Why Uber’s tactical retreat in China is a brilliant plan B

Image uses photo from Pixabay.

The dust has settled, and news of the merger between UberChina and Didi Chuxing has sunk in. We spilled plenty of ink about how Uber may have lost in China.

Now it’s time to look at the flipside. There are reasons to believe the deal was more of a tactical retreat that could ultimately help Uber win the war.

Of course, Uber would like to beat Didi Chuxing, becoming the number one or at least a strong number two ride-hailing app in China.

But it soon became apparent that as both UberChina and Didi battled each other for dominance, the use of subsidies and discounts would cause both companies to bleed badly and possibly run out of funds. Uber had also suffered executional problems that were difficult to reverse.

At this point, Didi, which rivals Uber in funding and is completely focused on China, could’ve simply kept the discounts going and let UberChina bleed to death. Didi could then become the undisputed victor in the country.

Keeping your enemies closer

But the fact that Uber was able to get Didi – who, by the way, is part of an anti-Uber alliance consisting of Grab, Ola, and Lyft – to the negotiating table and hammer out this deal meant it had an ace up its sleeves. Or that Didi wasn’t doing as well as it claimed to be.

Anyway, not only has Uber avoided total defeat, it managed to claim a stake in a combined entity that could grow multiple times more valuable, now that it has a monopoly over China and has plenty of room for expansion.

Uber’s exit from China also means that its bottom line will look a ton better, which augurs well for either an initial public offering or gives it the ability to stay private for much longer.

Its global war with Didi is far from over, judging by how Didi could be angling for Asian dominance with a new US$600 million investment in Grab.

But Uber lives to fight another day.