kalanick has come true, and he believes it's a turning point for his country: "This means China will become the leading country in the world for the sharing economy."
