E-commerce rivals on board as China’s taxi app market heats up
- Kuaidi DaChe and Didi DaChe have made finding a cab much easier in China
- Alibaba and Tencent have snapped up stakes in the leading taxi app providers
- They want passengers to use their payments systems, and take a cut for each fare
By Neil Flynn
Since moving to Shanghai, I have learned a lot about the way of life in China. One particular aspect that I am reminded of on a daily basis is that it’s virtually impossible to hail a taxi in the evening after work.
However, mobile technology has made finding a cab much easier, and several leading mobile apps are a must-have for residents. Kuaidi DaChe (Quickly Take A Taxi) and Didi DaChe allow users to locate nearby taxis, based on their location and destination. If a driver wants the fare, he will pick the user up. Then user can then track the taxi's location, and should the user need to call the taxi driver, the apps connect the user to the taxi driver.
Hailing a taxi on Kuadi DaChe, left, and Didi DaChe
Alibaba and Tencent take stakes
This app technology has not gone unnoticed by China’s internet behemoths, with Alibaba having taken a stake in Kuaidi DaChe and Tencent snapping up a slice of Didi DaChe. Both firms are now integrated within the respective investor’s ecosystem, and users can now pay for journeys on Tencent’s WeChat and Alibaba’s AliPay
The problem that both Kuaidi and Didi had was that spending money on subsidizing taxi drivers and passengers is fine if they can make a profit. However, neither firm was generating money, but simply burning through cash from deep-pocketed investors. They differ from Uber’s business model, because the apps can’t take a fee from the taxi journey measured by taxi meters.
Both Alibaba and Tencent have been eager to invest in these firms because they can encourage passengers to use the Alipay and WeChat Wallet functions, and take a cut from each taxi ride. On May 10, both firms announced an end to passenger subsidies, in order to focus their efforts on improving service.
For investors, the key question of how both firms will monetize their service remains. Advertisements are the standard way to monetize apps, but I expect that both Tencent and Alibaba will contribute revenue to these taxi apps for payments made through their respective digital wallets.
– Edited by Robert Ryan
Neil Flynn is a trader on TradingFloor.com.