According to reports, the China-based firm has recently been valued at more than $50bn, behind only its US peer and co-shareholder Uber.
Didi’s meteoric rise has been fuelled by more than $13bn of funding since it was founded, with a $5.5bn round, led by Japan’s SoftBank, completed in spring this year.
Alongside SoftBank, Didi’s backers include Chinese tech giants Alibaba, Baidu and Tencent, as well as the likes of Apple and Foxconn. The company said the latest round of funding would be used to invest in artificial intelligence technology as well as expansion into new territories.
Didi’s story is one of consolidation and collaboration in what has become one of the most competitive – and potentially lucrative – markets in tech. Didi Chuxing was created through the 2015 merger of two Chinese ride-hailing platforms – Tencent-backed Didi Dache, and Kuadi Dache, which had received early-stage funding from Alibaba.
But perhaps the most significant piece of business Didi has carried out was the acquisition in August 2016 of Uber’s China operations. The deal means than Didi will control the Uber brand in China, while becoming a minority stakeholder in the US firm. In return, Uber and its Chinese investors – among them, web services company Baidu – received an “economic interest” in Didi worth 20% of the business.
At the time of the transaction, which has been seen as key to Didi establishing its dominance of the ride-hailing market in China, Cheng Wei, the company’s founder and CEO, said: “Didi Chuxing and Uber have learned a great deal from each other over the past two years in China’s burgeoning new economy. As a technology leader deeply rooted in China, Didi Chuxing is constantly pushing the frontier of innovation to redefine the future of human mobility. This agreement with Uber will set the mobile transportation industry on a healthier, more sustainable path of growth at a higher level.”
Also in the summer of 2016, and possibly of equal importance to Didi as the Uber acquisition, the Chinese government introduced a set of regulations entitled Preliminary Rules on the Management of Online Car-Booking – effectively a framework to legalise ride–hailing services in the country.
Among other things, the rules allow operators to set prices according to supply and demand, while also removing the requirement for vehicles to be mandatorily scrapped once they have reached a specific mileage limit.
In recent months, Didi has announced collaborations with the likes of Volkswagen – with which it has established a strategic partnership aimed at improving vehicle safety – and rental group Avis. As a sign of its international expansion intentions, Didi has also this year become a strategic investor in Brazil’s largest local ride-share company 99, while also co-leading a new financing round in Grab, the Southeast Asian transportation and mobile payments platform.
Meanwhile, just last month, Didi revealed it had signed a strategic partnership with Taxify to support the Estonia-based firm’s growth in the European and African transportation markets.
Jeffrey Li, managing partner of Tencent Investment, has had a strong association with Didi since his company put money into Didi Dache in 2012. Li said the merger of Didi Dache and Kuadi Dache, and the more recent acquisition of Uber, had put Didi Chuxing in an excellent position in both domestic and international markets. “We helped them a lot with those two merger transactions and that has released Didi from the competition in China and given them freedom into other verticals,” Li explained.
As well as ride-hailing, Didi offers a wide range of other services, from bus and minibus transportation to social ride-sharing through the Didi Hitch platform and the Didi Express carpooling initiative.
Li said Tencent played a crucial role in Didi’s early development by helping the company encourage both drivers and customers to engage with its app. “In all the companies we invest in, we try to build a cooperative, mutually beneficial relationship,” Li said. “When Didi got into the market, their initial user acquisition was pretty difficult. They had to go to the airport and the train station to persuade drivers to install the app. That was very time-consuming, and after doing so not many of them used the app.
“Even among the people who used the app, they only used it to call the cars – they did not use it to make the payment.”
This presented a significant problem for Didi – if transactions were not completed using its app, the company would be bypassed and its business model would not be effective.
“It was vital to Didi at that time that the business was a closed loop and the final transaction happened through the app.”
Tencent’s solution was to offer users who paid through the app what is known as a “red envelope” – a small sum of cash, randomly awarded, as an incentive. “This is very popular in China and a lot of people use it,” Li explained. “Users were familiar with the rules of the red envelope, so they started using the app to make transactions rather than using cash. For Didi, that had a huge network effect.”