Didi Dache and Kuaidi Dache, China’s two largest taxi-hailing apps, have confirmed that they will merge to become the largest taxi app company in China. The two firms will maintain their brands and independent business operations with their personnel structures unchanged after merger. Cheng Wei and Lu Chuanwei, CEOs of Didi Dache and Kuaidi Dache respectively, will run the consolidated company as co-CEOs.
China’s taxi app market has boomed since 2013, with scores of new startups entering the market. In fierce competition for market share, taxi app startups have burned huge amounts of cash to attract passengers and taxi drivers through cash bonuses, mobile data plans, free mobile chargers, and so on. The intense competition (and high cash burn rate) has made it difficult for small players to survive.
The two industry leader, Didi Dache and Kuaidi Dache, stood out from the crowd. They have received numerous financing rounds from multiple investors to fund their struggle to become a dominant player. Tencent and Alibaba, two of the best-funded internet giants in China, are respectively the lead investors in Didi Dache and Kuaidi Dache. In addition to capital support, Didi has been able to integrate its service into Tencent’s WeChat and Kuaidi into Alibaba’s Alipay, to gain access to more users.
The two taxi apps reportedly account for a staggering 95% of China’s taxi app market. However, the extensive cash burn rate isn’t sustainable. Both companies launched cash incentive plans last year, but when they called them off, they saw a sharp drop on daily order volumes.
The landscape of China’s app sector has become clear as early as the beginning of last year, when most smaller players either died away or were acquired by competitors. Only Didi Dache and Kuaidi Dache prospered and continued competing for supremacy. Over the past year, neither company could defeat the other, although they managed to land even lager financing rounds. Kuaidi Dache recently raised US$600 million led by SoftBank, while Didi Dache raised US$700 million from Tencent and others this year.
Investors expect their portfolio companies, in whom they have bet considerable sums, to pay for it before long. Kuaidi CEO Lu Chuanwei said in an internal letter that investors on both sides hope to achieve this merger.
In addition to financial incentives, the merger will avoid opportunity costs, noted Lu, adding that the new company will launch new services very soon.
The tie-up between Didi Dache and Kuaidi Dache creates a more powerful rival for Uber, which is expending aggressively in China. Uber recently received an undisclosed investment from China’s search giant Baidu.
Editing by Mike Cormack (@bucketoftongues)