Didi – Broken panda.

Didi has its Baidu and Facebook moment.

• Chinese technology companies have a culture of moving fast and breaking things, and while Didi got a free pass from the regulator for the first incident (unlike Baidu), it is unlikely to get off scot-free the second time.
• Another passenger looks to have been the victim of a homicide perpetrated by a driver which should have been avoidable if the security provisions had been used.
• A passenger has been killed in the eastern city of Wenzhou while using Didi’s ride-sharing service called Hitch which promotes car-pooling for commuters.
• This follows a similar incident in May 2018 where a flight stewardess was killed in Henan by a driver that had used another driver’s credentials to offer the service.
• Following the May incident, Didi suspended the service for a week and tightened up its security procedures but clearly, its actions were inadequate.
• Baidu had a similar problem in 2016 (see here) where a student died after responding to an advertisement on Baidu for a medical procedure.
• The result was that Baidu was forced to significantly tighten up its quality controls for advertisers which led to a period of meaningful underperformance both in terms of growth and its share price.
• I think this problem is pretty widespread in China where new features and services are thrown into the market as quickly possible with very little consideration being given to the consequences and side effects.
• While the market was emerging and the services were small, this was less of a problem, but now that there are hundreds of millions of users and fatalities, this is finally coming into focus.
• This is exactly the same problem that Facebook, Tesla and Uber (see here and here) have had and with and with which they are still grappling.
• However, I suspect that this problem will be worse in China as many apps and services have been developed and launched as quickly as possible with even less attention being paid to the details than in the West.
• The net result is likely to be a period of reflection where the product development philosophy is migrated from “go fast and break things” to “go slower with no cock-ups” (see here).
• This is exactly what I see happening at Facebook where its short to medium-term performance is already being impacted (see here).
• I think this outlook will also befall Didi where slower growth and higher costs are likely in the medium-term.
• Fortunately, Didi is not listed but now it will have to work somewhat harder to meet the expectations of its current owners.
• I think that this trend has a long way to go meaning that companies like Google which never adopted the “go fast and break things” philosophy and Baidu which has already dealt with it will fare better than most.
• The likes of Apple and Amazon which have never ventured down this road are also likely to remain immune.