In Deal With Didi, Uber Frees Itself to Expand in Other Markets

Harry here.  There were some rumors of a potential Uber-Didi partnership over the past couple weeks, but boy did things escalate quickly.  If you’ve been following any of The Information or Pando’s reporting on China though, it shouldn’t come as a big surprise.  Despite lots of posturing, Uber wasn’t doing too well in China and it was only a matter of time before something big happened.

What ended up happening was a surprise, but the reason why it happened was not.  Unlike some have reported, the Chinese government had nothing to do with Uber failing in China.  Put simply, Uber ran into a bigger and better version of themselves.  Didi had a majority market share from the onset, just as much cash and, most importantly, out-executed and out-maneuvered Uber at every step of the way.

Today, senior RSG contributor John Ince takes a deeper look at what happened to Uber in China, shares an update on the Uber employee misclassification lawsuit and highlights a story in Kenya that we’ve seen play out over and over in the US.

In this week's roundup, John covers what happened to Uber & Didi in China, shares an update on the Uber lawsuit, & how drivers in Kenya are like US drivers.

In Deal With Didi, Uber Frees Itself to Expand in Other Markets [Bloomberg]

Sum and Substance: Uber Technologies Inc. is selling its China operations to fierce rival Didi Chuxing, ending an expensive price war and freeing it up to focus on other markets and possibly an initial public offering. 

The truce brings to an end a bruising battle between the two companies for leadership in China’s fast-growing ride-hailing market. Uber has already lost $2 billion in China in two years there, people familiar with the matter have said, prompting investors to pressure the company to cut a deal. As part of the arrangement, Didi will invest $1 billion in Uber’s global company, people familiar with the matter said. 

Uber has said that it’s profitable in the U.S. and Canada, but losses in developing markets have undercut that hard-fought progress. The huge losses in China have been one of the main sticking points holding up Uber’s potential IPO, according to people familiar with the matter.

“The biggest existential threat to Uber over the last two months was that in China they were losing capital in a way that potentially threatened the rest of their worldwide operations,” said Arun Sundararajan, a New York University professor. “The fact is that in the short term it may seen as a loss, but in the long run it’s a good move. Now they can focus on the rest of the world.”

With China settled, Uber can turn to other countries where it’s fighting for market share, such as Grab in Southeast Asia, Ola in India and Lyft Inc. in the U.S. Didi is buying Uber’s brand, business and data in the country, the Chinese company said in a statement. Uber Technologies and Uber China’s other shareholders, including search giant Baidu Inc., will receive a 20 percent economic stake in the combined company. Didi founder Cheng Wei and Uber Chief Executive Officer Travis Kalanick will join each other’s boards.

My Take:  This is the blockbuster story of the week.  There are lot of moving parts, but it looks like Uber negotiated a pretty good deal.  They got 18-20% of the combined entity, which in the long run may be their most valuable asset – especially if Didi can get away with incremental price increases that put them on a path to profitability.

Uber had no business trying to make it work in the Asian markets.  They were up against locally-owned competition in Asia that knew the markets better.  There’s even a motorbike version of Uber in Indonesia, called Go-Jek, which makes much more sense in gridlock infested cities.  Go-Jek just raised over $500 million and Grab, another competitor, now has a valuation of $2.3 billion.  Uber did well to get out of China while the getting was good.

All in all, Uber did well with this deal – they saved face, stopped the bleeding red ink in China, freed up management headaches and moved a step closer to an IPO.  Now, what does this mean for Lyft?  That’s where things get really confusing.  One of the oddities of this deal is that by becoming a part owner of Didi, Uber is now also a part owner of Lyft because, you guessed it – Didi is an investor in Lyft.  In a backhand way, Uber is now essentially beginning a buyout of Lyft.

Uber in Dare to Judge Says It’s Ready to Ditch Driver Settlement [Bloomberg]

Sum and Substance: Uber Technologies Inc.’s message to the judge who must approve its $100 million settlement with drivers is clear: take it or leave it. In an escalating game of courtroom brinkmanship, Uber has hit what may be an impasse with U.S. District Judge Edward Chen over its demand that, as part of the deal, he erase his own order intended to protect the ride-hailing company’s drivers. 

“Uber is almost daring Judge Chen to go against its wishes,” said Charlotte Garden, an associate professor at Seattle University School of Law. “Uber all but says that if he doesn’t treat the issue the way it wants, it will walk away from the deal.” That gives the San Francisco judge the choice of approving what he sees as a flawed agreement or sending lawyers back to the bargaining table knowing that the settlement is likely to fall apart. That would leave more than 350,000 drivers in California and Massachusetts with nothing to show for three years of court battles.

Uber wins either way because the settlement will let the world’s most valuable technology startup escape with a relatively small financial sacrifice and only minor tweaks to its business model, keeping drivers classified as independent contractors instead of employees.

If the deal isn’t approved now, Uber may get a favorable appeals court ruling any day that will give it the upper hand in any further negotiations. The end result may be that the case once seen as the most likely to upend the gig economy’s no-guarantees work rules could embolden Uber and other companies facing similar lawsuits across the U.S. to dig in their heels.

My Take:  Uber is once again playing chicken with their adversaries.  Emboldened by questions posed at an appeals court hearing in June, Uber feels it now has a stronger hand in potential negotiations with the plaintive in the San Francisco case over independent contractor status of drivers.

The immediate issue is Uber’s ability to fashion and enforce an arbitration agreement with its drivers.  No surprise in Uber’s tactics here – as always they’re rooted in self interest.  Uber doesn’t want the class action to include many drivers in the class.  Smaller class, smaller effect of ruling, smaller payout.  The judge’s dilemma is whether or not to approve the interim settlement of up to $100 million – a settlement that would leave unsettled the question of whether or not drivers are employees or independent contractors.

A New Study Says Uber Has Had No Impact on Drunk Driving [Fortune Magazine]

Sum and Substance: Ride-sharing giant Uber has claimed that its service doesn’t just offer convenience, but safety for communities by reducing drunk driving rates. But a new study starkly contradicts those claims. 

Research published in the American Journal of Epidemiology compares drunk driving fatalities and traffic deaths on weekends and holidays in U.S. counties before and after the introduction of services like Uber, competitor Lyft, and others. The study centers on the 100 most populated American metropolitan regions and was conducted by scientists from the University of Southern California and Oxford University. The results were striking.

“We found that the deployment of Uber services in a given metropolitan county had no association with the number of subsequent traffic fatalities, whether measured in aggregate or specific to drunk-driving fatalities or fatalities during weekends and holidays,” wrote the researchers. Study co-author David Kirk told the Washington Post the report indicates “there’s still tons of room for improvement when it comes to reducing drunk driving fatalities,” of which there are 10,000 every year in the U.S.

There are several possible explanations for the findings. For one, customers who wanted to avoid drinking and driving may have simply switched over from using taxi services to using Uber and Lyft. It’s also possible that there still isn’t a robust enough supply of Uber drivers to counteract drunk driving, or that some people are simply willing to take the risk no matter what ride options are available to them.

My Take:  Remember that big splash Uber made awhile back when they announced the study (funded by Uber) in partnership with MADD (Mothers Against Drunk Driving)? That study provided clear evidence that Uber’s presence reduced drunk driving fatalities.   Well, well, turns out Uber’s self-funded study wasn’t so accurate.  Another independent study essentially contradicts Uber’s study.  As they say … you get what you pay for.

Drivers in Kenya are protesting against being “Uber slaves” [Quartz]

Sum and Substance: Uber is encountering some bumps in Nairobi, one of its biggest markets in Africa. After months of protest and attacks by taxi drivers hoping to intimidate drivers and customers of the taxi hailing app, the company is now facing strikes from its own Uber drivers over a fare cut announced last week.

Protesters in Nairobi waved picket signs with critical statements including, “we should not be Uber slaves in our country.” … Uber announced a 35% fare reduction last week in hopes of boosting demand. Uber, which is in now in 10 sub-Saharan markets, has been facing more competition from local and outside taxi hailing apps across the continent.

In Kenya, rivals have been offering cheaper rates and customized services like boda boda, or motorbike, rides. Safaricom, the dominant telecom in the country, has also launched its own taxi hailing app, Little Cabs. In response to the rate cut, a group of Uber and Little Cab drivers have organized their own union, the Kenya Digital Taxi Association. About a hundred protesters blocked traffic along a main Nairobi highway. Drivers refused to accept ride requests most of the day and waited outside Uber’s office in Nairobi.

My Take:  Take note: anti-Uber driver sentiment is officially a global phenomenon.  Uber’s using the same tactics: fare cuts resulting in driver pay cuts – and drivers halfway around the globe are reacting in the same way they do here in the United States.  Unwittingly, Uber is creating a global army of drivers, who each have the ear of their customers in the privacy of their own car.  It’s difficult to imagine a more combustible situation for a company whose primary asset is the value of its brand.

Cab driver falsely accused of rape saved by his phone app [Telegraph UK]

Sum and Substance: A woman who falsely accused a taxi driver of a knifepoint sex attack has been jailed after he exposed her lies using an app on his mobile phone. 

Mohammed Asif was left in tears in a police cell after Astria Berwick told officers he had carried out an assault on her in his cab. But the 34-year-old eventually proved his innocence with a voice recording app he was using in his taxi because his CCTV was broken. Berwick, of Bingham, Notts, was sentenced to 16 months in prison after admitting perverting the course of justice.


Nottingham Crown Court heard she had used Mr Asif’s taxi on February 20, then called police to say she had been the victim of a serious sexual assault. Judge Michael Stokes QC, The Recorder of Nottingham, said: “This was outrageous behaviour by the defendant against a wholly innocent man who had been saved by the recording on his phone.” Berwick had invented the story for “some unaccountable reason”, he added. 

Mr Asif, a father-of-two from Carlton, Nottingham, said the experience had torn his life apart, leaving him unable to face working again for a month, having problems sleeping and causing him to lose a stone in weight. He said: “She changed my life. I’m completely different now. I’m scared to go out. “I keep thinking, ‘I just dropped her off, she was just a normal passenger, why has she done that?” He said he felt “really lucky” he had switched on the app on the day of the alleged attack, as without it he believed he would now be on remand waiting to face trial.

My Take:  This is every driver’s worst nightmare.  You do everything right and suddenly your life falls apart because some passenger, for whatever reason in their head, makes up a story about you.  Now what?  Fortunately, this guy happened to be recording the ride – leading to the capture and ultimate incarceration of the woman.  If this isn’t a reason to start using a dashcam, I don’t know what is. It could save your life.

Readers, what do you think of this week’s stories? Is Uber ultimately going to take over Lyft?

-John @ RSG

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