Uber Showed China You Don't Have to Wait for Policy to Disrupt the Taxi | QDaily Company of the Year

Cheap private-car rides have finally given us some hope of fixing a hailing problem that has dragged on for more than twenty years. But the change did not come easily.

In China's first- and second-tier cities, the way people hail a ride has changed completely.

Standing at the curb for thirty minutes, waving your hand, getting turned down again and again — and when you finally got in, the driver was rude and you had no way to complain. What used to be the most ordinary part of city life now seems almost unthinkable.

Today the whole city's dispatch system sits in your pocket, and a five-minute wait feels too long. Better service, newer cars — and prices lower than a taxi. In Beijing, where taxis start at 14 yuan, private car services have long held a base fare of 8 to 10 yuan.

The change did not start with the billions of yuan Tencent and Alibaba poured into the taxi-app war of 2013. It started with an experiment Uber ran in Beijing.

Uber entered China on a trial basis in 2013, and for nearly a year it was barely visible — a handful of high-end Audis, BMWs, and Benzes parked in the core commercial districts of Beijing, Shanghai, and Guangzhou, with little bearing on most people's lives.

In August 2014, Uber launched "People's Uber" (人民优步) in Beijing — a "public-interest carpooling" service. This "carpool" worked like an ordinary taxi, dropping one passenger before picking up the next, and its base fare was 2 yuan cheaper than a Beijing taxi. Becoming a driver was just as easy: anyone with a year's license and a reasonably new private car could start earning after a few hours of Uber training, and for every trip the driver got a subsidy of 1.5 to 3 times the fare.

People's Uber was the idea of Jiang Zhiya, then general manager of Uber Beijing — a former venture capitalist who grew up in the United States and was sent to China by headquarters to open the market. In an interview with QDaily, Jiang Zhiya said the inspiration came from a government carpooling policy.

In January 2014, the Beijing municipal government issued guidelines encouraging carpooling, urging people to share rides in small passenger vehicles to ease the city's traffic congestion.

"In January I saw the transport authority say it was encouraging carpooling platforms, and right then I started thinking: why couldn't we do one? My logic was that our costs would actually be very small, because the product already existed — this could bring a lot of traffic to our Uber Black and Uber X," Jiang Zhiya said in an earlier interview with QDaily.

So everything People's Uber said about itself was pinned to the carpooling policy: the "carpool" was a private-car owner sharing a ride with a passenger, and because it was a public-interest project, Uber took no cut — which meant that, in theory, it fell outside illegal commercial transport.

But that was only the theory. Whether it was really carpooling, and whether a full-time driver counted as a commercial operator, was for the government to decide either way. In fact, People's Uber cars were later impounded by traffic enforcement in several cities.

At first Uber's headquarters had little interest in a business with no prospect of profit. At most foreign companies in China, anything this legally uncertain and revenue-risky never clears the legal department. But after Jiang Zhiya revised the proposal six times and argued it back and forth for half a year, Uber CEO Travis Kalanick agreed to let him try it in Beijing.

At almost the same moment, Didi also launched a private-car service — only it was priced 30 percent above an ordinary taxi.

"When we were building the private-car service, we had talked with the government and made commitments to stay in the premium segment, priced at least 30 percent above taxis," Didi platform product director Luo Wen explained in an earlier interview. When Didi saw People's Uber, it too believed such low prices would create regulatory risk, destabilize the taxi market, and end in a government ban.

People's Uber Won the Bet

Events proved Uber right.

At first People's Uber covered only Guomao and Sanlitun, two of Beijing's busiest districts. By March 2015, the average wait time for People's Uber inside Beijing's Fifth Ring Road had fallen to 4.8 minutes. Beyond Beijing, it had opened in nine first- and second-tier cities, including Guangzhou, Shanghai, and Shenzhen.

It was then that Uber China made an even bolder move: it set People's Uber's base fare at 70 percent of the local taxi starting price. In Beijing, the People's Uber base fare dropped to 10 yuan — 4 yuan cheaper than a taxi. The sustained low pricing carried People's Uber from a niche app ranked outside the top 500 in China's App Store to the top 10 in downloads.

Uber's download ranking on Apple's China App Store over the past year, based on App Annie data

From late April 2015, authorities in Beijing, Shanghai, Guangzhou, Chengdu, and elsewhere began cracking down on private car services. The actions escalated again and again — from simple raids and phone confiscations at Uber's Guangzhou and Chengdu offices, to sting operations against drivers in Shanghai, to a traffic enforcement squad in Beijing smashing a driver's car window.

But the crackdown only made People's Uber more famous. After a second raid on May 7, Uber's Guangzhou headquarters rode the moment the next day, May 8, with a campaign that carried a fitting double meaning — "Summon the Avengers" — offering free Uber rides, and the Guangzhou team used the occasion to post its hiring notice too.

After the Guangzhou raid, the number of new driver sign-ups actually went up.

This is Uber's standard global playbook. In June 2014, thousands of London taxi drivers struck to protest Uber's arrival. During that same week of strikes, Uber seized the chance to promote its service and drew eight times its usual number of new users.

Guangzhou's transport authority sealed off Uber's Guangzhou headquarters in late April

Once People's Uber had become a service that millions of people used every day — one that both served passengers and created jobs — the government began to hesitate about banning private car services outright.

By now Didi Kuaidi, already merged into one company, followed with low-cost private car rides. It first floated "Yihao Kuaiche," priced below taxis, in April 2015 to test the reaction, then a month later folded the fast-car service straight into its main app, Didi Dache.

It was rare for a foreign company to push harder than local players at testing the government's limits.

Private Car Services Were No Longer Just a Supplement to Taxis

By May 2015, the goal for both Uber and Didi had become clear: use cheaper private cars to replace taxis outright.

Users used to hailing taxis through Didi soon found that the subsidies were gone. At the same time, if no taxi answered within a dozen seconds, Didi prompted you to try a fast car. Eventually, opening the app took you straight to fast cars.

Uber, for its part, quickly raised its subsidies for People's Uber drivers. At the peak, a driver who completed 70 trips a week was guaranteed at least 7,000 yuan, and full-time drivers were earning more than 20,000 yuan a month — with no "franchise fee" owed to any company.

What followed was an upheaval in the taxi industry. Beginning in 2015, taxi drivers across the country went on strike one after another. They were unhappy, of course, that cheap private cars were eating into their business — but more important, they were starting to feel that the franchise fees they paid their taxi companies were simply too high.

And indeed, once there were cheaper fares, more comfortable cars, and more courteous drivers, how much appeal did the traditional taxi have left?

Private-car drivers on Didi's fast-car service and People's Uber could only take orders and collect fares through the app, and with private cars so plentiful, the ride-hailing platform held the upper hand. It could take its cut straight from the fare and use passenger ratings to reward or penalize drivers, raising service quality.

In other words, a ride-hailing platform could ultimately make money through private cars — a path Uber had already proven in the United States.

With the business model settled, Uber fixed People's Uber's base fare under 10 yuan, expanded the service to 20 cities nationwide, and brought in Baidu, which invested $1.2 billion in Uber China's independent entity.

Didi, for its part, closed a new $3 billion round in August and spent the second half of the year pushing subsidies for new services.

But Uber May Not Have the Last Laugh

Although Uber pioneered the low-cost private-car model in China, Didi — which had learned the model from Uber — clearly outran it in the second half of the year.

In September, Didi Kuaidi formally renamed itself "Didi Chuxing" (Didi) rather than "Didi Dache," and changed the app to open on fast cars instead of taxis. Its backers Tencent and Alibaba threw their full weight behind it. Didi had a direct entry point on WeChat's wallet page, and from the second half of the year it also appeared on the first screen of the Alipay app. With Tencent and Alibaba behind it, Didi's national orders reached 7 million a day.

For Uber, which had moved first, the second half of the year took an unusual turn.

In theory, when a startup expands, the early employees who opened new markets are handed bigger jobs. But Jiang Zhiya — who had opened Beijing, Shanghai, and Guangzhou for Uber and rolled out the People's Uber model — no longer ran operations for Beijing and instead went back to the United States as a product manager. Another prominent early member, Wang Xiaofeng, who had staged Uber Shanghai's helicopter rides, the "CEO drives an Uber" stunts, and many other successful campaigns, left Uber altogether.

Liu Zhen, head of Uber China

In their place came Uber China's new head, Liu Zhen. After taking the role, Liu Zhen worked mainly on setting up the local entity and lining up Chinese corporate money for Uber China, including from Baidu, HNA Group, and GAC.

From the outside, Uber China looked much less active in the second half of the year. For one thing, WeChat blocked all of Uber's accounts, citing marketing.

For another, Uber's own voice grew quieter. Baidu search-trend data showed that Uber, which had outrun Didi in May and June, had now fallen behind.

Uber and Didi's 2015 search-volume comparison

Didi's knack for learning was plain. The quirky promotions that had once been Uber's signature — delivering cats, flowers, and cakes — showed up on Didi more and more often.

Even the new services Uber was testing cautiously around the world — food delivery, package delivery, and carpooling — were quickly copied by Didi. In the second half of the year Didi rolled out four new services in a row, one every month or two.

After fast cars, Didi launched a new service roughly every one to two months through the second half of 2015 — almost every month brought another wave of frenzied "low-price" or "free" ride promotions:

• June: Didi launched Hitch (顺风车), letting private-car owners pick up two passengers a day. New drivers who signed up got 50 yuan, and completing a first trip earned another 100.
• July: Didi Bus launched, running a few fixed minibus routes between office buildings and residential areas for as little as 1 yuan.
• August: Didi launched a designated-driver service; across every time slot, its base fares ran 3 yuan cheaper than e-Daijia, then the market leader.
• October: Didi rolled out Didi Test Drive. Beyond ordinary ride-hailing users, it courted carmakers to offer test drives, with starting prices from 24 to 168 yuan; after the test drive, the user could choose to buy the car on the spot.
• December: Didi formally launched Didi Carpool, priced at 50 percent of a regular Didi fast-car fare. The tagline was "Willing to share, half price — if matched, ride free." Didi fast-car drivers got a subsidy of up to 6 times the fare, capped at 50 yuan a trip. On the service's first day alone, Didi burned through 100 million yuan in Hangzhou.

Against Didi's relentless activity, Uber in the second half not only stopped the creative stunts — helicopters, gondola boats, CEO chauffeurs — its everyday marketing voice also turned 180 degrees. Here is an actual promotional text Uber Shanghai sent to users:

2015's last round of street codes — waiting for the cleverest of you to crack it for a hundred-yuan red envelope! Tomorrow your good fortune is [save up for a wife]. When you head out, remember: 1. Keep riding Uber, swap promo codes with drivers and riders! 2. Post the codes you've pooled to Moments!

By orders, Didi's roughly 7 million a day were already twice Uber's global total. According to figures Uber senior vice president of business Emil Michael disclosed not long before, Uber — five and a half years old — was completing only 2 to 3 million trips a day worldwide.

After teaching Didi how to run low-cost private cars, Uber could not hold its lead in China. Still, it remains the furthest any American internet company has gone in this market.

Whatever chance Uber still has in China, the changes it brought are here to stay.

"This past year, without these apps you can't even get enough fares," Zhang, a driver with Beijing Xinyue Taxi Company, told QDaily. The Didi app on his phone now brings in 80 percent of his business. If not for the time left on his contract with the taxi company — breaking it early would cost more than 10,000 yuan in penalties — he said, he too would have switched to driving a private car. After the franchise fee, Zhang's monthly income averages just 5,000 yuan, even though he barely takes weekends off.

"The subsidies aren't as big as they used to be, but if you run both the morning and evening rush, you can clear 700 yuan a day after fuel — more than 10,000 yuan a month," Gong, a full-time People's Uber driver in Beijing, told QDaily. He drives only the two rush hours and still rests at midday.

"I'm in my fifties now — no other company will hire me. At least driving Uber helps with the bills without tying me down," Gong said. Among the drivers we interviewed, he was far from alone.

In October 2015, the Ministry of Transport released a draft opinion on online ride-hailing that pointed toward a future in which the "private car service" model would disappear: cars would need a road transport permit, drivers would need labor contracts with the platform, and discounts would have to be announced to the public ten days in advance. With such rules, the ministry hoped to take private car services back into its own hands.

That draft, originally due to take effect in November 2015, still has not. While the government hesitates, the number of private-car drivers and passengers grows by the day, and pulling a clear line between private car services and the taxi market grows harder and harder.

The traditional taxi market we once knew is gone for good. And all of it began with a single experiment Uber ran in Beijing.