Uber Launches New Project, To ‘Win’ China By Cutting Costs In A Spending War

Uber’s largest global city by volume may seem surprisingly obscure. Chengdu, a central Chinese metropolis straddling the border between first and second-tier status, has the most active Uber population by sheer numbers, and it’s produced a testing hotbed for the company’s global services. Chengdu was the world’s first city to test Uber Commute,the service designed to curb peak hour traffic. It was also the first city outside of the US to trial Uber Pool, the carpooling feature that now spans several countries.

Chengdu isn’t just a big city for Uber, it’s also at the heart of the Chinese subsidy war. The country’s tech giants have initiated a spending spree, injecting huge amounts of cash into a subsidization program they hope will help them claim an early market share in an increasingly competitive market. Uber’s primary rival Didi Chuxing (formerly Didi Kuaidi) is no stranger to this cash burn. The company has raised upwards of $3 billion USD in the past 6 months to fuel their campaign, slashing costs for users.

Uber China, which has a comparatively small pool of funding, is now looking for ways to slash costs on subsidies, and Chengdu, one of the country’s biggest test markets, could hold the key to helping them do that. Last month Uber CEO Travis admitted that Uber China is losing $1 billion USD a year, but that they re aiming to achieve profitability within two years.

“We’re in the middle of a subsidy war and this is not a secret here,” said Tiger Fang, Uber General Manager based in Chengdu. “If we get more people into lesser cars we can lower the price for everybody, we can using technology to lower the price not money that we burn to help lower the price and that’s how we win China.”

According to Mr. Fang, Chengdu is a hotbed for the innovations he hopes will save Uber from being swallowed up in a subsidies war. “ I certainly think that Chengdu has done a great job as a [test] market, we have the volume and we have really smart people and a market of customers that want to try new things.”

World-First Pilot Program

This week the company is once again rolling out a world-first pilot program in Chengdu, essentially combining the Uber Pool and Uber Commute programs. The new service marks a significant behavioral shift in what Uber is asking of their users in China. Drivers will be able to pick up passengers during their peak hour commute, much like Uber commute, but the service encourages multiple pick ups, similar Uber Pool. 

Tiger says the main issue with rolling out the service was figuring out how to reduce the “inconvenience factor” barring drivers from signing up, which is why the service is built on central arteries and roads, rather than random user-selected routes. Passengers will have to walk to a busy street to meet their driver, mimicking a small scale public bus service. “You’re inconveniencing yourself a little bit so more drivers can join this program,” Mr. Fang told Technode.

The new service is at the heart of what Uber is trying to achieve: a wide scale cost-cutting program that can help them remain competitive in the face of mega-sized competitors like Didi Kuaidi.  “We’re spending a lot of money here [as part of the subsidies war], we’re spending a billion dollars a year, so this initiative is part of that savings program.” 

“More butts into less cars, and it will be better for the whole city, if this is successful we will push this out to other main roads and to other main cities,” said Mr. Fang.

Uber, like Didi, also has the luxury of targeting a problem that the Chinese government is also desperate to fix: traffic congestion. In Chengdu, the city requires drivers to take their cars completely off the road for one out of every seven days. It mirrors policies across China, including peak event days in Beijing when drivers are required to stay off the road on alternating days depending on whether their numberplate ends in an odd or even number. In Chengdu, Uber offers one free ride a week to drivers who have offered a ride to another passenger at least once during the week, in an attempt to spur more drivers into the program.

The company is also working with the Chengdu government to share data. “I want to be able to show the government some data,” says Mr. Fang, referencing the latest pilot program, “like this is how many people are using this [service], and we think the average speed on this road improved by [this much].”

The latest program will be tested out of Chengdu for an unspecified time, though they are hoping to expand it across China and potentially spur the creation of specialized lanes across China. “If this is really successful then we should make pool lanes in all of the major highways, in all of the major arteries in China, we don’t have that right now,” says Mr. Fang.