The View | Here’s what the international media are misreading in Uber’s exit from China
Uber was doomed to exit from a market where it did not have monopolistic control
Uber came and saw, but didn’t quite conquer. The global ride-hailing business might grow to be as valuable as e-commerce so it is no surprise that Uber tried to monopolise it everywhere. The announcement on Monday that Uber will sell its Chinese operations to rival Didi Chuxing for a 20 per cent stake was portrayed by mainstream media as another tale of a US technology firm surrendering to Chinese government policies favouring home-grown companies.
Uber was betting that because they had raised a lot of capital and could outspend and vanquish the competition
But changes in the way tech start-ups are funded mean they can remain privately controlled for long periods rather than publicly listed. It has spawned multibillion dollar enterprises and created tempting opportunities and steep risks. Seeking that elusive global internet monopoly is like a holy grail. Eventually, market forces and wild ambitions collide with government policies.
The US$2 billion Uber spent tackling China is now worth about $7 billion in the merged entity. A higher valuation coincided with the Chinese government legalising car hailing apps last week. In a June, 2015 investor presentation, Didi estimated that the Chinese ride hailing market could be worth $50 billion annually by 2020. If Didi grows into one of China’s largest tech companies, it will be an attractive candidate for an initial public offering. Didi will also invest US$1 billion for an equity stake in Uber’s global business.
The truce effectively ends Uber’s uncertain and internecine battle to dominate ride apps in China. Uber can focus on other important markets such as India and Indonesia. And it allows them to concentrate on core technologies such as mapping data and self-driving cars.
The fund raising trail reveals the pressure on startups that are fortunate enough to be able to raise billions. In June, Didi raised more than US$7 billion comprising: US$4.5 billion from investors including US$1 billion from Apple, and US$2.8 billion in debt. The company was valued at more than US$25 billion with more than US$10 billion of cash after the funding.
That funding round was completed just two weeks after Uber attracted US$3.5 billion from Saudi Arabia’s sovereign wealth fund. Uber’s fundraising has valued it at US$62.5 billion making it the world’s most valuable start-up.