Alibaba, Tencent spending big on taxi apps despite lack of profit model

Alibaba, Tencent spending big on taxi apps despite lack of profit model

Staff Reporter

2014-01-30

Alibaba Group and Tencent Holdings, China’s internet giants, are in a neck-and-neck fight in the taxi app market. On Jan. 20, Tencent’s Didi, its taxi hailing service, announced a plan to invest a further 200 million yuan (US$33 million) to benefit passengers. The very next day, Alibaba’s Kuaide swiftly announced it was investing 500 million yuan (US$82.5 million) for the good of passengers, Shanghai’s China Business News reports.

Some commentators are asking why the two giants are willing to throw so much money into the taxi app market which has yet to build up a clear profitability model.

Behind these moves is a logic that the taxi traffic, human traffic and information traffic accumulated through the taxi apps will be be profitable later, when the model emerges.

The competition between the two internet giants is not only for money, but also for resources. Alibaba has linked up its Alipay third-party payment service with Kuaide, while Tencent’s Tenpay is linking up with Didi, hoping to compete with the Alipay-Kuaide alliance in the mobile payment field.

According to the taxi app market report announced by Analysys International, in the third quarter of 2013, Kuaide ranked top, grabbing a market share of 41.8%, followed by Didi’s 39.1%. In November, Kuaide absorbed competitor Dahuangfeng, taking a market share of more than 80% in Shanghai and Guangzhou and thus probably boosting its national market share to more than 50%, the report said.

According to Kuaide, however, the firm’s national clients have reached 23 million, receiving daily orders of more than 300,000, while according to Didi, its national clients have reached 30 million, receiving daily orders of over 500,000 which puts Didi ahead of Kuaide.

What can be certain is that the market has two big players, and no authority can clarify which one really is ahead of the other.

The taxi app market still has large room for expansion. One unnamed Kuaide executive said that the company has explored less than 1% of the total market share. If this is true, taxi app providers combined only account for less than 3% of the national market, the report said.

Once the taxi app controls lots of taxi traffic, human traffic and information traffic, linking all these resources will naturally form a new profitability model, one unnamed payment industry insider said. Once the taxi app provider controls the taxi traffic, he said, taxi companies can do same-city express drop-offs; once they control information traffic, it can tap internal demand from taxi drivers, and give them orders to and from the airport and earn commission from them.