Uber Car-Hailing App Expands in China’s Congested Market

Uber Car-Hailing App Expands in China’s Congested Market

San Francisco Company Takes on Alibaba, Tencent

COLUM MURPHY in Shanghai and PAUL MOZUR in Beijing

Updated Feb. 13, 2014 11:34 a.m. ET

Uber, the car-hailing app that is growing fast in New York and London, outlined ambitions to serve China’s legions of potential passengers.

But Allen Penn, Uber Technologies Inc.’s head of Asia, cited special challenges in China for the San Francisco company. One in particular: how to make using the app more appealing to Chinese customers, who already have dozens of ride-fetching apps to choose from.

Electronic cab-hailing has become the latest battleground between Alibaba Group Holding Ltd. and Tencent Holdings Ltd. TCEHY +1.49% , which are investing in upstart apps as part of a broader effort to dominate the world’s largest base of Internet users.

In an interview Thursday, Mr. Penn said Uber distinguishes itself from other apps by offering a premium experience, providing “safe, reliable and enjoyable” rides.

Uber plans to offer a service that is different from the rushed trip with an often-surly driver that characterizes many taxi rides in China. For an Uber order this week in Shanghai, a driver in blazer and tie pulled up in a luxury Audi A6 within six minutes. He stepped out to open the door for the passenger. The 10-minute ride cost 37 yuan ($6), compared with less than 20 yuan for a similar taxi ride.

Currently just in Shanghai, Uber plans next week formally to start service in the southern Chinese cities of Shenzhen and Guangzhou, where it has been testing since last year, Mr. Penn said. He declined to disclose customer statistics or details of further rollout plans.

Uber hopes to win over passengers like Vivi Lu, a 31-year-old manager in the real-estate business and a user of local taxi apps. “Luxury, it’s not a must,” she said. “If I really need to rent a good car, I will rent it from a formal car company.”

China’s Internet startups have created dozens of apps over the past two years to deal with the frustrations of hailing a taxi in much of China. Andreas Graef, of management-consulting firm A.T. Kearney, said government limits on fares in many cities reduce driver earnings and thus the supply of people willing to do the job. Other restrictions also stem taxi-fleet growth. Although Beijing’s population nearly doubled between 1994 and 2011 from about 11 million to 20 million, the government added just 6,000 official taxis to the total of 60,000 licensed cabs at the beginning of that period.

In that environment, Mr. Graef said, Chinese customers might be willing to pay more for a polite and quiet ride. “I can imagine the demand for such services is huge,” he said.

Uber doesn’t own its cars in China. It works instead through rental companies, though Mr. Penn said it would emphasize using high-end rides. “Regardless whether a person is Chinese, American or from any of the other places we operate in, people like…having a great experience with something,” he said.

The market leaders in taxi-hailing apps are Didi Dache, Chinese for “Honk Honk, Catch a Cab,” and Kuaidi Dache. Both connect passengers with drivers who can then haggle over the cost, exceeding city fare limits. Online games-and-chat provider Tencent has invested an undisclosed amount in Didi Dache, while e-commerce company Alibaba has invested at least $8 million in Kuaidi Dache.

Uber’s efforts got a boost recently with the addition of Alibaba’s Alipay service—China’s most popular online payment system by market share, according to research firm Enfodesk. Previously, users in China could use only credit cards to settle payment for Uber rides. Alipay said offering its service to Uber users furthers the Chinese company’s mission of serving consumers in “every aspect of their daily lives.”

Mr. Penn said the number of trips booked through its service in the first six months in Shanghai exceeded the number of trips made in San Francisco, New York and Paris each during their first six months. Chinese users adopt new technologies faster than those in a number of Western markets, he said. “In Chicago, I would have to beat people over the head to try Uber.”

As in many countries, operating taxis in China is subject to close regulation. Uber has run into problems in other countries, such as France. Mr. Penn said Uber has had “minimal contact” with the Chinese government, and that the company had a “cordial conversation” with Shanghai authorities when Uber entered the city.

In Shanghai, the local traffic authority has said it is working with software developers to produce its own taxi app. A spokesman for the Shanghai Municipal Transport and Port Administration said the government wouldn’t “suppress other third-party apps.” He said the new service would attempt to learn from the success of apps such as Didi Dache and Kuaidi Dache.

Events planner Lu Qi, 30, has three taxi apps on her phone but said she had never heard of Uber. She said she might consider using it for special occasions such as weddings. “As a citizen, I hope I can get more benefits from competition between more apps,” she said.

 

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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