Business travellers may have experienced a shortage of taxis in the streets of Beijing, Shanghai and most other large Chinese cities. At certain busy points, there used to be long lines of taxis waiting for customers, but the taxis seem to have vanished from the streets. For those who insist on hailing a taxi from the curbside: you may have a hard time getting to your hotel or your meeting. It is the result of a full-blown app war for taxi’s in China.
What is happening? Why are taxi drivers ignoring outstretched arms? Drivers are chasing richer prizes: many drivers will not pick up passengers at peak times unless the ride was ordered online. They prefer to ‘catch’ smartphone users who have downloaded an app that pays both parties for a ride.
Let us introduce the two main players in this business war that affects both taxi drivers and business travellers trying to make their way through this city to their next appointment. The internet giants Alibaba and Tencent are fighting their battle, with financial incentives offered to both taxi drivers and to passengers as their ammo. Both parties want drivers and customers to use their apps.
Honk Honk Taxi
The business case is simple. Tencent, the gaming and social media giant worth $ 132 billion, has invested in Didi Dache’s taxi app ‘Honk Honk Taxi’. It offers 10RMB to the passenger for any taxi booking through the app. The driver also gets 10 RMB for taking the booking through the app. Both the customer and the taxi driver need to be linked to Tencent’s WeChat and payment system.
Tencent’s opponent in this battle is Alibaba, that has teamed up in a similar way with Kuadi Dache and its app ‘Fast Taxi’. This side is offering 10 RMB to the passenger and 15 RMB to the driver. The payments – you guessed right – are handled through Alipay. Please bear in mind: Alibaba controls 80 per cent of China’s ecommerce.
There is a lot at stake. In one month, incentives paid to riders and drivers totalled more than US$60 million. Who wins? Who knows… Tencent/Didi Dache and Alibaba/Kuaidi hold at least 75 per cent of the market, but there are dozens of other similar, but smaller players trying to secure a piece of the pie.
“This is a “deep pockets” game”, analyzes Gordon Orr, Director and Chairman of McKinsey Asia, based in Shanghai. Orr writes in his blog on this subject: “It is the winner-takes-all model that we commonly see in internet businesses, but with Chinese characteristics: the large Internet players are leaping in aggressively to shape the outcome, and to use these new markets as a way to gain advantage over each other. I expect that it won’t be long before this is the only effective way to hail a taxi, and the only open question is will there be two vendors or one.”
China’s taxi drivers currently prefer to wait on rides that originate from one of the taxi apps instead of looking for customers on the sidewalks or at taxi stands. In the meantime, China’s internet giants fight who is king of the taxi app market. It is the rise of mobile internet that has changed the taxi market, with nearly half a billion Chinese using smartphones only $50 each to get online.