Pando

US companies are fighting a game of now; Chinese companies are fighting a game of the future

By Sarah Lacy , written on May 6, 2016

From The China Desk

This week, Uber lied to journalists again. No, I’m not talking about the NPR thing. I’m taking about the company’s second brazen lie.

On Monday, Uber announced a partnership with Alipay. Shocker: They totally misrepresented the facts of the deal.

The headline from the release: “ With New Global Collaboration, Chinese Travelers Can Use Alipay to Request and Pay for Uber Rides All Over The World”

Also from the release: “Today, Uber, the only global ridesharing company, and Alipay, the world’s largest third-party payment platform operated by Ant Financial Services Group (“Ant Financial”), announced a global partnership to enable Chinese travelers to seamlessly request and pay for Uber rides from either the Uber or Alipay app, in all 400+ cities where Uber operates.”

Doubling down on that hype, Emil Michael-- who, you’ll remember, got shipped off to Uber China after threatening journalists State-side --  said on a call with reporters it was one of the “most important” deals Uber had ever done, saying, “There are very few partnerships that have that scale.”

That would be true if the deal really did cover the entire world. That would be huge, especially given Uber’s struggles in China.  

But the deal doesn’t cover the whole world. It covers the whole world… except China.

That’s a pretty big omission given a whopping 450 million of Alipay’s users are in China. That is to say, most of them.

For some reason, Uber and Michael simply forgot to mention the tiny detail that the only car service you can hail from the Alipay app in China is... Uber competitor Didi Kuaidi.

Not surprisingly, most major publications swallowed Uber’s press release without question. All the major publications wrote that you could now hail an Uber from the Alipay app anywhere in the world.

And once again, they had to correct their stories when the actual facts came out. But Uber likely doesn’t care: It still got the headlines it wanted, and very few readers will ever see the correction. In fact, most journalists didn’t even bother with a real correction, simply adding subtle “except China” clauses to the posts after the fact. Better that than explicitly point out Uber duped them.

But if the story were just another Uber lie I probably wouldn’t be writing about it today. I’d just SMH, maybe Tweet about it, and move on with my life. Sadly Uber lies so much it’s jumped over to the Donald Trump side of reality, where it isn’t news anymore. It’s just Uber being Uber.

But what is interesting is why Alipay did the deal to begin with and what it says about how the dance between Chinese and American Internet companies is changing dramatically.

After all, Alibaba-- which is a separate but entangled company-- is one of Didi’s main backers and board members. And Didi had to know Uber would try to make maximum hay out of this announcement, doing exactly what they did: Intentionally misleading Western financial press to make it look like they were gaining momentum in China. Why give them the win? Uber is undoubtedly raising more money, given how much it’s spending, and it’ll likely have to come from the wealthy individuals who read publications like the Journal.

The key is that Alipay isn’t necessarily the same as Alibaba. And while it shares some of the same goals generally as Chinese tech giants to help bolster one another, it has its own needs. (Read more today about Alibaba's needs here.) The hugest of the Chinese Internet giants are under increasing pressure to expand outside of China, as Leviathan as it is. So while Alipay may be one of the most valuable Internet assets in the world, it’s got the same problem outside China that Uber has outside the US. And the quickest way to get a bunch of mobile transactions in the US: Uber.

Put another way: Uber basically got no more access to the bulk of Alipay's installed base. But it got a headline it desparately needed. Alipay-- and some of its allies-- got screwed on the headline. But Alipay might get the US installed base it needs. 

And voila! The Chinese alliance against Uber (sans Baidu) isn’t quite as tight as it looked.

When it comes to the multi-decade dance of US trying (and failing) to get into China and the newer dance of China trying (and failing) to get into the US the chess board goes 3-D.

The enemy of my friend is...my friend? For the next five minutes at least? Depending on where in the world we are?

Of course there’s a huge difference: China is way bigger and the market for a lot of goods and services is way more nascent. Pre-IPO, money losing Uber has to win China (or somewhere else other than London in the world) now to justify its current valuation. Alipay is looking at future growth.

And Didi, still, is playing an even longer term game of growth when it comes to the US. There is no reason Didi even needs to think about a world outside of China right now. In 2015, Didi did 40% more rides than Uber has done in its entire life. It’s now the second largest commerce platform in China. It is in 400 cities. And it’s penetrated the market by… just 1.1%. Just upping that to 5.5% would be some 60 million rides per day. It’s currently doing about 10 million a day. For perspective, 10 million rides per day is eight times the entire ridesharing market in North America.

And yet, Didi-- which is rumored to be closing its latest oversubscribed $2 billion round at a $25 billion valuation imminently-- is investing part of that money in other market leaders like Ola, Grab, and Lyft itself.

This is less about Didi ever growing into those markets, although it’s certainly an option for the future. But the better bet to compete globally in the future is less about, say, buying Lyft one day, and it’s more about making sure Uber doesn’t become too dominant while Didi grows in China.

While Uber losing $1 billion a year in China is bad, only one thing could actually hurt Uber’s ability to raise money or IPO: Lyft making any real marketshare gains in the US. As long as Uber can point to the US as working, profitable, and dominant, it can spin that the rest of the world will just take time and capital. And it can float few enough shares that they’ll get sold, no matter how ugly those other markets look now.

The debate may be at what price. And the strategy will likely force Uber to go public well before it would like. But as long as the US is a proven, dominant market, it will raise the capital.

Why does Didi need to thwart Uber if it’s so dominant in China and China is unquestionably the largest market? Because one day, maybe five years from now, maybe ten, Didi will need to expand. And a world not dominated by Uber will make that easier.

Uber is fighting Didi now in China. Didi is fighting Uber ten years in the future. And that’s one battle is a microcosm for what the battle between Chinese and American Internet giants is all about right now.