Didi – In the saddle.

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Didi can crush the bike sharing upstarts.

• In China where the bicycle is an integral part of daily transport, Didi has leveraged its shareholdings to ensure that user loyalty accrues to Didi rather than to its partners Ofo or Bluegogo.
• If successful, I think this will reduce both Ofo and Bluegogo, and even Mobike to commodities thereby preventing them from making money, resulting in their eventual absorption by Didi.
• Didi is the dominant ride hailing service in China which is now virtually unopposed since Uber was unceremoniously ejected from the Chinese market (see here).
• From a vehicle perspective this has left Didi in a great position in China but as is so common, government intervention to protect the taxi industry has caused real problems.
• In order to drive for Didi in Shanghai or Beijing, a driver has to prove that he lives in the city within which he drives.
• This may not sound like a big deal until one looks at the demographics of the urbanised workforce in China.
• Around 40% of the workforce of both of these cities reside outside of the city and in the younger, lower-paid part of the workforce, that number is much higher due to the high cost of housing.
• For example, prior to the enactment of this regulation, less than 3% of Didi’s Shanghai drivers had the necessary residential registration to qualify as drivers.
• I suspect that that Didi’s Beijing drivers showed similar characteristics and that other major Chinese cities also have a large migrant workforce.
• The net result is that supply of rides has been drastically reduced meaning that the price of those rides will inevitably increase while the quality (wait time) will decrease.
• Rising prices and lower reliability is likely to drive many users back into the arms of the taxi industry thereby achieving exactly the result for which the rules were created.
• Furthermore, Didi has also been under assault from cycling services competing against the shorter rides that it offers.
• Within the cities, bad traffic and a culture of cycling has meant that short journeys are often best taken by bike creating pressure on demand.
• This explains Didi’s interest in bike sharing and it has just launched an update that includes the bike sharing systems of both Ofo and Bluegogo as an option within its app with no branding.
• As far as users are concerned, this appears as a Didi service and Didi has been able to do this through its significant shareholding in Ofo and the fact that it rescued Bluegogo from bankruptcy at the end of 2017.
• This means that Didi users will have no reason to use either the Ofo or Bluegogo app and because Didi will do them both, there will be more supply available in a single place.
• It is quite possible that Didi will also have more supply than Mobike, meaning that even as a hold out, it will also feel the pressure from this move.
• Consequently, it from a user perspective the Didi app should be able to offer a better user experience which will obviously commoditise Bluegogo and Ofo even more (see here).
• The combination of its 400m+ ride hailing users and the scale of putting the services of Ofo and Bluegogo together may even allow it to overcome Mobike.
• The net result is that Didi is well positioned to do to the nascent bike sharing industry what it did to Uber in China.
• The caveat of course is the user experience but as long as Didi is at least as good as Ofo or Bluegogo individually, then I see no reason why it should not end up as the dominant shares transport provider in China.
• Mobike will need to act quickly and bring something special to its service in order to avoid real pressure.