Episode 31: The Uber - Didi Chuxing Merger with Brad Stone, author of The Upstarts & The Everything Store

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Summary Notes


In episode 31 of "Acquired," hosts Ben Gilbert and David Rosenthal, along with guest Brad Stone, dive into the intense rivalry and eventual merger between ride-sharing giants Uber and Didi Chuxing. The discussion highlights the aggressive capital-fueled expansion strategies, the pivotal role of Chinese tech giants like Tencent and Alibaba, and the cultural differences shaping the companies' trajectories. The episode also touches on the broader implications of the merger, the regulatory landscape in China, and the ongoing shift towards autonomous vehicle technology. With insights from Stone, the senior executive editor of global technology at Bloomberg and author of "The Upstarts," the conversation explores the strategic maneuvers and outcomes of the Uber-Didi battle, illustrating the high stakes and rapid evolution of the ride-sharing industry.

Summary Notes

Introduction to Acquired Podcast Episode 31

  • Hosts Ben Gilbert and David Rosenthal introduce the podcast focused on technology acquisitions and IPOs.
  • They announce a guest episode featuring Brad Stone, the author of the books "The Everything Store" and "The Upstarts."
  • Administrative details and acknowledgments are provided before the main discussion.

"Welcome to episode 31 of Acquired, the podcast where we talk about technology acquisitions and IPOs. I'm Ben Gilbert." "I'm David Rosenthal, and we are your hosts." "We have another guest episode today, and we are very, very, very excited to welcome Brad Stone."

  • The quotes introduce the episode and its focus on technology acquisitions and IPOs.
  • They also introduce the hosts and guest Brad Stone, highlighting his work as an author on tech company histories.
  • Advertisement is identified and omitted from the study notes as per instruction.

Acquired Podcast Community and Acknowledgments

  • The hosts invite new listeners to join the Acquired Slack community for real-time discussions and analysis.
  • They thank KUOW, a radio station in Seattle, for allowing them to record in their studio.

"For those of you who are longtime listeners of Acquired, you know about the slack, but if you're new to the show, join over 400 other listeners of Acquired for real-time discussion, analysis and news as it's happening."

  • The quote encourages listeners to join the Acquired Slack community for engaging discussions.
  • It serves as an invitation to become more actively involved with the podcast's community.

Introduction of Brad Stone

  • Brad Stone is introduced as the senior executive editor of global technology at Bloomberg.
  • He has covered tech in Silicon Valley for nearly 20 years and authored books on Amazon and a new generation of internet companies like Airbnb and Uber.
  • His work has had a significant impact on the hosts' thinking and is highly recommended.

"Brad is the senior executive editor of global technology at Bloomberg and before that he covered tech in Silicon Valley for nearly 20 years as a reporter at Bloomberg, Newsweek and the New York Times."

  • The quote provides background information on Brad Stone's career and expertise in technology reporting.
  • It establishes his credibility as a guest on the podcast.

Brad Stone's Perspective on Following Amazon's Story

  • Brad Stone discusses the challenge of following up the story of Amazon with his book "The Upstarts."
  • He chose to focus on a wave of companies during a defining moment in Silicon Valley, profiling Airbnb and Uber.

"It's hard to follow up the story of Amazon because there's really nothing like it. Somewhere along the journey of trying to find what was next, they decided, okay, maybe there isn't a follow up. Maybe you can look at a kind of wave of companies in a defining moment in Silicon Valley."

  • The quote explains Stone's approach to writing "The Upstarts" after the success of "The Everything Store."
  • It highlights the unique nature of Amazon's story and the decision to explore a broader set of companies in Silicon Valley.

The Merger Between Uber and Didi Chuxing

  • The hosts and Brad Stone discuss the merger between Uber and Didi Chuxing in China, a story that has been underreported in the Western world.
  • Brad Stone's reporting has been pivotal in bringing this story to light.

"Today we're going to talk about something that a story, a merger that probably a lot of our readers know happened recently, but hasn't gotten nearly, I think, enough press in the western world at least."

  • The quote sets the stage for the discussion about the Uber-Didi merger, indicating its significance and lack of coverage in the West.
  • It acknowledges Brad Stone's role in reporting on this major event.

The Emergence of Ride-Sharing in China

  • In 2012, numerous companies in China began pursuing the ride-sharing market, inspired by companies like Halo and Uber.
  • Cheng Wei and Wang Gang, from Alibaba, pivot their app Momo to create Didi Dash, which translates to "Beep Beep Call a Taxi."

"Halo in 2012 promoted the heck out of its international expansion. And that was a huge mistake because they not only mobilized Uber to grow more quickly in the US, and then Uber got to markets like Chicago and other cities before Halo ever really moved on its promise to expand, but Halo also stirred all this entrepreneurship in China."

  • The quote discusses the impact of Halo's expansion plans on stimulating entrepreneurship in China's ride-sharing market.
  • It highlights the unintended consequences of Halo's aggressive promotion and how it influenced the rise of companies like Didi.

The Personal Stories of Cheng Wei and Travis Kalanick

  • Cheng Wei's story is marked by personal setbacks that led to his entrepreneurial journey, which Brad Stone finds compelling.
  • Travis Kalanick and Cheng Wei share similarities in their drive and relentlessness, despite different outward personalities.

"I just love CHENG Wei, you know, he was great, I should say. You know, his English isn't so good and my Chinese is non existent. So my partner in crime on this story was Lulu Chen, one of my Bloomberg colleagues in Beijing."

  • The quote introduces Cheng Wei, co-founder of Didi, and acknowledges the collaboration with Lulu Chen for the interview.
  • It provides insight into the personal background of Cheng Wei and his journey in entrepreneurship.

The Impact of Tencent's Investment in Didi

  • Tencent's investment in Didi was pivotal for the company, especially with the integration of Didi into WeChat during the Chinese New Year.
  • The strategic partnership with Tencent allowed Didi to leverage WeChat's massive user base for growth.

"And when they did that, everything became possible to pick up the story there. I think what's striking, reading the book and hearing about these, the early days of the ride-sharing competition in China, is it makes the Uber Lyft fight that we think is so ugly and distasteful here in the States."

  • The quote reflects on the significance of Tencent's investment in Didi and the impact on the ride-sharing market in China.
  • It contrasts the competitive landscape in China with the Uber-Lyft rivalry in the United States.

Key Theme: Rise of Mobile Payments in China and Ride-Hailing Companies as Proxies

  • Mobile payments identified as the next battlefield for Internet giants in China.
  • Tencent and Alibaba use ride-hailing companies Didi and Kwaidi to drive mobile payment volume.
  • Investment from Tencent and Alibaba in ride-hailing companies spurred rapid growth and significant financial burn.

"And both Tencent and Alibaba, the sponsors of these ride sharing companies, realize that the next battlefield in this longstanding war between the Internet giants and China is gonna be mobile payments."

This quote highlights the strategic importance of mobile payments for Tencent and Alibaba and their use of Didi and Kwaidi to compete in this space.

Key Theme: Investment and Competition Escalation

  • Alibaba and Tencent, along with other investors, pour billions into ride-hailing companies.
  • Yuri Milner of DST invests in Didi after missing out on Uber.
  • The competition between Didi and Kwaidi intensifies, leading to a merger to better compete against Uber.

"And both the Alibaba and Tencent are pouring tons of money in. But other investors are also venture firms and private equity firms also pouring in lots of money."

This quote emphasizes the significant financial investment from various sources into the competing ride-hailing companies, reflecting the intense competition in the sector.

Key Theme: Corporate Venture Capital Differences Between China and the US

  • Corporate venture capital in China is more directly involved in funding and influencing the market.
  • Tencent and Alibaba's investment approach contrasts with US companies like Google, which may compete with their investments.
  • Chinese Internet companies exhibit a willingness to exercise direct influence, which could invite regulatory scrutiny in the US.

"But we don't really have this first tier of funding is kind of corporate venture like there is going to be."

The quote points to the unique role of corporate venture capital in China, which is more prevalent and influential than in the US.

Key Theme: Uber's Entry and Strategic Moves in China

  • Uber's clandestine presence in China began in 2013, with a focus on the black car market.
  • Baidu's investment in Uber improved their mapping technology and market position.
  • Uber initially offered to acquire a significant stake in Didi, which was rejected.

"So they solicited an investment in Baidu. They start using baidu maps, which is much smarter about transportation in China than Google, and the product just gets much better."

This quote indicates that Uber's partnership with Baidu was a strategic move to improve their service and competitiveness in China.

Key Theme: The Intensity of Competition and Rapid Growth

  • Didi and Kwaidi's merger led to a rapid expansion and intense competition with Uber.
  • The companies raised and spent billions in subsidies to gain market share.
  • The Chinese ride-hailing market experienced a much faster valuation growth compared to Uber in the US.

"And 700 days go by. I mean, the pace is just blistering."

This quote captures the incredibly rapid pace at which the Chinese ride-hailing companies grew and competed against each other.

Key Theme: Didi's Victory and Uber's Strategy

  • Didi's aggressive strategy included investing in Uber's global rivals.
  • Uber's investors pressure for a truce, leading to Uber selling its China operations to Didi.
  • Uber secures a 17% equity stake in Didi and a $1 billion investment.

"And Didi agrees to invest 1 billion in Uber us dollars and get a board observer seat."

The quote outlines the terms of the deal between Didi and Uber, marking the end of their intense competition in China.

Key Theme: Market Dynamics and Government Influence

  • The Chinese government's potential influence on the market is discussed.
  • Uber's transportation service faced fewer censorship challenges compared to other US tech companies.
  • Didi's local market understanding and government relationships may have contributed to their success.

"Uber is a transportation tool, so it was sort of less clear that they were violating those rules."

This quote suggests that Uber's service model did not directly conflict with the Chinese government's censorship rules, unlike other US tech companies.

Key Theme: The Aftermath of the Uber-Didi Deal

  • The deal was seen as respectful and beneficial for both companies.
  • Uber's retreat from China was compensated by a significant stake in Didi.
  • The outcome of the investment and merger is evaluated in terms of strategic value and market impact.

"For Didi, it's a great deal, too, because they kind of win."

This quote reflects the sentiment that the deal was advantageous for Didi, allowing them to dominate the Chinese ride-hailing market.

Uber's Investment in Didi

  • Uber invested $2 billion and received a $6 billion value in present dollars with the hope that Didi would grow in value in China.
  • The investment aimed to capitalize on the Chinese market, which was expected to become significantly larger than Uber itself.

"Uber is investing $2 billion to get almost $6 billion in value of present dollars."

  • This quote indicates the financial scope of Uber's investment in Didi and the expected return in terms of present value.

Regulatory Changes in China

  • Regulations in China changed, making it illegal to drive for ride-sharing companies if you don't live in the city.
  • This change constrained Didi's supply and slowed its growth, suggesting Uber exited the Chinese market at an opportune time.

"The regulatory environment in China was about to change for all the ride-sharing companies, a lot of the big cities have now said it is illegal to drive for these companies if you don't live in the city."

  • This quote highlights the regulatory shift in China that impacted the ride-sharing industry, affecting companies like Didi and potentially benefiting Uber by exiting when it did.

Protectionism and Traffic Concerns

  • Cities may have implemented the new regulations as a form of protectionism for traditional taxi fleets and to address traffic congestion.
  • Didi has adjusted by focusing on services like chauffeured offerings and buses.

"It's protectionism. I mean, I think that the yellow cab fleets are a major source of revenue for cities, and the fees and taxes that they pay and protect, perhaps the medallion fees."

  • The quote suggests that cities' introduction of regulations could be to protect existing taxi services that contribute revenue through fees and taxes.

Shift to Driverless Technology

  • The ride-sharing market is pivoting to driverless car technology, making it less sensible to fight for market share in a rapidly changing industry.
  • Both Didi and Uber are investing in the future of autonomous vehicles, with Uber testing cars in various cities.

"It became very clear over the last two years that this market was about to undergo a major pivot into driverless car technology."

  • This quote explains the strategic shift in the ride-sharing industry towards autonomous vehicle technology and the rationale behind Uber's investment decisions.

Uber's Late Entry to Self-Driving Cars

  • Uber was not initially focused on self-driving technology until Travis Kalanick experienced a self-driving Google car.
  • Google's potential competition in the self-driving space prompted Uber to invest heavily in the technology.

"Travis starts to realize that Google is not a partner in self-driving cars, but a competitor."

  • The quote indicates a critical turning point for Uber, recognizing Google as a competitor in the autonomous vehicle sector, which led to Uber's strategic investment in the technology.

Global Reach of Ride-Sharing Companies

  • Being a global company may not provide a significant advantage in the ride-sharing industry.
  • Local knowledge and relationships can be more beneficial than a global presence, as shown by companies like Lyft and Ola.

"It's really not clear that being globally gives you that much of an advantage."

  • This quote challenges the notion that international expansion is inherently beneficial in the ride-sharing market, suggesting that local expertise may be more valuable.

Capital as an Advantage

  • Uber believed capital would be a significant advantage, but competitors have been able to fund themselves effectively.
  • The competitive landscape shows that access to funding is not a unique advantage for Uber.

"They thought that capital would be the ultimate advantage, but all these other companies have been able to fund themselves just fine."

  • The quote reflects on Uber's miscalculation regarding the role of capital in securing a competitive edge, as other companies have also successfully raised funds.

Didi's Global Expansion

  • Didi is continuing to expand globally, investing in companies like 99 in Brazil, indicating the global competition with Uber is ongoing.

"Just last month, Didi announced that they were going to invest $100 million in a company called 99, which is the primary uber competitor in Brazil."

  • This quote reveals Didi's strategic investment in global markets, signifying its ongoing competition with Uber outside of China.

Acquisition Category

  • The acquisition of Uber's China operations by Didi is categorized as "other," representing a strategic move to eliminate competition rather than acquiring a specific asset or technology.

"This was a takeout. Uber was not buying something here that they couldn't otherwise get by making a talent acquisition or buying an interesting new technology company."

  • The quote explains the nature of the acquisition, emphasizing that it was not about acquiring assets or technology but about resolving competition.

Potential Outcomes if Uber Continued in China

  • If Uber had continued to fight in China, it could have been detrimental to other parts of its business.
  • The decision to exit allowed Uber to focus on other markets and technologies, such as driverless cars and trucks.

"It could have gone on for a long time, but it would have been destructive to Uber and other parts of its business."

  • This quote speculates on the negative impact on Uber had it persisted in the Chinese market, suggesting that exiting allowed the company to pursue other opportunities.

Impact of Company Culture on Business Trajectory

  • Uber's aggressive, win-at-all-costs culture has led to various problems, including public perception issues and internal challenges.
  • Company culture is a significant factor in the business trajectory and can influence both success and controversy.

"Uber is one that has been a win at all costs company."

  • The quote highlights the aggressive nature of Uber's company culture and its potential consequences on the business and its reputation.

Role of Independent Press in Tech and Politics

  • The importance of an independent and inquisitive press is emphasized.
  • The press plays a crucial role in uncovering the complexities within tech companies and political environments.
  • The story of Uber's internal challenges is an example of an ongoing narrative that benefits from press scrutiny.

"And, you know, there's lots of, you know, that's why in tech as well as in politics, that's why the role of, you know, an independent, inquisitive press is so important."

  • This quote highlights the value of the press in providing oversight and accountability within both the technology sector and political arenas.

Uber's Organizational Challenges

  • Uber is acknowledged to have numerous internal challenges and chaos that need resolution.
  • The podcast suggests that even those within Uber, including employees, are aware of these issues.

"But I think it's uncontroversial to say, like you said, Brad, there are a lot of challenges and chaos there that needs to be solved. That at least seems clear."

  • The quote acknowledges the widely recognized issues within Uber that require attention and solutions.

Two-Sided Marketplaces and Uber's Focus

  • Two-sided marketplaces like eBay, Airbnb, and Uber inherently face balance issues between different user groups.
  • Uber is described as rider-driven, with its founders initially seeking classy rides in San Francisco.
  • The company is now attempting to address driver dissatisfaction, which is exacerbated by fare reductions aimed at competing with car ownership.

"Uber is really a rider driven community. The founders started out wanting classy rides around San Francisco."

  • This quote explains Uber's initial focus on riders and the company's origins, which have influenced its business model and priorities.

Founder DNA and Company Culture

  • The culture and values of a company often reflect the personality of its founders.
  • Founder DNA can persist through multiple CEO transitions, influencing the company's trajectory and product experience.

"Companies take the shoes of their founders and stay that way kind of forever."

  • This quote suggests that the imprint of a founder's personality and values on a company is enduring and shapes its long-term identity.

Idealism and Ruthlessness in Company Narratives

  • Companies need to balance idealism with ruthlessness to succeed.
  • Uber's idealism is compared to that of Lyft, with the suggestion that Lyft's mission feels more genuine.
  • The inventors and leadership of companies like Uber and Lyft influence their company narratives and missions.

"Every company, I like to say, has to sort of combine idealism and ruthlessness."

  • This quote captures the dichotomy that successful companies must navigate, blending aspirational goals with aggressive strategies.

Building a Moat vs. Scorched Earth Tactics

  • The discussion contrasts building sustainable competitive advantages ("moats") with aggressive expansion tactics ("scorching the earth").
  • Ride-sharing companies like Uber and Didi have grown rapidly, but the podcast questions the sustainability of their approaches.
  • Airbnb's focus on community and trust is highlighted as a smarter approach to building a defensible business model.

"What this story of both Uber and Didi really highlights for me is the difference between building a moat and scorching the earth."

  • This quote contrasts two strategic approaches to growth, questioning the long-term viability of aggressive expansion without sustainable competitive advantages.

Ride-Sharing Companies and Defensibility

  • The podcast considers how ride-sharing companies could strengthen their business models for better defensibility.
  • The network effects of ride-sharing are compared to those of Airbnb, with the latter seen as stronger due to its community focus.
  • There is speculation on whether unseen competitive advantages might emerge for ride-sharing companies in the future.

"It's really interesting to think about how could Uber, Lyft, Didi, how could ride-sharing in general, be better at building their flywheels for defensibility?"

  • This quote prompts discussion on how ride-sharing companies can improve their business models to create more enduring success.

Reflections on Uber's Investment Strategy

  • The podcast reflects on Uber's investment in Didi and the strategic outcome of that decision.
  • There is a debate over whether owning a stake in Didi has tangible benefits for Uber's core business.
  • The hosts discuss the potential downsides of the investment, such as missed opportunities and dilution of ownership stakes.

"I don't know that it actually gives them. If the machine that they're building is Uber technologies proper, then what did they really get out of investing in Didi?"

  • This quote questions the strategic value of Uber's investment in Didi and whether it aligns with Uber's core business objectives.

Company Dilution and Market Battles

  • Both Uber and Didi experienced significant dilution due to their intense competition and subsequent mergers.
  • The podcast considers whether alternative strategies could have been employed to avoid such dilution.
  • The importance of strategic maneuvering and swift action in the tech industry is highlighted through the example of Didi's founder.

"Both of these companies and their investors and their founding teams took enormous amounts of dilution to wage this battle."

  • This quote reflects on the cost of aggressive market competition and the resulting dilution of company ownership stakes.

Upcoming Analysis of Snapchat's IPO

  • The hosts announce plans to analyze Snapchat's IPO and its implications.
  • They express excitement about discussing the potential outcomes and strategic aspects of Snapchat's market debut.

"David and I are going to be recording an episode on the third in the morning and then hopefully producing that and getting it out over the weekend on the fourth."

  • This quote indicates the podcast's intention to provide timely analysis of Snapchat's IPO shortly after it occurs.

Personal Recommendations and Sign-Off

  • The hosts and guest share personal recommendations for books and podcasts.
  • They encourage listeners to engage with the show through various channels and look forward to future episodes.

"The book sapiens by Yuval Noah Harari was seminal for so many people, and he's got a new book out that I'm just starting but enjoying very much. Homo deuce, I think is how you pronounce it, a brief history of tomorrow."

  • This quote offers a personal recommendation for a book that provides a broad perspective on humanity's past and future, which contrasts with the day-to-day focus on the tech industry.

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