China Ecosystem – All is fair in love and war

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Fight over taxis shows how the Chinese ecosystem war will be fought.

• Since the merger of Didi Dache and Kuaidi Dache, (Didi Kuaidi) the Chinese online taxi hailing market has been a two horse race.
• Furthermore, the degree to which these services are already being used is a strong indication of how important the Chinese market is in this segment.
• Although Didi Kuaidi now controls 78% of the market, Chinese cities account for 5 out of 10 of Uber’s busiest cities globally when considering bookings made.
• This strongly demonstrates how important the Chinese market already is and why almost every digital company in the world wants a piece of it.
• However, it is pretty clear that the Chinese clearly would prefer the Chinese market to consist of Chinese services provided by Chinese companies for Chinese users.
• With around 900m smartphone users by the end of the next year, the Chinese market is easily big enough to be completely self-contained with no real foreign presence.
• The one exception is Apple and although the Chinese are trying to replicate its success through Xiaomi or LeTV, Apple’s popularity in China is yet to take a hit.
• The opposite is true for Digital Life services.
• Here, Chinese companies have successfully reproduced everything that has been successful elsewhere.
• They have also added localisation making them more appealing to the domestic users.
• Furthermore, the decks are further stacked against foreign companies as they often depend to some degree on local companies to reach users.
• Uber is no exception as it has been relying heavily on Tencent’s WeChat’s to offer its service to 600m users.
• WeChat started as a chat app. but is now used to access a whole range of services including taxis.
• Since the creation of Didi Kuaidi, Uber’s access to WeChat has been curtailed via a series of policy violations and technical glitches meaning that Uber is now effectively blocked from WeChat.
• This means that Uber will have to reach the users directly which is why I suspect that it intends to spend $1bn in China this year.
• This is a clear demonstration of how important the ecosystem is and how important it is to ensure that users want to spend their Digital Lives within one’s own ecosystem.
• This is how I expect that battle for Chinese ecosystem to be played out across every sector.
• Those that already have a large and engaged ecosystem will be in pole position to push new services to their users with a good chance that they will see rapid uptake.
• Those without an ecosystem will have to start from scratch, meaning price cuts to draw users, heavy marketing and probably, huge losses in the early stages.
• This is why I do not see the fragile alliance between Alibaba and Tencent in taxis spreading to other aspects of Digital Life as I suspect that this alliance was created to combat the very real threat of Uber in the Chinese market.
• Outside of that, I see Alibaba, Tencent, Baidu, Xiaomi and potentially China Mobile as rivals all vying to entice users to spend more and more of their Digital Lives with them.
• This means that they will attempt to include only their own Digital Life services and apps within their ecosystems shutting the rest out just as they appear to have done with Uber.
• The Chinese market is big enough for 3 to be very successful meaning that there is likely to be failure and consolidation for those that don’t make it.
• Xiaomi is currently in a strong position at home but I think that its lack of cash flow will mean that it will not have the resources to really take on its much more cash generative competitors.
• Uber also has a fight on its hands but its easy access to capital will make continuing the struggle easier.