Beep, beep, Didi Taxi steers towards profit, IPO

Smartphone app has revolutionised the way mainlanders use taxis, with 100 million passengers and a million drivers registered with service

PUBLISHED : Friday, 20 June, 2014, 10:53am
UPDATED : Saturday, 21 June, 2014, 1:54am

After months of burning through cash to build market share, Didi Taxi, a Beijing-based taxi-hailing app, has massively grown its user base.

The two-year-old mobile software firm is on track to generate a profit by the end of the year.

"Beep, beep, a taxi driver is coming to pick you up!" In many Chinese cities, this voice alert can be heard from smartphones or tablets telling their owners they have successfully booked a cab using the Didi Taxi app.

Daily bookings via Didi in 180 cities exceed three million, co-founder Zhang Bo said.

Excluding the expenses on cash rebates, we have already broken even

Didi, launched in June 2012, allows passengers to make bookings, either immediate or in advance, with registered taxis. A total of 100 million passengers have Didi accounts, and one million cab drivers are registered with the firm, Zhang told the South China Morning Post.

A passenger registered with a mobile number enters a destination into the app. The request is sent to taxi drivers who have installed the app and registered their mobile number, licence number and taxi company's name. A navigation function allows the passenger to track the location of the driver who takes the booking.

To encourage drivers to accept their bookings, passengers can also offer a cash bonus using an app function or via a voice message.

While there was a huge demand for taxis in Beijing and other major mainland cities, the rapid growth of the app's user base was mainly due to Didi providing cash rebates to drivers and passengers, said Zhang, who is the firm's vice-president of product and technology.

Didi teamed up with WeChat Payment, an in-app payment service of internet giant Tencent's messaging application WeChat, in January. Users paying for taxi rides using WeChat Payment were given cash rebates on each fare of as much as 20 yuan.

Taxi drivers were given up to 10 yuan as a cash rebate for accepting a booking via Didi.

"This was a money-burning strategy, but it's important for all internet businesses to grow their scale," Zhang said.

Daily bookings peaked at more than five million, driven by the cash rebates, from just 350,000 in January, when the number of passenger accounts was 22 million and 400,000 drivers were registered.

A large user base was the key to turning Didi into a profitable company, Zhang said. Its target is to break even by year end.

"Making Didi an advertising platform is one of our directions," he said. an online grocery store, recently ran a promotion with Didi users, who could win free lychees.

"We will continue to work with more merchants. On one hand we can offer more benefits to users; on the other hand we can earn advertising revenue," Zhang said. "Currently, this part of income can cover our operating costs, so excluding the expenses on cash rebates, we have already broken even."

Rival app Kuaidi Taxi launched a similar cash rebate programme with Alibaba's payment arm Alipay, which stirred up the competition.

Their battle for market share attracted many drivers and commuters, who installed both taxi-hailing apps and became more reliant on them - to the extent that people without smartphones complained they could not get a taxi. Both companies stopped offering the initial rebates last month.

"Cash rebates are not a long-term strategy, but we think it's more effective to provide cash to users than spending money on advertising," Zhang said.

Didi has replaced its earlier rebate programme with another, called WeChat Red Pocket, which offers between one fen and 20 yuan in cash to those who use WeChat Payment. The rebate for drivers is fixed at three yuan.

"The new rebate tool will allow us to reach out to more WeChat users," Zhang said. "We are also planning more value-added services that will help generate revenue," he said.

Didi recently completed its fourth round of financing, after raising US$118 million from investors including Tencent.

"An initial public offering is our target, but before that, we have to make Didi an app that a majority of taxi drivers need to rely on," Zhang said.

"When the number of daily bookings via Didi reaches 10 million and 80 per cent of taxi drivers use this platform, I think we will be ready to launch an IPO."