What It Takes to Vanquish Uber

Uber and Deed were finalizing a historic deal. After a year and a half of furious money losing competition over the ride hailing market in China, the two companies had reached a Dayton truth the multibillion dollar price warfare China's ride hailing market. After losing nearly two billion dollars in

just two years. Chung Wai was virtually unknown on the international business stage, but here he was thirty three years old, four years off a job as a salesman at Ali Baba, the Chinese e commerce giant, drinking with the world's most famous, controversial and feared entrepreneur. Now. Uber is the dominant ride sharing company in the US, in Europe and South America, in some parts of Asia, but not in China. They competed hard for China, spending about two billion dollars, but

this was all akin to a defeat. It was abandoning its team in China and it's bid to win the world's largest transportation market. In late September, I flew to Beishing with my distinguished colleague Lu lu Chan to sit down with Chung Wei. Very little Chinese. Okay, he said that travis Is alcohol tolerance was only so so, but he really only had good things to say about Uber is also a great company. They have the best strategy in China among all the Silicon Valley companies. They're not

like the usual phone company in China. They're more like a startup full of passion, feeling like they're fighting for themselves. Hi, this is Brad Stone and I'm Lulu Chen, and this week Undecrypted, we're bringing you the story of the Uberslayer.

How does an entrepreneur with no previous experience running a business start a ride sharing app back in two thousand and twelve in the midst of at least three dozen other rivals, and how does he then compete his way to the very top of the pack in China to direct and ultimately victorious competition with the world's most highly valued and most feared start and more importantly, how does

it start up? Like beating that has only lived in the short span of life, known furious competition, financial losses, and wartime environment. Can it turn into a real money making business? And can it fulfill its promise to solve the transportation problems of major Chinese cities. So let's let's start at the beginning. Tell me about Chung Wei. What's his story? Well, Choi was born in province that's the cradle of Multadon's revolution. He attended the Beijing University of

Chemical Technology, not a top tier college in China. He had a series of odd stints. At his worst, he was the assistant to the manager of a foot massage parlor um. This was because some very misguided advertisements that he saw. He thought he was going to work for a healthcare company. How did he get the job at Ali Baba, Well, he just literally showed up at Ali Baba's office in Shanghai. He went to the front desk

and asked for a job, and they welcomed him. So I was twenty two when I graduated from university and joined Ali Baba. That time I was a blank piece of paper. I could only get fifteen hundred you on a month at Ali Baba, A level P four the lowest level of employee at Ali Baba. And it was at Ali Baba selling ads that Chung reported to this guy named Wang Gong. When Wong was passed up for promotion, he gathered some of his mentees, including Cheung, and they

brainstormed ideas for startups. The inspiration came from an unlikely source called the Tinder of China. Here's what Wang Gang told us. In February two twelve, we saw an app called Momo. We saw for the first time that you were able to track girls based on their location. The idea of location based apps came into view. So Chong left Ali Baba along with Wong and a few other colleagues. Wong funded the bulk of the eight hundred thousand yun the startup money that they had. It was worth about

a hundred twenty dollars at the time. They rented out this shabby warehouse and they called themselves Did Data, which means Hong Kong Taxi. It was only later in and the dead of winter that I first heard about the company. It was a lucky break. At first, users had no habit of using phones to hail cars, but that winter on November three, we had a huge snowstorm. No one could get home, so people tried it out. The drivers exclaimed, wow,

so many people hailing cars. This isn't afford and passengers were able to get cars, so they would say, I got a car. Amazing. In fact, it hasn't snowed as much in the past two years. If you didn't snow that year, maybe did, he wouldn't be here today. And at the time ded was in this battle with about thirty other startups doing similar things. The smart decision that d d made early on was to target taxi drivers instead of black car shoffers, because there are so many

more cabs than black cars out there. These early employees called each other classmates as they had an ali baba, and they were a tight knick group, dedicated, scrappy, and pretty relentless. There was this one time when one of Dede's rivals rented out the entire Beijing airport to promote their app. What DEED did was flocked to Beijing's biggest train station instead, and as the cabbies moved along the pick up station. They would chase them down convinced them

to use their app instead. It was pretty tough getting up at four am in the winter called not a lot of teams can commit to that. An interesting to mention. The competition on the Internet in China is a reliance on what's called the Big Three bay Do, which is China's big search engine, ten Cent the combination of social media and video games, and Ali Baba, the e commerce company. The company with the strongest connection to one of the Big three usually wins, and in early two thousand thirteen,

Ded was dealt a big blow. Ali Baba actually invested in one of its chief rivals called Quite. Wang Gang told us that he called a friend of his at Ali Baba, who wouldn't commit to an investment. Indeed, so I thought them investing my competitor, that might mean that they want to kill me. So in order to survive, we needed to find a big tree to lean on. At that time, we Chat was story so as a user oriented product, ten Cent would help us more bid.

You didn't have any highlights in mobile internet, so we didn't want to take bidus. Mon Cheung Wei taking on ten Cent as an investor and a partner. Indeed changed the whole ride sharing world in China because in early two thousand fourteen, over the Lunar New Year, ten Cent launched a promotion on wheat chat called Red and Blue. Chinese people have a custom of giving each other red

packets over the New Year. Tencent thought, why not digitize it and change it into a game where people in group chats can fight over these little amounts of money, and so Tencent try this out with discounts on Ded's cab rights. It wasn't so much about the actual money, but the entertainment factor. One lucky person in the group might get a windfall while the other people just get a few cents. It was an instant hit. The discounts ended up attracting so many users that at one point

the servers at both companies crashed. Ded's engineers would see users screwing to their side. After quite de servers crash and and back and forth. Yeah, it was pretty intense. At one point, chungwe had to go to ten Sent and asked the founder of Mahaton for a thousand servers and fifty people to help them out. They were hold up in the offices for so long that at the end of the soul called seven day seven night battle, one of their employees had to go to the hospital

and have his contact lens is surgically removed. So the story became sort of this myth in the company that people still talk about today, and it's the name of one of their conference rooms. Even this was really the beginning of the irrational period in the Chinese ride sharing wars. It kind of spiraled into a free for all, free spending proxy battle between ten Cent and Ali Baba, which had its own payments app that they were promoting called Ali Pai d D and quitey were the ponds or

the proxies in this high stakes war. The competition for users was fierce and vicious, and both sides seemed ready and willing to spend inordinate amounts of money. Since people know that the winn it takes all. Since people know that the competition and will be fierce, why not put in your best weapons from the very beginning. This is the background of this time, so only those competitors that know the rules best can have the chance to win

the competition. Now, as the battle between the two Chinese right hailing companies intensified, there was also a barbarian at the gate. Uber had been experimenting in China for a year, and by now they were ready for a major expansion. So this is the end of two thousand and fourteen and De d and Quitee decided that it was time

to end their blood feud. Urie Milner, who's the head of the Silicon Valley venture capital firm DST, acted as a go between for ten Cent and Ali Baba and told Cheung Wee, as long as you guys merge, I'll invest in you. So from the beginning of two thousand fifteen, Uber and the combined DD quite E embarked on a fifteen month war, and it was a brutal fight. The technology was ready and the global marketing strategy a lot

of pressure on NOUS. At that time, we felt like the People's Liberation Army with basic rifles and we were being bombed by air forces and missiles. Both Uber and DEDI raised billions of dollars from every corner of the globe. DEE got a billion from Apple, Uber got three point five billion from Saudi Arabia. And this is what made

Chungwai such a perfect foil for Travis Kalinak. He seems mild manner, but we could tell from visiting his office the kinds of books he has in his bookshelf, his use of military lessons from history, that this is a guy who loves competition. Indeed, he really up its marketing and i T infrastructure. After Uber came to China after half a year's of battle, they had some sense that they probably could win this battle. Uber ended up spending two billion dollars in China over the course of two years.

Even for a giant like Uber, it was too much, and they decided to bow out of China this past August. Lulu, why was this such an important country for Uber to win? Well, Um to think about the market size. It's just so significant, such a great opportunity that Uber probably thinks they can't afford to lose out. If you think about it, there are seven cities in the world that limit purchases of automobiles.

China has six. The country already has a d eighty four million vehicles, and if people all aspire to that middle class lifestyle where every family has two cars, that model is just not sustainable. Already. Beijing in Honjo have some of the worst traffic jams in the world, so the world simply can't support that many cars. Right, sharing is a great solution, and probably Uber saw this as one of the biggest opportunities outside of the US. Did the home field advantage have anything to do with it?

I mean, do you think that the Chinese government made sure the deity would win? Exactly? The road to China is not smooth and all sunshine if you look at it. It's been littered with the corpses of other foreign companies like Microsoft and also Facebook. Regulatory hurdles have all has been something that foreign tech companies have faced in China. In this case, Uber definitely was facing local restrictions hurdles at both the central and local government level, but that

was also true for DD. In fact, this is a company that has been halted some thirty times um due to local regulations, and it's also had to pay hundreds of millions and fines to cover for the private car drivers. And it's probably worth pointing out the deeds battles with the government seemed to be getting worse right now. China's three largest cities just proposal rule that would have huge

implications for DP. Yeah, that's actually right. Shanghai, Beijing, Shinjin have all proposed draft rules that stipulate only drivers with local residencies can be allowed to operate on the private car hailing platforms. If that rule is past, it means like in Shanghai, for example, only less than three percent of the currently registered drivers are qualified and only about twenty of the vehicle's meet the demand. So that could be a huge blow TODD and lead to drop and

supply and rising costs. Do you think d D can be successful in peacetime when it doesn't have in our chenemy to fight well. I think they still face a pretty steep task um for when they need to become profitable. And then also they face all these regulatory hurdles that are not clear yet. They need to be more attractive to investors if they wanted to aim from an I P O right, and that's already creating friction with both

riders and drivers. The war was good for everyone except d D. I mean, we took some rides in an uber and in the d D last week, and you know, we talk a little bit about what we heard. People are complaining that it does seem like UH fares have gone up and driving for d D has become a less lucrative gig exactly, and you know for Tronway, ultimately, taxi is just the beginning of his empire that he envisions. Um,

what he really wants probably is much bigger. You mentioned a few other services like buses, bike ship are basically anything with a seat on it, not to mention driver list technology. Those are all areas that you wants to expand in. That's it for this week's Decrypted. Thanks for listening. If you have an iPhone, be sure to subscribe to the show on iTunes for any of your favorite podcast apps out there. And while you're there, please take a moment to rate and review our show and tell us

what you thought of today's podcast. Write to me on Twitter at at brad Stone and I'm at lolu Ellen. This episode was produced by aki Ito, Tara Zorovich, Magnus Hendrickson, and Liz Smith, with help from Nita Malhotra Hora. Aaron Black and Matt Burley assisted with recording. Alistair Barr and Eric Newcomer recorded the English translations from our interviews with Chungwei and Wang Gone. Alec McCabe as head of Bloomberg Podcast And before we let you go, just a quick note.

In last week's episode on fab dot com, we said that a private equity firm bought FAB for fifteen million, but Fab was actually sold to pc H, which is a manufacturing company. Despite that error, it's still a great episode and if you haven't already, I hope they'll check it out. We'll see you next week, yeah,