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A closer look at Baidu's Uber purchase

01/06/2015| 2:49:47 PM|

Neither Uber nor Baidu have announced the size of the investment, though the strategic value for Uber is high.

China’s top three internet companies are competing by proxy through their stakes in the domestic car services market following Baidu’s undisclosed investment in Uber earlier this week. Internet giants Alibaba and Tencent are already backing taxi-apps Kuaidi Dache and Didi Dache respectively.

Users of Chinese taxi-apps are expected to number45 million by 2015, and local internet giants are vying to establish dominance in the fast growing market through a range of car-hailing models.

Unlike Uber, Kuadi and Didi both started with taxi-booking apps. Despite comprising the majority of the market, both are yet to monetize their massive user bases. Kuadi has taken the first step, however, launching the premium service ‘Kuadi ONE’ in July this year, competing directly with Uber’s Black Car services.

Uber also launched its ‘People’s Uber’ pilot project in Beijing this August, mimicking Uber’s controversial ride-sharing services abroad, except that it is non-profit in accordance with Chinese laws.

Neither Uber nor Baidu have announced the size of the investment, though the strategic value for Uber is high as they struggle to iron out issues in their global business. The Baidu partnership may also help them improve their regulatory compliance in China, which has been weak in comparison to Didi Dache and Kuaidi Dache.

As a latecomer in the Chinese market, Uber will also be looking to leverage the partnership for expansion potential. The San Francisco company has only been available in China for under two years and is used in just nine cities, while competitors Kuaidi Dache and Didi Dache both boast active users in over 300 Chinese cities.

Thus far, Uber’s app distribution channels have been comparatively weak, as Google Play is blocked in China. Baidu has multiple app distribution channels including 91 Wireless, which it purchased in July last year for US$1.9billion from NetDragon. Uber will also be able to leverage Baidu’s mapping software, with Google Maps also prohibited in China.

Despite obvious market entry challenges, Uber CEO Travis Kalanick is optimistic about the company’s ability to expand in China. “You have to do things differently in order to succeed here in China,” said Kalanick at a public appearance in Beijing this week.

On top of their investment with Uber, Baidu is also the primary backer of Chinese online travel company Qunar, which recently partnered up with German car service company Blacklane. Blacklane offers pre-booked driver services, and is currently taking strategic advantage of the Qunar platform to expand into China. Despite possible market crossover with the ‘Uber X’ premium service, Blacklane CEO Jens Wohltorf told Technode that the two companies would not be competing in the same market.

Last week, Technode also reported that Alibaba’s primary investor, Softbank, had backed Singapore-based GrabTaxi, completing an investment portfolio of Taxi apps that included South East Asia, India and China.

Tencent’s Didi Dache just closed a US$700 million series D funding round led by Singapore-based Temasek Holding, while Uber itself sealed a US$1.2 billion funding round that will be used to “make substantial investments, particularly in the Asia Pacific region,” according to CEO Travis Kalanick.

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TAGS: Baidu | Uber | investment
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