Uber’s China deal: Sorry surrender or savvy sale?

Uber’s China surrender doesn’t mean the company will win every other battle in every other country.

In China, Uber apparently decided that Didi’s national advantage was insurmountable – leaving the Chinese company, in which Uber will now be an investor, with a national monopoly on ride-hailing.

Uber, for example, was purportedly losing about $1 billion a year in China. They pushed the company to cut its losses in China.

“The near-monopoly of Didi on the Chinese market is not a good message for customers, as prices might rise”, explained Jost Wubbeke, head of the program for economy and technology at the Mercator Institute of China Studies in Berlin. Among those closely watching Didi’s acquisition is Grab, the Southeast Asia ride-hailing startup that competes with Uber in countries including Singapore and Vietnam.

Uber’s business model relies on being the first entrant to a market, then rapidly developing its size and scale so that the competitors that follow are disadvantaged to the point of a forced exit. Given the sheer fight that Uber was in nearly from the beginning-rival Didi Chuxing reportedly put nearly as much effort into getting riders as Uber did, and Uber reportedly spent “tens of millions of dollars every month”, according to the New York Times-it may simply be that Uber wanted to refocus its efforts elsewhere.

China is poised to introduce new ride-hailing regulations that will give an edge to the player with the largest user base. Uber now has a global workforce of 8,000 employees. The company is already operating in the region but faces competition from the local ride company, Ola. Uber was losing more than $1 billion a year to compete in China – money it can now spend in other markets, Carlson said. Business experts are asking how long companies can sustain the model of making deliberately making losses in the hope of future gains or drawing new investors. He cited the fact that Expedia gave up on the Chinese market after trying to develop a toehold for 10 years because it was the last entrant in the market. Similarly, UberChina’s other major stakeholder, Baidu Inc (NASDAQ:BIDU), will receive a 2.3% stake in Didi Chuxing. No timeline for Uber’s public debut yet, but it’s sure to make a splash if and when it happens.

The merger has turned around the ride industry.

“Do you still see BMWs and Mercedes when you order Uber cars?”

“I used to have about 20 transactions each day, ever since these ride-hailing apps came out, I only have about 15 businesses daily, even if I use Didi Chuxing”, said Gao Fujun, taxi driver, Beijing Beiqi Taxi Group. Lyft is now looking at the deal and will evaluate its partnership with Didi in the coming weeks. It’s possible that Chinese anti-trust regulators will have something to say about this, but this quote from Bloomberg’s story about the deal makes me suspect they won’t.

Uber will become the largest shareholder in Didi Chuxing after the merger.Travis Kalanick will join Didi’s board, while Didi founder Cheng Wei will join Uber’s board as part of the deal.