A Merger To Watch Out For

On 1 August, Uber and Didi Chuxing sent shockwaves around the world by announcing that they were merging their businesses in China for a total valuation of $35 billion. As per the deal, Didi Chuxing founder Cheng Wei would join the Uber board while Uber CEO Travis Kalanick will Didi Chuxing’s. Uber is expected to hold 17.7 per cent in the combined entity in China.

Says Dhananjay Sharma, associate consultant, RedSeer Consulting: “China was a bleeding market for both Uber and Didi Chuxing because of intensive cash burn for customer acquisition. Now, as Uber China merges with Didi, it will likely be a win-win for both from the business sustainability perspective. It will certainly be interesting to see how this development impacts Uber’s strategy in India going forward, now that Uber is free to focus entirely on winning the Indian market.”

According to a recent survey by RedSeer Consulting, the Indian online cab market is at a nascent stage with higher competitive intensity compared to China and US markets. But Uber China generates higher revenue when compared to its India arm.

Incidentally, Didi Chuxing is an investor in all of Uber’s key regional competitors — Lyft (US), Ola (India) and Grab (Southeast Asia). Additionally, in December last year, these four players had struck a global alliance that allowed them to share customers and technologies to fight Uber. The deal puts a question mark on this alliance, although Didi said in a statement that it “will continue to work with global partners in connecting local resources to create the best possible cross-border ridesharing experience for their users”.

In this context, one could expect to hear more news around consolidation even in the India market. With Tiger Global and Didi Chuxing now becoming a common thread between Ola and Uber, the possibility of a similar merger is immense as investors are looking to reduce complexities and turn profitable sooner than later.

At the same time, the demographics of the Indian market are so different and scattered that there may be enough space for two players. For instance, the market behaviour in tier-1 cities is distinct from that of tier-2 and tier-3 cities thus giving enough room for players to innovate and establish a niche for themselves in this huge market. A player like Ola which is built from ground up can look at better localisation and target a wider audience to retain its market-leading position. Uber on the other hand, which is considered more global, slick and hip, can focus on the metros and their urban working class by offering differentiated services delivered through innovation.