Abstract
Uber is a Silicon Valley-based technology company founded in 2009 by Travis Kalanick and Garrett Camp. It is famous because of its taxi-hailing app. Uber currently covers more than 900 cities in 69 countries around the world. As the world’s second-largest economy, the Chinese market is desirable to Uber. However, China’s potential market is huge, the competition is very fierce, and at the same time, it has an entirely different government and regulatory system from other countries. It is a high probability of encountering unexpected situations in the development process. In China, Uber is known by many as “the American Internet company closest to success in China.” Such a vast multinational company ended its exploration in China when Uber sold its Chinese business to Didi and ultimately withdrew from China. This article will analyze the reasons for Uber’s failure in China in chronological order and how to do better.
Elite team (2014.02-2014.07)
The meeting room at Uber’s San Francisco headquarters is called the War Room. In the past few years, Uber has launched a similar “war” to hundreds of cities worldwide: using an efficient driver-passenger matching system to subvert the inefficient urban travel experience. Despite having the most cash reserves in global startups, Travis Kalanick does not like to build a vast “ground force” every time he enters a city. He prefers to adopt what we often see in Hollywood disc games. Tactics: Recruit an “elite team” whose members have their strengths and cooperate. Uber’s “elite squad” usually has three “arms”
- city managers responsible for the formulation of overall city business strategies
- marketing managers, who are responsible for marketing and user acquisition
- operations managers who are mainly responsible for recruiting drivers
This design corresponds to Uber’s typical development strategy: the city is the operating unit, and drivers and passengers are equally important. At the same time that this tactic entered China in 2014, there are also highly autonomous Uber subsidiaries, customized services specifically for the Chinese market, and large amounts of funds.
When Uber first entered China, Uber’s recruitment standards were similar to those of ordinary foreign companies. They had an excellent educational background, usually with overseas study experience and first-class language skills; they had work experience in large companies in the technology, advertising, and fast-moving industries. Familiar with foreign company culture. But Uber’s employment strategy is quite different. It does not use a foreign supervisor as the person in charge like other large companies entering China but prefers to delegate power to local employees. In Shanghai, Guangzhou, and Shenzhen, the first Chinese cities where Uber entered, almost all city team members can speak regional dialects, understand locals’ living habits, and know which street restaurants are most popular. The headquarters also provided the Chinese market with a set of tools called “Playbooks” within Uber. Uber compiled the “Playbooks” based on Uber’s experience in “fighting” in different cities worldwide in the past five years, which can help employees who expand into new markets quickly. Understanding and growing the local market: including how to do local market research, set prices, and what channels to use for marketing.
Uber’s first online business in China is Uber Black, a high-end private car service. To establish a brand image, the first batch of drivers came from a fleet of luxury hotels, dressed in uniform, white gloves, and opened and closed doors for passengers when getting on and off. The first batch of vehicles is also high-end models of Audi, BMW, and Mercedes-Benz. Uber pays drivers daily so that these drivers can pick them up when they are free. Due to the small number of taxis, the enthusiasm of early drivers was not high. The most likely to become potential users include local European and American foreigners, foreign companies, and business travelers. But how to contact them and establish contact varies from city to city. For example, in Shanghai, some fashion events became the first practical way for the Uber China team to find users. In Guangzhou and Shenzhen, where conferences and exhibitions are more frequent, event sponsorship has become an effective way. Employee performance will also guide the combination of the two. For example, the number of sponsored events in a week, or the number of users activated during the event. Uber headquarters believes that these activities bring closer to the target population. Uber headquarters will provide sufficient funds so that local pioneers can quickly start their operations as soon as they enter the market.
Uber China’s earliest set of indicators for city teams is: each newly registered user can cost 25 US dollars, equivalent to 150 yuan in 2014, while other Chinese Internet companies spend, on average, 10-30 yuan. As long as it is within this budget, the team can freely decide what channel to use to acquire users. This high degree of freedom has become an indicator of competition among teams everywhere-how to use a smarter way to attract more users with less money. In the early brand activities in China, Uber demonstrated its high efficiency. In 2014, Uber China launched a series of "one-click get something "brand promotion activities. When a user participates in an event, he may take a cruise on the West Lake in Hangzhou, or a rickshaw in Beijing. If the user is lucky enough, he can even take a helicopter tour around Shanghai. These activities that demonstrate a unified brand tone and reflect the characteristics of the city are well received. But what many people don’t know is that one person or a few people often complete these activities from planning to execution in a few weeks or even a week.
In the process of global expansion, Uber speeds up and simplifies procedures through management flattening and transparency. Kalanick will hold a full online meeting every Monday to inform the company of the latest business and financial financing developments. Kalanick will have an online discussion every Monday to inform the company of the newest business and monetary financing products. During the meeting, employees can ask questions online or on-site, or log in to the back-end system at any time to view the video of each session. The marketing and operations manager has weekly meetings with the corresponding leaders in the Asia-Pacific region and colleagues in other cities. The city manager reports directly to Kalanick, and he will try not to interfere with the local team’s decision-making. In this regard alone, Uber has become an alternative among foreign companies that have entered China in the past few years. Employ localized elite teams, give sufficient market budgets and full autonomy within the delineated scope, and operate independently with the city as a unit. Uber is not the first company to propose these strategies, but it is one of the most thorough implementations. At this stage, Uber is powerful and energetic. When it enters this vast and complex market with one foot, it has won market opportunities and established a brand, and has a group of employees who are willing to work hard for it.
People’s Uber is here (2014.08-2015.02)
Just as Uber was trying to replicate its successful experience in the United States to China, its main rival in China, AA, and another local company, BB, were fighting fiercely. To attract more taxi drivers and passengers to become users, Didi and Kuaidi did not hesitate to carry out large amounts of cash subsidies. The intense marketing plan allowed Didi’s entire platform to reach 1.43 billion orders in 2015, and the number of users exceeded 250 million. Uber announced a global order volume of 1 billion at the end of 2015. At that time, Uber China was still under the user perception of “a company that was good at marketing,” with only a few thousand registered drivers and a small number of high-end users. Uber’s situation in China is far from the vision of Travis Kalanick when he founded Uber-changing people’s travel habits. This situation is related to the particularity of the Chinese market itself. In most Western countries, taxis are an “expensive service,” so Uber Black and UberX can provide a better alternative to taxis. In large Chinese cities such as Shanghai and Guangzhou, taxis exist as a public service, and high-end private car services represented by Uber Black are too far away from the mass market. But there is also a potentially huge market opportunity-demand from passengers and drivers at the same time. According to data from China’s traffic management department, China’s car ownership reached 172 million in 2015, of which the total number of private cars exceeded 124 million. There are 40 cities with more than 1 million car ownership, and 11 cities with more than 2 million vehicles. In these Chinese cities, private car owners may become the next Uber driver. Simultaneously, a large number of daily ride demands have not been met by public transportation in time. In August 2014, a brand new localized product, “People’s Uber,” was launched in Beijing. Private car owners who meet a certain number of years and vehicle grades can register as People’s Uber drivers; its price is slightly higher than that of taxis, but significantly lower than Uber Black, hoping to reach more users. Launching “People’s Uber” means two things at the same time.
On the one hand, it began to compete in the mass market with rivals such as Didi and Kuaidi, mainly serving taxis. On the other hand, Uber has therefore entered a Gray Area of legal policies. At that time, there was no definition of whether private cars could carry out such operating activities in Chinese law. However, industry insiders familiar with China’s national conditions believe that this kind of behavior approach will attract government supervision and suspension. To avoid potential legal risks, People’s Uber was initially packaged by Uber as a public welfare project for green travel. Almost at the same time as People’s Uber, Didi also launched a product other than taxis-Didi Private Car. Still, Didi Express, which competes with People’s Uber in price, will not go online until April 2015. When directly competing products did not appear in the eight months, Uber China did not seize this excellent opportunity to expand and occupy the market rapidly. In the first few months, when Uber entered Beijing, the average driver could only receive a few orders a week, and the passengers’ boarding locations were often 5 kilometers away. Uber maintained the driver’s enthusiasm through high subsidies for one-way trips. Regarding whether to implement People’s Uber on a large scale, Uber Chinese cities also have different opinions. At that time, the Shanghai branch had a lot of opposition, believing that introducing a more civilian Uber would obscure the established high-end image.
An expensive war (2015.03-2015.09)
After Didi Kuaidi announced the merger in February 2015, the Chinese travel market competition not only did not end but ushered in a more cruel second half. After a year of familiarization with the Chinese market, Kalanick finally decided to promote People’s Uber on a large scale. The preparations began before the Spring Festival. Throughout the Spring Festival of 2015, almost all Uber Shanghai employees did not go home. They set a goal for themselves: to make this city, where non-local residents account for more than half, keep orders from falling during the Spring Festival. It is necessary to introduce what Uber’s rival Didi did at the time. For Didi, the express service is very cautious. Didi’s strategy is to try trial operation first, and then launch the Didi platform after product operation and debugging. On April 2, 2015, the trial product was launched first and was found simultaneously in 7 cities, including Hangzhou, Shanghai, Guangzhou, Shenzhen, Degree, Wuhan, and Tianjin. Instead of connecting to Didi’s software, this arrangement tests the product and understands user feedback. After Didi adjusted everything correctly, the Didi Express officially launched on May 13. Nine days after Didi Express launch, Didi announced the launch of “Free Express for All” in 12 cities including Beijing, Tianjin, Hangzhou, Guangzhou, Shenzhen, Chengdu, Wuhan, Chongqing, Nanjing, Changsha, Dalian, and Xi’an. One month after that, All passengers inside can take the Didi Express for free every Monday.
To this end, Didi invested 1 billion yuan. According to Didi’s data, in 2015, the number of users covered by Didi Private Car (Express) accounted for as high as 88.4%. Simultaneously, in China’s private car (Express) mobile travel service industry, the average daily order volume of Didi Private Car (Express) The ratio reached 84.1%. Unlike Uber’s elite squad in China, the Didi Kuaidi team, which has already fought fiercely in the Chinese Internet travel market several times, obviously understands the local market rules and play better. The staff allocation in each city is also more abundant than Uber. There are about ten people in the express business team alone. Didi Express’s strategy to enter new cities is to radiate to all cities within the service range with the provincial capital as the core. Take the express train business in the Northeast region as an example. The person in charge of the Northeast Region will uniformly deploy the strategies of Heilongjiang, Jilin, and other capital cities, directly report back to the express train business’s general manager. The city team will be responsible for the specific implementation. Such an architectural setting allowed Didi Express to expand rapidly to multiple cities successfully.
A long and expensive battle between Didi Express and People’s Uber began. In the past five years, Kalanick has been experiencing such fighting with different opponents in different markets. His way to win is also straightforward: get more financing faster than competitors, and then occupy the market at a lower price. To win, he can even do whatever it takes. For example, he will go to potential investors of competitors and tell them that he will raise an enormous sum of money to fight back to scare investors away if he invests in competitors. Uber’s financing capabilities will indeed make most competitors fearful. In the past two years, it has received more than $10 billion in the financing, which is even more than the IPO valuation of most technology companies. After completing a new round of US$1.2 billion in funding in June 2015, Kalanick said at the shareholder exchange meeting that Uber would invest US$1 billion in the Chinese market. But this time, Kalanick encountered a stronger opponent-with a financing ability not weaker than his own. On the third day after Uber announced the completion of a US$1.2 billion financing, Didi also announced a new round of US$3 billion financings. After the completion of this financing, Didi has nearly US$4 billion in cash reserves. When announcing the recent financing news, Didi Kuaidi also officially changed its name to Didi Chuxing.
At that time, Didi, which already included various businesses such as taxis, unique cars, express cars, ride-hailing, and driving services, had been indeed “platformed” in terms of name and product categories. The advantage of this is that users can Open the app to directly choose the fastest or cheapest service, which brought many orders to the express service at that time. At that time, to encourage express trains, Didi sometimes even reminded passengers who took taxis to charge extra so that users could switch to cheaper express train products. Or let the passengers see that the distance between themselves and the cab is farther than the actual distance, so the passengers cancel the cab and choose the closer express train and other products. This method directly led to the complaints from nearly 100 drivers at the Didi headquarters at the end of 2015. Subsequently, the person in charge of Didi’s taxi business operation said that there are improvements in technology, but there is no unfair behavior to taxi drivers. After the two parties invested billions of dollars each, the market structure has not changed much. Although, in terms of specific market share, the two sides hold different opinions. Kalanick said at the Baidu World Conference in September 2015 that People’s Uber’s market share has risen from 1% to 35%, while Didi said that it has 80% of the private car market. After a year of the war, Didi occupied most of the market share, while Uber succeeded in gaining the remaining part. For this, both companies paid a high price.
Late changes (2015.10-2016.07)
In addition to the pressure of Didi, Uber China’s internal management problems began to erupt intensively. Starting in mid-2015, a group of employees who joined Uber China first began to leave. The earliest cities, such as Guangzhou, also experienced collective resignations of core employees. In the initial stage of Uber’s entry into China, the flat management approach allowed city managers to thoroughly and efficiently expand the local market. But over time, this approach has also brought about a lack of smooth career promotion channels. Many employees who resigned at this stage believed that the long subsidy war prevented Uber China from setting aside enough energy to do those cool brand activities in the early days, which turned into a very mechanized competition, leading to the resignation of employees. In April 2015, Uber China carried out a significant adjustment of its organizational structure. Uber appointed Liu Zhen as Uber China’s head of strategy, and at the same time, began to establish a “regional” system above the city, and regional managers directly reported to Kalanick. Better serve the local market. Various changes are in response to the problems exposed by Uber China in its rapid expansion. But, in the leadership of Uber China, except for a few regional managers from China, everyone else has a minimal understanding of the Chinese market. The “side effects” of the rapid replication of the “elite squad” model in each city began to appear. For example, city managers will give priority to their interests, making cooperation and linkage between different cities extremely difficult, and it is challenging to expand activities. Separate city management can easily lead to duplication of work, such as all organizing the same activities or analysis the same competitor. The bigger problem is at the overall level. Inability to mobilize national resources, it isn’t easy to co-promote brands, negotiate with partners, and deal with the relationship between the government and the media.
Under various adverse circumstances, Uber China’s performance has been soaring. In May 2015, Chengdu squeezed out New York for the first time and became the city with the highest number of Uber orders in the world. At most, three of Uber’s top five cities in the world are from China, this makes Kalanick have greater expectations for this market, and he continues to show an offensive attitude. In September 2015, he announced at the Baidu World Conference that Uber would enter 100 new Chinese cities in the next 12 months. Establishing a good relationship with the government and regulators was Uber’s top priority at the time. In October 2015, Uber China, as Uber’s first overseas branch, was also incorporated in Shanghai. The new company promises to locate the server in China and look forward to listing in China in the future. Simultaneously, as an investor and strategic partner, Baidu will also help Uber establish a more positive relationship with regulators. But Baidu is different from Google abroad. The help it can provide to Uber in China is far less than that offered by Google overseas.
Moreover, the cooperation established was too late, and Didi started more fierce financing. After completing a US$3 billion funding in 2015, Didi raised another US$1 billion in February 2016; in June, it completed another US$4.5 billion equity financing, with new investors even including Apple. In addition to the Chinese market, Uber will also begin to respond to Didi’s attacks in overseas markets simultaneously. To expand into the international market at the end of 2015, Didi formed alliances with American taxi-hailing software Lyft, Southeast Asian taxi-hailing software Grab, and Indian taxi-hailing software Ola through investment. After completing the cross-border connection with Lyft, Didi officially launched its overseas business in April 2016. Didi, who is proficient in the Chinese market, has also implemented a more user-friendly design in its products. For example, to make payment more convenient, Didi introduced a password-free payment function. Support the service of car-hailing; the launch of Didi Mall, users can use the points earned by taxis to buy goods.
In contrast, Uber has been in China for several years, and its localization of product functions has been minimal. Uber’s applications often fail to connect. It does not have a local technical and product team, and everything needs to be feedback to the headquarters. The absence of a local technical center makes all technical problems unable to be resolved in time. Although many Uber employees insist that email responses are more efficient than call centers, this format is unacceptable to Chinese users. In the early days, to avoid regulators and drivers’ complaints, Uber kept its offices were secret in China. In many ways, Uber is more involved in the Chinese market than other multinational companies and, therefore, goes further. However, it has also missed some market opportunities and has not made timely adjustments to this market’s particularity. It has not done enough to manage the local team, deal with the relationship between the media and regulators, and improve the product and user experience. Uber did not maintain sufficient preparation in this competition and chose to retreat under investors’ dual pressure and the market.
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