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

In episode 31 of Acquired, hosts Ben Gilbert and David Rosenthal, joined by Bloomberg's senior executive editor Brad Stone, delve into the fierce competition and eventual merger between ride-sharing giants Uber and China's Didi Chuxing. The episode unpacks the strategic maneuvers, cultural differences, and aggressive capital deployment that characterized the battle for market dominance, culminating in Uber's retreat from China in exchange for a stake in Didi. The conversation also touches on the broader implications for the ride-sharing industry, including regulatory challenges, the shift towards autonomous vehicles, and the sustainability of global expansion models. Additionally, the episode features a discussion on the importance of company culture, with Uber's win-at-all-costs approach coming under scrutiny amidst recent controversies.

• Ben Gilbert and David Rosenthal host the Acquired podcast, focusing on technology acquisitions and IPOs.
• Brad Stone is introduced as a guest, known for his work at Bloomberg and authorship of books on Amazon and new tech companies like Airbnb and Uber.
• Administrative announcements include sponsorships and community engagement through the Acquired Slack channel.

"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."

The quotes introduce the podcast and its hosts, setting the stage for the episode's content.

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• Pilot's growth from a startup to a major accounting firm is highlighted, with endorsements from major investors.

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This quote highlights Pilot's role and its status in the industry, explaining why they are a suitable sponsor for the podcast.

• The Acquired Slack channel is a platform for real-time discussion among listeners.
• A thank you is given to KUOW, a Seattle radio station, for providing recording space.

"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 listener participation in the community and acknowledges the support from KUOW.

• Brad Stone is the Senior Executive Editor of Global Technology at Bloomberg.
• He has written "The Everything Store" about Amazon and "The Upstarts" about Airbnb and Uber.
• His work has influenced the podcast hosts' thinking and is recommended for listeners interested in tech company histories.

"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."

This quote provides background on Brad Stone's career and expertise, justifying his guest appearance on the podcast.

• Brad Stone reported on the merger between Uber and Didi, a significant event with limited coverage in Western media.
• The story begins in 2012 with Uber's international expansion and competition with other ride-sharing companies.
• The aggressive nature of the ride-sharing market in China is emphasized.

"So today we're going to talk about something that a story emerger 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 main discussion topic of the episode, the Uber-Didi merger, and its underreporting in Western media.

• Uber did not pioneer ride-sharing but adopted it after the success of Lyft and Sidecar.
• Travis Kalanick initially resisted ride-sharing, viewing it as illegal, but later fully embraced UberX.
• The rise of ride-sharing globally sparked a wave of entrepreneurship, particularly in China.

"In fact, they were reluctant to embrace it. Travis spent a lot of early 2013 trying to get Lyft and another company's sidecar shut down in California."

This quote explains Uber's initial stance on ride-sharing and its eventual adoption due to competitive pressure.

• Didi was founded by Cheng Wei, a former Alibaba salesman, and Wang Gong, who provided seed capital.
• The Chinese market saw a surge in ride-sharing startups, with Didi emerging as a significant player.
• Brad Stone describes Cheng Wei's personal setbacks and relentless drive that contributed to Didi's success.

"Chengwei at Didi's headquarters. And I loved him because he presents his story as a series of small personal humiliations."

The quote illustrates Cheng Wei's character and the personal challenges he overcame, providing insight into his entrepreneurial drive.

• Chinese Internet giants Alibaba and Tencent invested in ride-sharing startups, with Kwaidi backed by Alibaba and Didi by Tencent.
• The integration of Didi with Tencent's WeChat platform was a pivotal moment for Didi's success.

"Wang gong, the investor and Chengwei's mentor, his next call was to Tencent."

This quote highlights the strategic moves by Didi's founders to secure investment and partnership with Tencent, a key factor in their growth.

• Brad Stone compares the personalities and motivations of Uber's Travis Kalanick and Didi's Cheng Wei.
• Both founders shared a vision for technology's role in transportation but had different public personas.
• The discussion explores whether certain inherent qualities predict success in entrepreneurship.

"I think that this is a cultural thing. It's funny, because I was recently telling some of my colleagues in Asia that we need to stop describing Internet ceos and founders as humble."

The quote reflects on the cultural differences in how CEOs present themselves and the common drive underlying successful entrepreneurs.

• The competition among Chinese ride-sharing companies was fierce, with companies willing to operate at a loss to gain market share.
• Didi's strategic moves, including the partnership with Tencent, set the stage for its eventual dominance in the market.

"These 30 companies were just brutal to each other. And in particular, they all started raising large amounts of money and then being willing to go deeply, deeply gross margin negative."

This quote emphasizes the intense competition in the Chinese ride-sharing market and the aggressive tactics employed by companies, including Didi.

• Tencent and Alibaba view mobile payments as the next major competitive arena.
• Ride-hailing companies like Didi and Kuaidi are used to increase mobile payment volume.
• Significant investment is funneled into these companies to drive growth and payment volume.

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

This quote highlights the strategic importance of mobile payments for internet giants Tencent and Alibaba, and their use of ride-hailing companies to dominate this space.

• Venture firms and private equity also invest heavily in ride-hailing companies in China.
• Billions of dollars are burned to subsidize rides and gain market share quickly.

"But other investors are also venture firms and private equity firms also pouring in lots of money."

The quote indicates the high level of interest and investment from venture capital and private equity firms in the Chinese ride-hailing market.

• Big investors regret missing early investment opportunities with Uber.
• Yuri Milner of DST invests heavily in Chinese ride-hailing to compensate for missing out on Uber.
• Milner's investment in Didi and his role in brokering peace between competing Chinese companies is significant.

"Yuri Milner who prides himself on hitting all the big ones, passed on Uber. And so bets big on ride sharing or ride hailing in China."

This quote explains Yuri Milner's investment strategy and his consequential decision to invest in the Chinese ride-hailing market after passing on Uber.

• In China, major tech firms act as investment firms and directly invest in other companies.
• In the US, tech firms more commonly acquire companies rather than investing as corporate venture capitalists.

"In China, they're investment firms. They're their own business."

The quote contrasts the investment strategies of Chinese tech firms with those of their US counterparts, noting the unique role of corporate venture capital in China.

• Google Ventures' investment in Uber is discussed along with the subsequent competitive tension.
• Tencent's investment in Didi is contrasted with Google's approach, as Tencent does not compete with Didi.

"Google ventures invest in Uber. It's their biggest investment ever."

This quote underscores the significance of Google Ventures' investment in Uber and sets the stage for discussing the complexities of investor-company relationships.

• Chinese internet giants such as Tencent and Alibaba are willing to use their influence directly in the market.
• Tencent's preferential treatment of Didi on WeChat and blocking of Uber are examples of this influence.

"Tencent prioritizing Dee Dee on WeChat, but when Uber comes into China, it starts blocking Uber from WeChat."

The quote exemplifies how Chinese internet companies like Tencent use their platforms to favor their investments and hinder competitors.

• Chinese ride-hailing companies experienced rapid growth and high investment within two years of founding.
• The competitive landscape in China led to intense work culture and technical challenges.

"So they go from getting started, inspired by Halo, not Uber having this sort of wide playing field, and then a bloodbath emerges."

This quote describes the explosive growth and fierce competition among Chinese ride-hailing companies in their early years.

• Uber had a clandestine presence in China since 2013 and quickly gained market share upon formal entry.
• Uber's initial strategy in China faced challenges due to reliance on Google Maps and a focus on the limo market.
• Baidu's investment in Uber helped improve their service in China.

"Uber had had this kind of, like, small, sort of clandestine presence in China since 2013."

The quote reveals Uber's early and strategic entry into the Chinese market, which eventually led to a significant market share.

• Didi and Kuaidi merge to strengthen their position against Uber.
• Uber attempts to acquire a significant stake in Didi, but the offer is rejected.

"Chang Wei stays on as CEO of the company."

This quote highlights the outcome of the merger between Didi and Kuaidi, with Chang Wei remaining as the CEO of the combined entity.

• Didi invests in Uber's rivals globally, forming an alliance against Uber.
• Uber's investors were initially dismissive but later concerned by the global capital entering the market.

"Didi starts investing in all of Uber's rivals around the world, including Lyft in the US and Ola in India, and grab taxi in Southeast Asia."

The quote illustrates Didi's aggressive strategy to counter Uber's global presence by forming an international alliance with other ride-hailing companies.

• Uber's investors pressure the company to negotiate a truce with Didi.
• Uber sells its China operations to Didi in exchange for a 17% equity stake and a $1 billion investment.

"Uber sells its China operations to Dee Dee in return for a 17% equity stake, and DD agrees to invest 1 billion in Uber us dollars and get a board observer seat."

This quote explains the terms of the agreement between Uber and Didi, marking the end of their competitive battle in China.

• The discussion evaluates whether Uber's investment and subsequent retreat from China were financially beneficial.
• The comparison of investment versus value gained is considered.

"Was it a good move for Uber to engage in all of this activity and then leave with a 17% stake in Dee Dee?"

The quote prompts an evaluation of Uber's strategic decisions in China, focusing on the financial implications of their investment and eventual exit.

• Uber's exit from China was timely due to changing regulatory environment.
• Cities in China imposed restrictions on drivers, limiting supply and affecting growth for ride-sharing companies.
• The regulatory changes were a form of protectionism and aimed at controlling traffic congestion.

"So I think it was a good deal for Uber, and I'll give two reasons, but I'm curious to hear what you guys one, Uber may not have known this, but the regulatory environment in China was about to change for all the ride sharing companies." "Well, I think it's protectionism."

These quotes emphasize the regulatory challenges Uber faced in China, suggesting that their exit coincided with a more difficult operating environment. The regulatory changes were partly protectionist, aimed at supporting local taxi companies and addressing traffic issues.

• The ride-sharing market is shifting towards driverless car technology.
• Both Didi and Uber are investing in autonomous vehicle research.
• Being engaged in a market share battle in the face of technological disruption is not strategic.

"I think the other thing that happened, and the reason why this was a smart deal, probably for both companies, is it became very clear over the last two years that this market was about to undergo a major pivot into driverless car technology."

The quote highlights the strategic pivot towards autonomous vehicles in the ride-sharing industry. It suggests why Uber's exit from China to focus on future technologies was a smart move.

• Uber was not initially focused on self-driving cars.
• Travis Kalanick's experience with a Google self-driving car sparked Uber's interest in the technology.
• Google's shift from potential partner to competitor in autonomous vehicles prompted Uber to invest in the area.

"And one thing I learned from your book, Brad, is how fast or how recent Uber is to this sort of area of self driving cars that they really weren't tipped off to it until Travis got in one of the self driving Google cars when he went to meet with Larry Page."

This quote explains how Uber's foray into self-driving technology was reactive to Google's advancements, rather than proactive, and how competitive dynamics influenced Uber's strategic decisions.

• Statsig is a feature management and experimentation platform.
• It allows product teams to ship features faster and measure their impact on business metrics.
• Notion, Brex, and OpenAI are among the companies using Statsig.

"Statsig is a feature management and experimentation platform that helps product teams ship faster, automate a b testing, and see the impact every feature is having on the core business metrics."

The quote describes the utility of Statsig in helping product teams make data-driven decisions and improve feature deployment efficiency, which is crucial for tech companies' growth and adaptability.

• The competition between Uber and Didi is not confined to China.
• Being a global company does not necessarily provide an advantage in the ride-sharing market.
• Local knowledge and adaptation are crucial for success in different regions.

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

This quote indicates the ongoing global competition between Uber and Didi, showing that the rivalry extends beyond China and has implications for market dynamics in other regions.

• Company culture has a significant impact on business trajectory.
• Uber's culture has been characterized by aggression and a win-at-all-costs mentality.
• Company culture influences public perception and internal operations.

"A big one that I really want to talk about is company culture and its impact on business trajectory."

The quote underscores the importance of company culture and how Uber's aggressive approach has led to various challenges and controversies, affecting both its public image and operational efficiency.

• Uber's culture has been described as "frat boy," but this may unfairly dismiss the accomplishments of women leaders within the company.
• The ongoing news cycle requires an independent press to uncover the full story.
• There are clear challenges and chaos at Uber that need to be addressed.

"I think it's unfair to the many accomplished women who work at Uber and have leadership positions to just dismiss it as a frat boy."

This quote highlights the importance of recognizing the contributions of women in leadership roles at Uber, despite the company's controversial culture.

"But I think there is no question that, and I suspect even people who work at Uber and listeners, if you do work at Uber, reach out to us and would love to hear your perspectives. 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."

This quote underscores the need for further investigation into Uber's internal challenges and invites perspectives from those within the company.

• Two-sided marketplaces like Uber face challenges in balancing the needs of both sides (riders and drivers).
• Uber is rider-driven, but it's starting to focus more on the driver community.
• There is dissatisfaction among full-time drivers due to fare reductions aimed at making Uber an alternative to car ownership.

"And one of Jeff's goals for 2017 was to address the rider community... Uber is really a rider driven community... Uber now is sort of focusing on the driver community and has a lot of work to do, I think, to quell some of the dissatisfaction, particularly among full time drivers."

This quote explains Uber's shift in focus towards addressing driver concerns and improving their experience to balance the marketplace.

• Company culture and product experience often reflect the founder's personality.
• Companies rarely deviate from their founder's DNA, even after leadership changes.

"When you describe the culture and values and character of a company, not even through the internal workings, but in the way that the product experience feels when you use it, it's almost indistinguishable from the founder's personality."

This quote emphasizes the significant impact a founder's personality has on the company's culture and the user experience of its products.

• The ride-sharing industry, including Uber and Didi, has taken a scorched earth approach to growth.
• Sustainable advantages, such as capital raising and driver density, have been overestimated.
• Airbnb's focus on community and trust has built a stronger moat than ride-sharing companies.

"The difference between building a moat and scorching the earth... They've taken this scorched earth approach and they've gotten, you know, I don't know. But I would suspect that just in terms of net revenue to the company, Uber is probably larger than Airbnb at this point."

This quote compares the aggressive growth strategies of ride-sharing companies to the more sustainable community-focused approach of Airbnb.

• There is a belief among some Uber investors that a moat exists that is not yet apparent.
• The sustainability of companies like Juno, which gives drivers equity, is questioned.
• The ride-sharing market's moat appears shallow, but time may reveal Uber's long-term dominance.

"I think that there's a belief, particularly among some Uber investors, that maybe there is a moat. We just don't see it right now."

This quote reflects the hope of some investors that Uber has a hidden competitive advantage that will emerge over time.

• The speakers discuss the strategic moves of Uber and Didi, including mergers and investments.
• There is uncertainty about the sustainability of these strategies and what true value they bring.
• The speakers provide their own grades on the strategic decisions of both companies.

"I'm going to give it a b plus for both sides because it was clearly the right thing to do and in that, it was just going to be unsustainable going forward."

This quote is an evaluation of the strategic decisions made by both Uber and Didi, acknowledging the necessity but also expressing some reservations.

• The speakers discuss the upcoming Snapchat IPO and its potential implications.
• They also mention Crusoe, a clean compute cloud provider for AI workloads, highlighting its environmental benefits and cost savings.

"The Snapchat IPO will price on the evening of March 1, go out on the second for the first day of trading."

This quote indicates the timing of the Snapchat IPO, which is of interest to the speakers and listeners in the context of tech investments.

"Crusoe's cloud is purpose built for AI and run on wasted, stranded or clean energy, they can provide significantly better performance per dollar than traditional cloud providers."

This quote explains the unique value proposition of Crusoe as a cloud provider that leverages unused energy sources for AI workloads, offering both environmental and cost benefits.