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Platform Strategy and Uber’s Exit from China

October 6, 2018 • EMERGING TRENDS, BUSINESS & INNOVATION, Editor’s Choice, Strategies for the Changing World

By John Colley

This article assesses the necessary conditions for effective platform strategy by considering the evolution of the ride hailing industry and Uber’s late entry to China. Conclusions include the consequences of being slow in markets dominated by network effects and the importance of local knowledge and connections. Attrition-based competition may arise as a consequence of the ease of raising funds.

 

After just two years in the Chinese ride hailing market, Uber chose to leave after losing undisclosed sums by at least $2Bn. Uber was a late entrant to China in 2014. Following a battle with incumbents Didi Chuxing, it was forced to negotiate an exit due to mounting losses and increasing shareholder pressure. The Chinese Uber position was sold to Didi Chuxing in return for 17.7% of their business. It remains unclear whether this holding ultimately has any real value. At that time, Uber CEO Travis Kalanick was also Chairman of the Chinese operation and had a personal interest in the business. In 2017, he was subsequently unseated as CEO of Uber following a plethora of PR and legal crises. Business strategy was also a significant concern. Since the exit from China, Uber has similarly withdrawn from Russia and South East Asia. The battle in India with Ola is also resulting in major losses and there are unconfirmed reports of negotiations there too.

What can be learned from this debacle about both “platform strategy” and “doing business in China”?

What does this tell us about leadership in a Silicon Valley business world awash with cash, where raising funds appears easier than generating profits?

 

China’s taxi market

In China, Uber’s real problem was their late arrival and competitors’ consolidation to form a powerful coalition of Didi Dache and Kuadi Dache from which emerged Didi Chuxing. Didi had backers with deep pockets in Tencent, Alibaba, sovereign wealth fund CIC and Apple. A consequence was Didi claiming an 80% market share with Uber a comparative minnow in China. Taking on an established business with a dominant market share and vast resources in their home market is highly risky, without a better product or ability to attack poorly-serviced niches. Uber had started in 2009 but did not enter China until 2014. Five years is a significant lag in a world of platform start-ups where late arrival usually creates an impossible position.

 
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About The Author

John Colley is Professor of Practice in Strategy and Leadership, Pro Dean, at Warwick Business School. Following an early career in Finance, John was Group Managing Director of a FTSE 100 business and then Executive Managing Director of a French CAC40 business. Currently, John chairs two businesses and advises private businesses at board level. Until recently he chaired a listed PLC.

 

References

1. “Uber Fundraising”.  https://en.wikipedia.org/wiki/Uber

2. “Softbank to Switch $20Bn ride hailing stake into Vision technology fund.” Financial Times. https://www.ft.com/content/87e31a34-47d8-11e8-8ee8-cae73aab7ccb

3. “Uber is still the leader in global ride hailing”. The Drive. http://www.thedrive.com/tech/22362/uber-is-still-the-leader-in-global-ride-hailing-report-says

 

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