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Didi Chuxing

Fewer cash subsidies after Didi-Uber merger, analysts say

Users will see increase in quality of ride-hailing services as operators compete on services provided

PUBLISHED : Tuesday, 02 August, 2016, 7:15pm
UPDATED : Tuesday, 02 August, 2016, 10:35pm

China’s ride-hailing users should expect fewer cash subsidies on their trips following Didi Chuxing’s Uber China buyout, which may result in a shift in demand from private car rides to cheaper services such as carpooling, according to analysts.

However, the quality of services provided by the overall industry will rise as a result of the consolidation of China’s two largest ride-hailing companies.

Didi announced on Monday that it will buy Uber China’s operations in the country, putting an end to a three-year battle for market share in the world’s largest ride-hailing market. Prior to the deal, both companies poured billions of dollars into cash subsidies to entice passengers and drivers to use their platform, in a bid to become China’s dominant ride-hailing operator.

“It is very likely that [Didi and Uber] will not give out subsidies as much any more, as they no longer need to fight over market share,” said Kitty Fok, managing director of research firm IDC China.

Fok added that the government’s guidelines to legalise ride-hailing apps in China, which prevent operators from offering ride services below cost and come into effect from November, will also affect the amount of cash discounts given.

“The market will adjust, as previously it was artificially propped up by subsidies. Some consumers may shift from hailing the more expensive private cars, to using cheaper carpooling services instead,” Fok said.

Sue Shu, a marketing executive at a financial technology company in Beijing who uses Didi and Uber services to hail a ride to work every morning, said that she may switch to other apps such as Yidao Yongche, Ucar and Shouqi Yueche if Didi and Uber reduces discounts for its users.

“Normally, using Uber is cheaper than Didi, but Didi offers discount coupons so I can choose between the two. I am afraid Didi will cut some of the discounts after the merger,” said Shu.

Zhang Xu, a senior analyst at Beijing-based consultancy Analysys, said that there will be a shift in the industry from competition based on cash subsidies to an increased quality of service.

“There will be an alignment of brands, data, operations and many other resources to build a more comprehensive mobility platform [when Didi buys Uber China] ... with an expansion of transport services,” Zhang said. “This will also force rival operators to innovate on their product offerings, allowing Chinese users to enjoy better quality ride-hailing services.”

Although the merger between Didi and Uber China will effectively make the combined company the largest ride-hailing operator in China, Fok believes that the Chinese market will still have room for second-tier companies such as Shenzhou’s Ucar or Yidao Yongche.

“Second-tier companies provide different types of services in a bid to differentiate themselves. For example, Ucar guarantees a faster turnaround time and provides better cars from its own fleet,” Fok said. “China’s market is so huge. There will always be chances for second-tier companies to compete.”

Associate professor Chu Junhong from the National University of Singapore’s Business School said that she expects the Didi-Uber merger to spark more consolidation in the ride-hailing industry globally as companies look to cut losses in a battle for market share.

“Many drivers and passengers use multiple apps, so the switching costs are very low. It’s hard for ride-hailing platforms to lock in users, so they have to compete head-to-head [in price],” said Chu, adding that the fierce price competition makes it hard for ride-hailing companies to turn a profit.