China Taxi Apps Call off the Subsidy Program, Orders Drop Drastically

China Taxi Apps Call off the Subsidy Program, Orders Drop Drastically

by Scully Wan – May 23, 2014

China’s most popular taxi calling apps Didi and Kuaidi have announced officially on May 16th and 17th respectively, that they will stop the payment subsidies program for passengers. However, they will keep subsidizing taxi drivers.

This signals the first break between the two top taxi apps on their ongoing multi-billion cash burning battle to attract popularity since December last year. The subsidy offered by Didi and Kuaidi have once gone as high as RMB 20 yuan (US$3.20) per order. Since late March this year, the two companies have both tuned down the amount of subsidies and it now stands around RMB3- 5 yuan (US$0.5 – 0.8) per ride, and it is for taxi drivers only.

Both Kuaidi and Didi indicated that there will be a change of incentive system for using their apps: a switch to a more service orientated program rather than cash back reward only. It is clear that this is far from the end of the battle but a start of a new one. If the reason to use the taxi apps was for monetary incentive, now with the subsidy being withdrawn, people will expect a well rounded and better customer service. As industry insiders believe, the loss of subsidies should not bother those who frequently use mobile applications to order taxis, as the emergence of taxi calling apps is not only meant for cutting down the cost, but also to create a convenient taxi usage system with a better turnover.

Since the withdrawing, The taxi calling app market has witnessed a sharp drop on daily order volume. Cheng Wei, the CEO of Didi, told media recently that the current volume is around 3 million orders daily, a significant decline from its peak of 5.3 million rides a day. However, he is confident in keeping a large portion of the users. “Despite of the decline of taxi booking, which we have already anticipated upon the cancellation of the subsidy plan, we noticed a trend of mobile payment for cab fare. Right now about 75% of the orders are paid via WeChat, previously it was 85% the most.” (report in Chinese)

Kuaidi, financially backed by internet giant Alibaba, is based in Hangzhou and serves some 300 Chinese cities. Didi, financially backed by Tencent and locates in Beijing, is only available in fewer than 180 cities. Together, Didi and Kuaidi control more than 97 percent of China’s taxi-booking market, according to 199IT.com, an Internet statistics database.

 

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.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: