Uber just lost the China war – and 7 other thoughts on Didi’s spectacular buy-out

Today’s bombshell that Didi Chuxing is acquiring Uber’s China business has a lot of implications. The news, confirmed moments ago by Beijing-based Didi, could cause these seven things to happen next.

1. End of the cash-burning bonanza

Both Didi and Uber’s China unit raised billions of dollars in venture capital funding, with a big chunk of it thrown into subsidies for drivers and passengers as part of the war between the two services.

Didi’s app.

“The subsidies provided by some companies are a short-term move to grab market shares and posed unfair competition to the traditional taxi industry,” said China’s transport minister Yang Chuantang at a briefing in March. “In the long run, [they] will harm the healthy and sustainable development of the market.”

Now part of the same company, the cash subsidies for Chinese riders within the Didi and Uber apps can end. That makes the business more sustainable – and there’ll be more of a push to get the merged company to turn a profit.

It’s going to be a repeat of the genesis of Didi as it is today. Back in February 2015, Didi Dache (as it was called before) merged with arch-rival app Kuaidi Dache. That ended the brutal undercutting on prices that was going on between the two apps.

2. Let’s be honest, Uber lost the war

This is being painted as a “merger,” but let’s be brutally honest – it’s a war that Uber lost. Uber got its ass kicked in China. Uber is now making a tactical retreat in a super tough market.

There’s no shame in fighting hard and having to compromise.

Travis Kalanick speaks at TED2016 – Dream, February 15-19, 2016. Photo: Bret Hartman / TED.

Uber’s China subsidiary, set up in October with a US$1 billion fillip from Uber HQ, raised an undisclosed series A followed by US$2 billion series B. It’s unclear how much money Uber itself put into the China market since the Californian startup debuted in the country in August 2013, but Uber boss Travis Kalanick said in February that “we’re losing over US$1 billion a year in China” due to the fierce battle with Didi.

3. …But it’s a nice pay-out for Uber

Indeed, Uber’s reversing out of China comes with a tidy pay-out. The merged company is worth US$35 billion, says Bloomberg citing its sources familiar with the deal, with Uber China investors getting a 20 percent cut of it.

Not including whatever Uber put into all those subsidies in China over the years, it’s made a quick profit on the Chinese subsidiary.

4. It’s bad news for China’s consumers

People not au fait with China’s tech market often presume that it’s one where people get little choice, but the opposite is actually true – it’s actually a far more dynamic market than the US and in most other countries. Whereas Google dominates the US, people in China pick between three popular search engines, and where YouTube or Netflix are the only shows in town Stateside, China’s netizens hop across about a dozen alternatives.

5. The anti-Uber alliance may be weakened

6. Next step could be Didi going global – to battle Uber

7. Didi is now quids in

8. Another one bites the dust