Why Uber Needs Baidu

Author

Julie Makinen

December 22, 2014

Beijing cabbies have a penchant for screechy Peking Opera and a habit of hacking up phlegm. When they’re not puffing away on cigarettes, they roll the windows down, filling the car with the Chinese capital’s notorious smog. But with 66,000 taxis serving the sprawling city of 21 million people, the laws of supply and demand are on the drivers’ side.

“Getting a normal taxi in central Beijing is a nightmare; the traffic is beyond imagination,” said Zhang Ming, 32, an accountant. “I love my job and my company, but I’ve suffered a lot with the commute.”

 

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So when Zhang discovered he could whip out his mobile phone and summon a ride with the touch of a button, it was a game-changer. Three to four days a week, Zhang gets a lift from Yidao, an Uber-like ride service also known as Yongche that launched in 2010 and is China’s market leader.

“I just think it’s brilliant,” he said. “You pay 30% more than a taxi but at least you can get somewhere quickly.” Still, he said, the experience can be as bad as a cab. “Sometimes you get a fantastic car; the next time you get a terrible car. One time, the seat was dirty, the smell was terrible, and the driver was listening to the radio very loudly. And my clothes reeked of smoke when I got out.”

Service-sensitive riders like Zhang are just the kind of customer Uber is targeting as it tries to gain a foothold in the highly competitive Chinese market. The company began testing the waters in the expat-heavy metropolis of Shanghai in 2013 and found a base of clients despite initially only offering an English-language app and relying on Google Maps, which are less accurate in China than in other countries.

Within months, Uber upped its game by switching map providers, introducing a Chinese-language interface, and allowing users to settle their bills using Alibaba’s popular PayPal-like service Alipay.

Now Uber is on the road in nine mainland cities—Beijing, Tianjin, Shanghai, Shenzhen, Guangzhou, Beijing, Chengdu, Hangzhou, and Wuhan—and offers four levels of service, from penny-pinching nonprofit ride-sharing “People’s Uber” to the luxury Uber Black.

 

On Wednesday, Uber announced a “strategic partnership” and investment with Baidu, China’s search giant. Baidu chief Robin Li wouldn’t say how much his company is investing—one early report from Bloomberg pegged the number at $600 million—and details on the cooperation remain vague. But the potential is huge.

Baidu says it has more than 500 million active monthly mobile search users, and 240 million active monthly users of its maps. If Uber’s services are integrated with those apps, its number of customers could skyrocket. Baidu also has a wallet function that could be integrated with Uber as a payment option.

The problem might be how quickly Uber can (or can’t) scale up the number of drivers in its network. The company won’t reveal how many cars it has in China now, but Ben Chiang, general manager of Uber Beijing, said the expansion rate in China has been faster than in other markets. Uber drivers interviewed in Beijing this fall pegged the number in the capital at about 500.

That would seem to put Uber far behind Yidao, which says it has 50,000 contracted cars in 57 Chinese cities (including 5,500 in Beijing), and 2 million users. And it’s not just Yidao that Uber is up against; Chinese commuters have at least three other major car-hailing options, including Didi Car, Kuaidi One, and AAYongche, to choose from.

Uber is also competing, to some extent, with China’s numerous taxi-hailing apps; one, Didi Dache, backed by Chinese Internet giant Tencent, raised $700 million in its latest round of fundraising. The service, whose name means “Honk, honk, catch a cab,” says it offers service in 300 cities and has 1 million registered drivers.

When he announced the Baidu partnership in Beijing, Uber CEO Travis Kalanick said that in 2015 the company “plan[s] to really invest deeply in our efforts here in China and regionalize them.” He added that Uber could benefit from Baidu’s push into emerging markets like Brazil.

And by aligning itself with a China-savvy giant like Baidu, Uber might find it easier to deal with government regulatory agencies, though Kalanick suggested that’s been less of an issue for the company in China than in other markets.

To distinguish itself in the competitive Chinese market, Uber is trying to set itself apart with high-quality cars, a streamlined interface, and attention-grabbing special events much like the ones the company is known for in the United States. On the Chinese New Year, Uber customers could summon a lion dance team to perform at their home or office; the day the iPhone 6 went on sale, users could have Uber buy and deliver one of the much-coveted devices for them. Uber even tried out a puppy-delivery day, bringing cute dogs to customers’ offices for 15 minutes of playtime.

 

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Zhang, the accountant, says he hasn’t tried Uber because he heard the map system service was poor. But Wu Ying, a 28-year-old who works in public relations, used Uber with an American friend in Beijing and found the experience top-notch. “The car was an Audi and even had Wi-Fi,” she said. “We had a discount code so it wasn’t too expensive, but I don’t see how I could afford to use it every day at the normal price.”

 

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While Uber may still be in their rear-view mirrors, Chinese car-sharing services are keeping a keen eye on the American newcomer. In fact, Yidao has plans to challenge Uber on its home turf. The company says it’s preparing to roll out U.S. operations with Mandarin-speaking drivers in San Francisco, New York, and other American cities, targeting Chinese visitors who want to hail a ride stateside in their native tongue.

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