Opinion | The One Number That Matters for Uber China

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Didi Kuaidi poses the greatest threat to Uber, with 20 times more staff and avoiding confrontation with State-owned taxi companies. Photo: EPA

Published: 11:30am, 28 Sep 2015Updated: 11:37am, 28 Sep 2015

There are a lot of numbers about Uber China right now.

Uber China has raised $1.2B. Competitor Didi $3B.
Uber is in +10 cities and going to 100(?). Didi is in 300, but mostly for taxi hailing.
Uber China has 1M daily rides. Didi has 5M. Although these last two numbers are pretty questionable.

But the crucial number for Uber China is 4,000. That is Didi’s headcount today, which is way above Uber's reported 200 staff in China. And while the current fight is for drivers, rides and capital, this war will ultimately be won in quantity of brainpower.

Here’s my argument.

Chinese transportation apps began as a fight for taxi-hailing. That was the only big market in China at that time. And going for taxi-hailing avoided a confrontation with the State-owned taxi companies. Kuaidi and Didi won that round (and then merged). Uber sat it out. Although, I have argued Uber can still get into this market through partnerships with local governments.

The second round has been about getting a critical mass in private ride sharing (people using their own cars). Private rides are the truly massive opportunity in China but this is still in a grey area legally (lots of offices being raided and drivers being arrested). Private rides are disruptive to the State-owned taxi companies, so this is perilous. But both companies are now going after this regardless.

The key in Round 2 is to get to a critical mass in drivers and riders in each city. At a certain critical mass / volume, your costs and wait time per ride drop and it becomes difficult for new competitors to enter. The market consolidates and the leaders are protected by what economists call two-sided network economics (think credit cards and app stores).

Both Didi and Uber China are both now going for critical mass, mostly by raising capital and using it to subsidize rides. They are buying volume. Hence, their much discussed $1.2B and $3B capital raises and the large losses they have been taking. Uber is behind but they have the cash to get to critical mass in quite a few cities.

And this brings us to Round 3 and the fight for quantity of brainpower.