Pando

Didi's quiet investment in Lyft opens up a third front in its all-out war against Uber

By Sarah Lacy , written on September 11, 2015

From The Travis Shrugged Desk

Everyone even half-way watching the ride-sharing wars in China had to see this one coming.

The Wall Street Journal reported yesterday that Didi Kuaidi quietly put money into Lyft’s May funding round, along with Didi’s own backers Tencent and Alibaba.

Alibaba had already been a Lyft investor, and Pando has detailed at length the strange coalition of billionaires, Asian corporates and hedge funds who are all backing the world’s major Uber competitors. There’s Softbank who is in GrabTaxi, Ola Cabs, and Didi. There’s Coatue who is in Didi, Lyft, and GrabTaxi. There’s Alibaba-- and apparently, secretly Tencent-- who is in Lyft and Didi. And the strangest twist yet: Didi itself is using it’s own venture capital to invest in GrabTaxi and now Lyft.

We’d said before at a minimum there was some friendly shoptalk going on between all these players who are all fighting the same enemy, and that a formal relationship had to be inevitable. Apparently, it had already happened.

That round was also the time Lyft made clear it would not use its latest infusion of cash to chase Uber around the globe: It would focus right here in the US. That’s a smart strategy for its business, which has never been able to raise cash at the clip or the price that Uber does. Remember, Uber is spending more than $1 billion to carve out a measly 10% market share in China alone. That’s the total of what Lyft has raised to date.

But it’s also a smart tactical strategy: All of these Uber challengers are vowing to focus on their home markets, which makes such deals not a conflict. Indeed, the more Uber has to fight in Singapore, India, and even the US-- that helps Didi.

The move makes even more plain what we already knew: Didi is the only company in the world that is poised to beat Uber in becoming the largest ridesharing company. In fact, given Uber CEO Travis Kalanick has said China will be Uber’s largest market by end of year and it only has a measly 11% of that market-- that may be all but certain.

But while Didi still has nearly 80% of the Chinese market, a home field advantage when it comes to political implications of doing business in China, and a fundraising advantage over Uber China-- which only completed its own fundraising because Uber Global put in one-third of the amount-- make no mistake: Uber is more than an annoying gnat buzzing around it.

In fact, Uber has been causing Didi great amounts of pain in the last year--  stealing market share and costing it shit loads of money. Didi would love nothing more than rivals like Lyft and GrabTaxi to put enough pressure on Uber now that it’s distracted with an unwinnable war in China, that it just gives up on China already. It’s that or-- yunno-- the government just bans Uber.

As we’ve noted before, Uber’s connections to the US State Department and Department of Defense run deep. Late last year, Uber hired former CIA Director and Secretary of Defense Robert Gates to head its UberMILITARY arm. Also last year, it was reported that senior exec Emil Michael is working as an advisor to the Pentagon’s Defence Business Board, having previously worked as a special assistant to the Secretary of Defence. There is no way China will let any American company with ties to American intelligence and military run its urban transportation grid.

Kalanick seems to have suddenly woken up to this reality: Earlier this month Kalanick visited China and, as Reuters reported, the guy who has criticized countless US lawmakers for their attacks on freedom suddenly had nothing but good things to say about the Chinese government:  

During the speech, Kalanick adopted the language of Chinese officialdom, riffing on favored Communist Party subjects such as harmony and stability.

"Progress is something we see the government be incredibly open to, whether it be about more jobs and less pollution, less congestion on the streets, better utilization of infrastructure, that kind of progress always has to be in harmony with stability and that is one of the big things that we partnered with the government on," he said.

Uber’s difficulties at the hands of rival’s investors has a certain poetic justice to it given Uber’s shady tactics to block Lyft from raising money back in 2014. “We gotchu,” the global coalition to destroy Uber said. After all, Uber can hardly dangle the prospect of investing it its next round as a way of getting it to spurn Lyft.

We can only wonder if Didi’s sharp elbows will rub off on Lyft: A company that absolutely refuses to ever exploit Uber’s weaknesses to gain market share. If nothing else it sends a strong message, particularly given Alibaba and Tencent’s participation in the deal: Keep spending billions on your subsidies. We have endless resources to bleed you out in China.

Indeed, the Chinese government could do Didi, Lyft, GrabTaxi, and OlaCab a big favor by not blocking Uber in China… for a while at least. While Uber is busy fighting this unwinnable war, it’s putting a serious dent in its coffers and distracting Kalanick greatly from all his other fights.