Question

Read these articles and answer the following questions is a well written essay not to exceed 2 pages. (Same standards apply as in the 1st assignment) QUESTIONS: 1. Do you use Uber? Have you used Lyft? Do you think there is there a real difference between the services? 2. How has the Chinese market altered the market for ride-hailing services in the US? How does the acquisition of Uber China by Didi alter the face of global strategy in this burgeoning industry? 3. According to the article, how well is Lyft doing right now? Does this latest deal in China help Lyft or hurt Lyft, all things considered? 4. If you are the CEO of Lyft, what strategic moves would you make now? How does Lyft need to readjust its strategy in the US, based on the events in the Chinese market?

Uber-Didi Tie-Up Threatens Lyft in U.S.

Lyft sees ally Didi team with its biggest rival, which is now no longer burdened by China

Lyft, whose cars are recognized by fuzzy pink mustaches, is sustaining big losses at a time when venture capital is harder to secure. PHOTO: GETTY IMAGES

By GREG BENSINGER and ROLFE WINKLER

Updated Aug. 2, 2016 12:07 a.m. ET

Uber Technologies Inc.’s retreat from China creates ripples in what will now become its biggest market, the U.S., where it can refocus on its simmering rivalry with hometown competitor Lyft Inc.

The merger of Uber’s China operation with Didi Chuxing Technology Co. adds a twist to the rapidly shifting landscape of ride-hailing alliances and brings more uncertainty for San Francisco-based Lyft, which has been shopping for a financier to keep it flush with capital.

Didi had been Lyft’s biggest ally after the two companies in recent months touted an anti-Uber alliance that would effectively link their apps and share access to passengers traveling abroad. The two companies also teamed up with India’s Ola and southeast Asia’s Grab to make their apps globally accessible.

By tying together their apps, the companies aimed to better compete with Uber. Didi also is an investor in Lyft.

But Didi now has agreed to align with Lyft’s fiercest rival by combining its operations with Uber’s China business. Uber will receive a 18% stake in Didi, meaning Uber becomes an indirect stakeholder in Lyft. Didi also will invest $1 billion in Uber’s global operations, making Didi both a friend and foe to Lyft.

“Over the next few weeks, we will evaluate our partnership with Didi,” a Lyft spokesman said in an emailed statement. “We always believed Didi had a big advantage in China because of the regulatory environment.”

The deal also means Uber can stanch the hemorrhaging in China, where it had pumped in billions of dollars. Uber has raised over six times more capital than Lyft, and its latest valuation of $68 billion far outpaces Lyft’s $5.5 billion value.

Lyft has been in a bruising four-year battle with Uber for passenger and driver loyalty. The Wall Street Journal reported in June that Lyft hired boutique investment bank Qatalyst Partners LP, which is known to help tech companies find a buyer.

Lyft has tried to keep up with its larger competitor as both San Francisco companies pour millions of dollars into subsidizing low-price rides and giving cash bonuses to new drivers.

Uber and Lyft have sought to edge one another out by poaching employees and have accused each other in the past of ordering up fake rides that hinder service. The two firms believe they can be a central means of transportation, rather than just replacing existing taxi services.

FURTHER READING

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5 Things to Know on Uber-Didi Deal

Didi: Chinese Rival Buying UberChina

Lyft is sustaining big losses at a time when venture capital is harder to come by, likely encouraging the company to find a suitor.

Last year, Lyft posted an operating loss of around $360 million on revenue of roughly $200 million, according to a person familiar with the company’s financial statements. Riders paid a total of about $1 billion for Lyft rides in 2015, and the company kept 20% of that amount as its revenue.

The company has ample cash on hand to sustain itself for now. As of June, Lyft had about $1.4 billion in cash, this person said. It has recently been burning about $50 million in cash a month, according to another person familiar with the matter, suggesting it has more than two years of cash left at that rate. But its spending could go up if the promotional arms race with Uber kicks up a notch, and Lyft is forced to subsidize price cuts.

Lyft does have a major ally in auto maker General Motors Co., which invested $500 million for a 10% stake and indicated the ride-hailing service could be crucial to the future of automobiles. The two companies have since agreed to develop self-driving cars and to offer deals on rental cars to Lyft drivers.

That partnership is critical in helping bolster GM’s electric vehicle strategy. The auto maker’s battery-electric car, Chevrolet Bolt, was designed with a bigger back seat to better appeal to taxi services, for instance. GM also plans next year to begin testing autonomous electric taxis in the Lyft network.

With Uber likely returning its attention on the U.S., it is unclear whether GM is interested in buying all of Lyft or increasing its stake. But GM has been involved in several discussions about the company’s funding needs and strategic alternatives, according to people familiar with the matter.

A GM spokesman said the Uber-Didi announcement doesn’t change its strategic alliance with Lyft, and that the companies will continue work on joint projects.

The Uber-Didi tie-up changes the calculus for Lyft’s other China backers. Along with Didi, China’s largest internet companies, Alibaba Group Holding Ltd. and Tencent Holdings Ltd., invested in a May 2015 round that valued Lyft at $2.5 billion. Those investments were meant to counter Uber’s growth in China.

But Alibaba and Tencent also are investors in Didi and have strategic partnerships including payments services and app integration. So the two internet giants have more at stake in the future success of Didi in China than in Lyft in the U.S. That could put pressure on Lyft and Asian ride-hailing startups to either find new allies or cut a deal with Uber or Didi in the future.

—Rick Carew, Gautham Nagesh and John Stoll contributed to this article.

Write to Greg Bensinger at [email protected] and Rolfe Winkler at [email protected]

Corrections & Amplifications

A person familiar with Lyft Inc.’s financial statements said the company earlier this year was on pace to more than double revenue to around $450 million in 2016, and post an operating loss of more than $200 million. An earlier version of this article incorrectly attributed this projection to Lyft.

TOPICS: Global Strategy

TECH

Uber’s Efforts to Build Chinese Business Ultimately Fail Against Homegrown Rival Didi

So far, no U.S. internet-based company has succeeded in conquering the Chinese market

By EVA DOU and KATHY CHU

Updated Aug. 1, 2016 10:05 p.m. ET

BEIJING—Uber Technologies Co. entered China with billions of dollars to spend and ambitions to dominate the world’s biggest market for ride hailing. It wasn’t enough.

After almost three years, Uber agreed to sell its China business to rival Didi Chuxing Technology Co., the Chinese company announced Monday. Despite launching private ride-sharing services in China a full year before Didi, Uber has been outmaneuvered by the homegrown player, which added localized features, landed powerful investors and wooed Chinese regulators and press. Uber and outside investors in Uber China will get 20% in the merged company, which has a combined valuation of $36 billion.

U.S. internet companies have long struggled in vain to capitalize on the allure of China’s enormous population and growing wealth. Some have been stymied by strict government licensing and censorship, which contributed to Google Inc.’s decision in 2010 to shutter its China-base search engine and has effectively barred access to Facebook Inc. and Twitter Inc.

Others have been bested by deep-pocketed local rivals that adapt quickly to Chinese consumer preferences. Amazon.com Inc. and eBay Inc. both faced off unsuccessfully against Alibaba Group Holding Ltd.

“So far we haven’t seen a foreign internet company that has made it big in China,” said Andrew Teoh, managing partner of Ameba Capital, an early investor in Didi.

Other companies in the technology industry and beyond have struggled with a range of hurdles in China, including government policies that favor domestic players. Apple Inc. and Microsoft Corp., for instance, have felt a sales chill in China amid Beijing’s growing focus on using “secure” domestic equipment.

“The environment has become more challenging,” said Jeremie Waterman, executive director for greater China at the U.S. Chamber of Commerce. “There’s no question that there are Chinese companies that are more competitive than they were five or 10 years ago, but there’s also no question that the government has and is increasingly putting its thumb on the scales to benefit Chinese companies.”

China is extremely important to many companies. General Motors Co., which used decades-old alliances in the region to become one of the largest players in the world’s biggest light-vehicle market, counts on Chinese operations for about $2 billion in operating profit annually and has committed to spend 100 billion yuan ($15.1 billion) between now and 2020 on new car development. Although less profitable than U.S. operations, China accounts for about a third of vehicle sales and its position has grown in 2016 as the wider auto market shakes off volatility.

Still, a survey released in January by the American Chamber of Commerce in China found that only 64% of the U.S. companies surveyed were profitable in 2015—the lowest level in five years. Nearly a third weren’t planning to expand their investment in China, a higher percentage than during the global financial crisis of 2008-09.

Uber Chief Executive Travis Kalanick’s decision to capitulate in China came on the heels of new ride-hailing regulations there, which were announced last week but had been in the works for two years and were known to companies in the industry in advance.

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The guidelines officially legalized the industry, but gave an edge to the player with the largest user base. That was Didi, which is backed by Apple as well as Chinese internet giants Alibaba and Tencent Holdings Ltd.

The rules forbid companies to operate ride-hailing services below cost, putting an end to ruinous subsidy wars but making it difficult for Uber China, with its smaller scale, to match Didi on price.

The guidelines also require companies to implement stricter driver oversight and incur other overhead expenses, measures likely to be less costly per ride the larger the user base.

Didi and Uber disagree on their China market shares, but most third-party researchers put Didi significantly ahead. According to one research firm, Analysys International, Didi had 42.1 million active users in May while Uber China had 10.1 million.

Didi said it would maintain the Uber service and brand separately in China. A similar promise was made after the merger of Didi Dache and Kuaidi Dache in 2015 to form Didi Chuxing, with the smaller Kuaidi product subsequently marginalized.

Mr. Kalanick, in a statement Monday, acknowledged the challenge Uber faced in entering China. “We were a young American business entering a country where most U.S. internet companies had failed to crack the code,” he said. Uber had worked hard to localize in China, setting up Uber China as a Chinese company and giving high autonomy to the local executives at its helm.

Didi began in 2012 as an app to help Chinese taxi drivers find passengers. Although the service didn’t make money for Didi, it helped the company amass loyal users. By the time Didi launched an Uber-like ride-sharing service in 2014, it had more than 100 million registered users.

In July 2014, Mr. Kalanick offered to acquire Didi, saying that he would conquer China one way or the other, recalled Didi Chief Executive Cheng Wei in a 2015 interview. Mr. Cheng said he had refused, saying, “There will be a day when we will surpass you.”

An Uber spokeswoman confirmed the meeting at the time but said Uber executives remembered it differently.

Didi’s status as the local champion helped it best Uber both in relations with local governments and in the media.

Uber China found its accounts on China’s leading messaging app, WeChat, repeatedly shut down, hobbling its attempts to promote its services to regular consumers. WeChat is owned by Tencent, a Didi investor. Tencent has declined to comment.

Uber’s decision to effectively join a rival echoes similar moves by other big Western companies in China.

Wal-Mart Stores Inc., which has struggled to expand in China as shopping rapidly shifts online there, switched gears in June. Rather than continuing to build its own online business in China, the world’s biggest retailer agreed to sell its Chinese website to JD.com Inc., one of the country’s largest e-commerce players. In exchange, Wal-Mart took a 5% stake in JD.com.

—Juro Osawa, Drew FitzGerald and John D. Stoll contributed to this article.

Write to Eva Dou at [email protected] and Kathy Chu at [email protected]

Answer 1

Answers:

1. Yes I use uber. No I haven’t used lyft. So no idea on what would be the differences in services between these two companies.
2. This was because of the liberalized market regulations, many private drivers were recruited to work. It other operations include subsidizing low price rides and giving cash bonuses to new drivers.

How acquisitions of uber china by alter the face of global strategy?

In exchange of its business in china after the acquisition of uber china by didi, uber will get a stake of almost 18% in didi & become its largest share holder. This is a deal that has been entered to dominate the world’s largest markets. In order to alter globally, didi formed alliance with other local riding companies in different regions. It also launched a cross platform service in US allowing the didi users to hail a lyft ride in US through the did app.

1. How well is lyft doing right now:

There is more uncertainty for lyft because of merge of uber with didi. Lyft has become ally after the merger of anti uber alliance that shares access to passengers travelling abroad. Though there has been investment by didi in uber’s global operations, this can be both friendly & foe reaction to lyft. Hence it would take time to decide on the position of lyft.

The position of lyft can’t be decided as already answered. But statements also indicate that lyft has been facing losses and it also has taken the help of boutique investment bank which is known for helping tech companies to find a buyer. Though it has taken steps like giving bonuses, reducing prices still it must consider more strategies to be a good competitor for the uber didi merger.

1. Strategies that can be considered:

As a CEO of the company, I would also adopt strategies of merging with another successful competitor globally to be competitor for the uber didi merged companies. As the company has anyway taken the help of boutique investment banks, it can go for merge with another performing company to have a good position in the market both globally & locally.

It can consider merging within companies like ola etc. to be competitive enough and also give some initial discounts in its ride to win in the market.

The strategy must be such that it must be able to compete with local rivals. As the Chinese competition is considered to be huge in the world, it would have the challenges in meeting the customers’ expectations. Again there is government policies that favor the local companies, with which lyft has to be careful. May be it can spend some money in meeting the government obligation to build its market.