Article / 10 April 2015 at 4:12 GMT

China’s tech titans target the auto market

China Watcher / Shanghai
China
  • China’s technology firms are adopting O2O strategies in the automotive market
  • The next stage of data collection is from the home and car
  • Entry points are taxi hailing, second-hand ecommerce and internet connected cars

By Neil Flynn

China’s tech firms are quickly adopting O2O strategies in order to develop their mobile ecosystems, and meet the demand of consumers who are willing to accept a growing number of services being conducted through their smartphones. The growing acceptance of online car purchases was illustrated on Single’s Day, which saw 150,000 cars ordered across major websites in the 24 hours, with Autohome receiving over 37,000 orders at a value of 6.5bn RMB. Purchasers could either pay a deposit or the full amount online, and then collect the vehicle and settle the total bill at the dealership on a later date.

Over the past year, China’s tech firms have made steady progress at entering the automobile industry. The three key entry points are through taxi and private car hailing, the growing second-hand car industry, and developing their own internet connected vehicles.

Taxi Hailing

One of China’s most well funded startups is the merged entity of Kuaidi Dache and Didi Dache that has been backed by Alibaba and Tencent. The merged entity claims a 99% market share of China’s taxi hailing industry, and is widely used by people in major cities. The entity is heavily backed by Alibaba and Tencent in order to promote their respective mobile payment systems, Alipay and Tencent Pay. This is because both firms encourage users to pay for taxi journeys via their payment apps to boost transaction levels.

Didi Dache App
Didi Dache allows users to search for a taxi (L) or a private car (R). Source: Didi Dache  

Baidu’s investment in Uber has seen the US firm gain stronger recognition in China, and I have noticed that over the past few months Uber has become more common in Shanghai. To counter this, Kuaidi Dache and Didi Dache have expanded their services to include private cars, which directly rivals Uber.

Vehicle Ecommerce

With China’s ecommerce boom, consumers are becoming more willing to make more purchases online, and the availability of such online services continues to grow as firms expand their O2O strategy. Alibaba has allowed car manufacturers to open stores on its ecommerce platforms, and has seen acceptance of this from consumers, and online car purchases continues to grow.

Baidu has fallen behind its BAT rivals in ecommerce, because it doesn’t have a strong platform, like Alibaba does with its own Taobao and Tmall sites, and Tencent does after its investment in JD.com. However, Baidu has actively grown its car ecommerce platform, with not only new and used cars, but also car assessments and financing options. This is a key vertical for Baidu, and it has collaborated with leading used car platforms Autohome and BitAuto in order to build this business.

Baidu's Car Platform
Baidu Car offers new and used cars, assessments, car loans and car insurance. Source: Baidu

Last week, I discussed five Chinese startups that are gaining strong traction and millions of dollars in funding. One of these firms is a major second-hand car retail platform called Uxin Pai, which has received investment from Baidu and Tencent. The second-hand car market in China is enjoying strong growth as the stigma of buying used cars is evaporating, and the improving quality of roads means that used cars have less chassis damage, so can be sold. The problem is that the industry is very fragmented, with even the largest firms in the industry covering only certain provinces. 

Uxin Pai aims to grow within the industry on the back of investment from China’s tech giants. The firm originally began as a B2B auction platform, but its latest funding round has allowed it to expand into B2C sales. It aims to improve the clarity and efficiency of the growing market, by having over 1,000 specialists in 50 cities to inspect the vehicles on Uxin’s platforms. This allows the firm to offer a full guarantee to buyers and a 15-day refund if there are any undisclosed issues with the purchased vehicle.
Uxin Pai's B2C Platform
Uxin Pai’s B2C platform. Source: Uxin Pai  

Uxin Pai has formed a joint venture with leading second-hand car platform BitAuto in order to expand its inventory of used cars and to improve the O2O strategy for both firms. This is a very interesting strategy for Uxin Pai, because it will allow it to expand the availability of its growing inventory throughout China, and I expect that we will see further progress in the industry throughout 2015. 

Developing Their Own Vehicles

Baidu has partnered with BMW in order to research driverless car technologies, with the goal of developing a semi-autonomous vehicle by 2017. Baidu has the market-leading mapping app in China, and will integrate this technology into the car, in order to allow it to drive itself in certain situations. Despite being the most popular map app in China, it is free for users, so its monetisation rate is very low. The collaboration with BMW will therefore help to increase its mapping monetisation rate. A problem with mapping apps is that they don’t work very well when a user is indoors, which is why Baidu invested $10m in mapping software firm Indoor Atlas. It improves the quality of user location indoors, and through the use of magnetometers within smartphones, it is much more accurate than Wi-Fi and Bluetooth. Assuming that this technology is used within the BMW autonomous car, it would allow the vehicle to find parking spaces and drive within underground parking bays.

Alibaba has partnered with Shanghai-based car manufacturer SAIC to invest $160m into internet connected cars. The first product will be released in 2016, and Alibaba will integrate its communications, entertainment, map and cloud computing services into the project. Alibaba sees the smart home as a core strategy for 2015, and has been investing in its smart home ecosystem. The connected vehicle would be an extension of this, and allows the consumer to use the smart home ecosystem within their vehicle.

Although not a tech titan, video platform Leshi (or LeTV) is making a very curious entry into China’s automobile market with the development of an "electric supercar". The firm has hired a former senior manager from Japanese car manufacturer Infiniti, who was previously the GM of China and of Asia and Oceana. Leshi has also become the second-largest shareholder in the US firm Atieva, which has done design and engineering work on electric vehicles such as the Tesla Roadster, the Audi R8 eTron and the Chevrolet Volt. The largest shareholder of Atieva is Beijing Automotive, and the two are already developing an electric vehicle that will cost around 500,000 RMB. It hasn’t been announced whether Leshi will be involved in the vehicle, and although few details have been released, Beijing Automotive expects the car to be more advanced than Tesla in terms of technology, and with a driving range of more than 400km.

Leshi has developed its own operating system for its electric vehicle, known as LeOS. This will allow it to collect user behaviour from the car, which can be monetised by the firm.  

Leshi's Super Electric Vehicle Concept
 











Leshi’s Super Electric Vehicle concept. Source: Leshi

The key strategy for internet connected cars is data collection. Tech firms have been expanding their product ranges in order to keep users within their respective ecosystems. This is because firms can collect more data on user behaviour, and through this can gain a stronger understanding of each user. This is important because the more a firm understands about a user, the more the user can be monetised, through targeted advertisements. 

Alibaba and Tencent have been successful in understanding user purchase behaviour, through their respective ecommerce and mobile payment platforms, which have allowed both firms to be able to advertise directly to users based on purchase and browsing history. Likewise, Baidu has gained a strong understanding of user behaviour through its dominant search engine, and all three firms have begun to understand user travel patterns through their respective taxi and private car hailing platforms. 

Internet connected vehicles is a fascinating strategy for tech firms, because they can collect huge amounts of data. By understanding the music that users listen to whilst driving, the places that they drive to, and typical times that they drive, the knowledge of a user that can be gained would be a huge advancement over current levels. By integrating an in-car operating system into a vehicle, it is forecast that 10GB of data can be uploaded to the cloud from each car per hour. As O2O strategies advance, tech firms aim to infiltrate every aspect as a user’s life, and in-car data is a valuable resource.


-- Edited by Susan McDonald


Neil Flynn is a portfolio manager at Alcuin Asset Management. Follow Neil or post your comment below to engage with Saxo Bank's social trading platform.

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