The news last night that Apple had invested $1 billion in Didi Chuxing, China’s largest ride-hailing company, is giving Uber CEO Travis Kalanick both professional and domestic headaches. Hours after the news broke, Kalanick tweeted this:
It was the return of the combative personality that Kalanick has recently tried to suppress as his company looks to move beyond the street fights that defined its early years. The sarcasm dripping off the #thanksAlotTim hashtag is thick. After all, Uber is locked in a high-stakes war with Didi over China’s ride-sharing market — a war that Kalanick, at this moment, appears to be losing.
Thanks to a burgeoning middle class and an economy that has blossomed in the past decade (recent stumbles aside), China is widely viewed by many companies as the next frontier for growth — but it's not easy, and it's not cheap. A couple months ago, Kalanick confessed that his company’s efforts to grow in China were costing him about $1 billion a year, a revelation he later tried to tamp down in an interview with Reuters. "If you took our top 30 cities today, today they’re generating over $1 billion in profit a year, just our top 30 cities. And that profit multiplies every year because we’re growing," he said. "So that helps us to sustainably invest in our Chinese efforts … Because of the profits we have globally, this is something we can do for the long run."
But the team-up between Apple and Didi underscores Uber’s growing isolation on the world stage. The line between the auto and tech industries is rapidly growing blurry: car companies realize that consumers are trending away from personal car ownership and toward car sharing and ride sharing, while tech companies are aggressively pursuing autonomous driving in the hopes of stemming traffic fatalities. It’s a confluence of innovation and market trends that have made the atmosphere ripe for partnerships.
Look at some of the headlines of the past few months. General Motors is teaming up with Lyft. Lyft is teaming up with Didi, as well as Asia’s other major ride-sharing companies Ola and Grab. Google was reportedly going to partner with Ford, but then decided that FCA was a better fit. BMW and Daimler had been negotiating with Apple, but those talks are said to have recently broke down. Now Apple is hitching its wagon to Didi’s shooting star.
Meanwhile, Uber has secured the US market, but is struggling to maintain its foothold in Europe and Asia. And while it is working on its own self-driving car technology out of its Advanced Research facility in Pittsburgh, its lack of corporate partnerships raises questions about the company’s ability to operate effectively in the new paradigm. Uber is good at making a commodity service that consumers like, but has no experience in the world of manufacturing. It will almost certainly need an automaker or contract manufacturer to help it transition to the next stage — fully autonomous, on-demand vehicles. Otherwise it will be stuck with the expensive task of buying fleets of regular cars to convert into self-driving ones, like it's already reportedly doing in Germany.
But what about Apple? Experts were quick to dismiss the notion that Apple’s $1 billion investment had anything to do with Cupertino's secretive car project, codenamed Project Titan.
The deal has more to do with Apple’s need to shore up its profits in the crucial Chinese market, which have been slipping recently, they say. The move "has nothing whatsoever to do with its own efforts to design and build a vehicle," Edison analyst Richard Windsor said. Mark Natkin, managing director of the China technology research firm Marbridge Consulting, echoed that sentiment, saying, "Apple must be increasingly sensitive to the need to improve its government relations and to stake out a more entrenched position in the China market."
It seems like there are cheaper ways to strengthen your foothold in China than funneling $1 billion into a transportation company if you have no interest in growing your understanding of the transportation industry. Of course, Apple won’t say it’s making a car, but there are many logical steps the company can take to understand the business before the presumptive Apple Car rolls out on stage. Asked about its interest in the automotive world in an interview with Reuters, CEO Tim Cook said his company’s CarPlay system that links iPhones to in-car infotainment systems is his only current focus, but he left the door open for more. "That is what we do today in the car business, so we will have to see what the future holds," he said.
Didi could provide not just the learning, but the actual platform on which to roll-out an Apple Car, as most experts agree that ride-hailing is the most obvious and immediate commercial application for self-driving cars. (GM, in its partnership with Lyft and its acquisition of Cruise Automation, has been particularly forthcoming about this.) Kalanick has always argued that Uber is a technology company, not a transportation one. Drivers own or lease their cars, not Uber; this is why drivers are treated like independent contractors and not employees.
Once the technology makes the driver obsolete, Uber will be left with an app beloved by millions but no cars. That's why the company is moving on self-driving tech, but — so far, anyway — it's mostly going it alone.
And that should make Travis very nervous indeed.