Apple Puts $1 Billion in Didi, a Rival to Uber in China

Harry here.  Over the past few months, I’ve been trying to learn everything I can about Uber and China.  This is a massive market, and Uber isn’t the first company to struggle in China, but even a number two position could still be very profitable since there are just so many people in China.  However, things just got tougher with Apple’s $1 billion investment into Didi Chuxing.  It seems like Uber has taken the ‘us against the world approach’ and it’s worked in the US so far, but the rest of the world is a different story.

Today, RSG contributor John Ince takes a look at Apple’s $1 billion investment, a weird driver story out of China and the formation of the first driver’s union association guild.

RSG contributor John takes a look at Apple's $1 billion investment, a weird driver story out of China & the formation of the first driver's guild -

Apple Puts $1 Billion in Didi, a Rival to Uber in China

Sum and Substance: Apple invested $1 billion in Didi Chuxing, China’s biggest ride-hailing service, moving for the first time into on-demand transportation in one of the largest-ever strategic investments by the iPhone maker.

The move is highly unusual for Apple, which has generally been quiet when it comes to deal making. Apple’s move into a Chinese company is also notable. Apple is attempting to reinvigorate flagging iPhone sales in China, the company’s second-largest market, and just last month Apple shuttered its iBooks and iTunes movie stores in the country.

Apple has been working on its own secret car project, which one independent analyst, Neil Cybart, said on Wednesday had accounted for much of the billions of dollars in research and development spending by the company. Apple certainly has the money to spare.As of March 26, the company said it had nearly $233 billion in cash and marketable securities.

Four years old, Didi Chuxing is China’s pre-eminent ride-hailing service and a major competitor to Uber, an American company that is spending millions to make inroads into the Chinese market. Didi serves close to 300 million users across more than 400 Chinese cities, according to the company. “The endorsement from Apple is an enormous encouragement and inspiration for our four-year-old company,” Cheng Wei, founder and chief executive of Didi, said in a statement.

My Take: By any measure, a $1 billion investment in any company is a major encouragement to their operations.  If Apple decides that they like this investment – they’ve got another $233 billion where this billion came from. 

Didi already has an estimated 87% of the Chinese market and Uber has already lost a reported $1 billion in their effort to gain a toehold, but the mountain their climbing just got a lot steeper.  As we’ve discussed before, ridesharing is a business that demonstrates extreme network effects.  The larger the share of the market you already have, the easier it is to get more.  

Also, Chinese culture and government are not hospitable to foreign companies, so I have to wonder how much more red ink Uber investors will tolerate.  Remember Didi already invested $100 million in Lyft and they have a strategic partnership with Lyft, which enables riders in either China or the USA to hail rides through their partner’s integrated apps.  

See: China’s Didi Kuaidi Put $100M Into Lyft, Inks Ridesharing Alliance To Rival Uber.

Lyft agrees to double California drivers’ lawsuit settlement

Sum and Substance: Lyft has more than doubled its original offer to settle the class action lawsuit its drivers filed in California in an effort to be recognized as employees.

The ride-sharing service has agreed to pay them $27 million after a San Francisco District judge deemed the original settlement amount of $12.25 million a bit too small. Under the original terms, every California driver who’s put in at least 30 hours for the company is only getting an average of $1,000.

Lyft was compelled to hash out new and more acceptable terms with the other party to finally make the lawsuit go away. Despite the significantly higher amount, the settlement’s other terms remain the same. Drivers working for Lyft will remain independent contractors and still won’t be recognized as employees. Lyft promised that it will only terminate drivers for a number of predetermined reasons, though, including low passenger ratings. Further, those who consistently do well will be rewarded with bonuses.

My Take: This is no surprise.  The lawyers, the company and the judge all came under intense criticism for the prior settlement.  While the other terms of the agreement remain the same, doubling the monetary settlement is clearly good news for Lyft drivers (including myself).  Now, will this affect the Uber settlement?  I suspect so.  Expect to see that one renegotiated too. (see article below)

Uber drivers, if employees, owed $730 million more: U.S. court papers

Sum and Substance: Drivers who worked for ride-hailing service Uber in California and Massachusetts over the past seven years would have been entitled to an estimated $730 million in expense reimbursements had they been employees rather than contractors, according to court documents made public on Monday. 

Uber and smaller rival Lyft are attempting to settle lawsuits by drivers who contend they should be classified as employees and therefore entitled to reimbursement for expenses, including gasoline and vehicle maintenance. Drivers currently pay those costs themselves.

According to attorneys for Uber drivers, the total potential damages in the case are $852 million, when including a claim to recover tips. The figure is based on rates for mileage reimbursement set by the U.S. government and on data provided by Uber Technologies Inc. 

The company, meanwhile, calculates damages at $429 million, mainly due to a lower mileage rate. The figures had been redacted in the original settlement deal proposed last month, but a San Francisco federal judge ordered them unsealed. The new data reveals how much of a risk employee classification is for on-demand tech companies like Uber. The proposed $100 million settlement keeps Uber drivers classified as contractors, though U.S. regulators are still reviewing the issue. 

Uber drivers in California and Massachusetts were entitled to about $122 million in tips, the filings show. That means Uber made about $732 million in commissions in those two states since 2009, based on an assumed 20 percent tip rate – more than $100 million less than it would have cost to reimburse drivers for expenses and tips. The judge must decide whether the $100 million Uber settlement is fair, and the total potential damages at play will likely bear on his analysis. The deal represents about 12 percent of the potential $852 million in damages.

My Take: Given the action of the judge in the Lyft case, doubling damages, I can’t see how the judge in the Uber case will let this settlement stand.  What’s really perplexing about this proposed settlement is why Shannon Liss Riorden settled for $100 million, when even Uber figured the reimbursements at $429 million almost four times the settlement amount.  I suppose for Shannon, a bird in the hand is worth two in the bush.  She would receive nothing if she lost the case.  By settling she’s assured of at least $20 million in attorney fees.

Ride-hailing app offers passenger $1.50 refund after driver picks her up pantless

Sum and Substance: A driver for popular Chinese ride-hailing app, Didi Kuaidi, was detained by the police after he turned up literally butt-naked to pick up a female passenger on Monday. According to the female passenger who goes by the name Xiaoshang, she had booked a car via Didi and got more than she bargained for. 

Initially unaware of the 33-year-old driver’s state of undress, Xiaoshang got into the car at the residential Hexi district in Tianjin, China. Just as the trip started, she looked over and saw that the driver did not have any pants on except for a pair of shorts strategically placed on his crotch to cover his private parts. Panicked, Xiaoshang quickly made up an excuse to stop the ride and got out of the car immediately. She then proceeded to file a report with the company and has since posted her exchange with the Didi customer service representatives on Weibo. During the exchange, Xiaoshang was asked to provide photographic evidence of the incident. Thanks to her quick-thinking, Xiaoshang had snapped a pic of the driver, before she got out of his car and sent it over to the company. Xiaoshang had to provide evidence that the driver picked her up without any pants on. Despite Xiaoshang’s insistence that the ride-hailing company take action on the driver, Didi’s way of apologising was to offer her a 10 yuan ($1.50) refund to tell her repeatedly to “calm down.”

 My Take:  This is a weird one.  What was this guy thinking?  Was he high on something?  The company’s response is a little weird too.  $1.50 as compensation.  It reminds me of the time I gave a ride to a naked passenger.  He at least had an excuse – he was at a pool party and his friends threw his clothes into the pool.  Any of you have stories like this?

The Real Reason Uber and Lyft Left Austin

Sum and Substance: Uber and Lyft reportedly spent an unprecedented $8.6 million on their Ridesharing Works campaign asking voters to vote for Prop 1. Given that Uber and Lyft are such recognizable as companies, have loyal users, and spent so much money on campaigning, how could they possibly have lost by almost 12 percent in this election? You can break it down into two major points:

1. They spent too much money on advertising and their campaign was inauthentic.

2. Their target demographic of voters simply do not vote.

As a loyal Uber user since the black car service was available in Los Angeles, I’m a huge fan of the company and love the work that they do. However, they completely butchered the way that they presented their campaign to the City of Austin and came across as incredibly corporate, attempting to weasel their way into our city by not playing by our rules. And this is coming from someone who supports them, I can’t imagine the worse insults heralded by their opponents. I think the corporate takeover can best be described by the amount spent for both campaigns. As mentioned previously, Uber and Lyft reportedly spent $8.6 million on their campaign. However, the opposition spent closer to only $200,000. Uber and Lyft had the resources to call and text anyone who has used an Uber/Lyft enough in Austin to be considered a potential voter. And believe me, over 20 texts and 4 phone calls later, they definitely did not give up on that form of marketing. No matter how many times you hung up or told them you weren’t able to vote (out-of-state student right here) they honestly didn’t seem to care. They just kept going (and are currently being sued for it). It got to the point where, even for me, I was inclined to vote against Uber/Lyft just because of how fed up I was with them bothering me. They really played up their “corporate” power, making opponents against them start asking for voters to “Stand Up for Austin” and telling them that we “Shouldn’t Be Bullied”. Uber/Lyft also had a ton of social media advertisements, a Snapchat filter, flyers I received in the mail, posters/signs everywhere, etc. It seemed like the companies were taking over our lives in Austin, which for the city known as being “weird” made a lot of residents freaked out. The whole foundation of Austin is resisting corporate rule and the status quo.

My Take:  Chrisian Perea has written a thorough analysis of the Austin situation for The Rideshare Guy and he’s hit most of the key points.  This article gives offers another perspective – people in Austin were just turned off by Uber’s aggressive tactics especially their ad campaign.  Sometimes, $8.6 million bucks can do more harm than good.

Uber Recognizes New York Drivers’ Group, Short of a Union

Sum and Substance: Uber announced an agreement on Tuesday with a prominent union to create an association for drivers in New York that would establish a forum for regular dialogue and afford them some limited benefits and protections — but that would stop short of unionization. 

The association, which will be known as the Independent Drivers Guild and will be affiliated with a regional branch of the International Association of Machinists and Aerospace Workers union, is the first of its kind that Uber has officially blessed, although Uber drivers have formed a number of unsanctioned groups in cities across the country. 

“We’re happy to announce that we’ve successfully come to agreement with Uber to represent the 35,000 drivers using Uber in New York City to enhance their earning ability and benefits,” said James Conigliaro Jr., the guild founder and assistant director and general counsel at the International Association of Machinists District 15, which represents workers in the Northeast. The agreement is Uber’s latest attempt to assuage mounting concerns from regulators and drivers’ groups about the company’s labor model, which treats drivers as independent contractors. That model helps Uber keep its labor costs low, but it excludes drivers from coverage by most labor and employment laws, such as those that require a minimum wage and overtime.

My Take:  This is just one more indication that ridesharing is constantly in flux.  This is an incremental step for drivers, but it foreshadows much bigger steps ahead.  That Uber has recognized this driver’s association is significant.  It signals that they now get the importance of drivers in their ecosystem.    The practical effects of this move are minimal, but the symbolic effects are important.  Good move for Uber to recognize this association.

Readers, what do you think of this week’s articles?

-John @ RSG