Apple invested $1 billion in Chinese taxi service Didi Chuxing: But why?

In an announcement that took the tech world somewhat by surprise, Apple said it invested $1 billion in Chinese ride-hailing service Didi Chuxing (formerly Didi Kuaidi). Didi is the world’s largest mobile transportation service platform that offers mobile technology-based transportation options across over 400 major Chinese cities, including taxi hailing, private car hailing, social ride-sharing, Chauffeur, DiDi Bus, DiDi Test Drive and DiDi Enterprise Solutions. Also, the company saw a total of 1.43 billion rides on its platform in 2015, while applying its big data capabilities to solving the country’s transportation and environmental challenges. In February 2016, DiDi became the world’s second largest online transaction platform, next only to Alibaba. The company said it completes more than 11 million rides a day, with more than 87 percent of the market for private car-hailing in China. So what did Tim Cook see in a taxi service that gave another giant in the same space – Uber some sleepless nights? There are three major angles to look at the investment – one would be to take a new approach to penetrating the China market. The other way to look at it would be Apple’s interest in self-driving cars and hence the automotive industry and also pushing its own services like in-car infotainment system CarPlay. And the third, is its need to diversify and create revenue streams that are not so hardware dependent. Vishal Tripathi, Research Director at global advisory firm Gartner breaks it down for us. Speaking to Tech2 on what could be Apple’s underlying strategy behind the investment, he says that it is a combination of all these three factors. “It could be a good opportunity for B2C marketing for Apple if they decide to equip Didi’s vehicles with iPhones,” says Tripathi. (On a side note, he adds that Uber did that with drivers when it came into India but the iPhones ended up getting mysteriously ’lost’ or ‘misplaced’ way too frequently!) “Diversifying the revenue stream and positioning itself as a service-oriented company and not just a hardware one is also a strong reason,” says Tripathi. He adds that in the long run, Apple can also look at providing stand-alone services, and not just the ones that are bundled up with their hardware. “Apple works in a very closed ecosystem. Maybe this kind of investments are a step towards changing that,” he shares. In an interview with Reuters, Cook clearly mentioned that one of the major reasons behind making the investment was the chance to learn more about certain segments of the China market. When asked about declining Apple sales in China amid slow economic growth, he again mentioned that Apple is entirely confident of growing business in the the long term in China’s economy. Forrester VP and research director Ashutosh Sharma feels the true reason lies here. “Apple needs Chinese government’s trust and confidence in them. This(the deal) is a perfect way to get that going with declining FDI trends in China. Capital investments declined by 23 percent in China last year allowing India to become the top FDI destination in Asia,” Sharma points out. He tells us that reasons like ‘such investments will give them exposure to auto, transportation and services markets’ are loosely linked. “These are long shots because they could invest in similar services available in various markets with much less cash,” Sharma tells Tech2. Having said that, Sharma doesn’t disregard the fact that this investment too will see good returns. News of Apple’s investment hasn’t really done much to ease Wall Street’s worries about the company though. Analysts see negative vibes around the company with falling share prices, falling demand. Tripathi maintains that Apple’s way too big still to be worried with these things. But as a market leader, the company should definitely not be complacent because there’s always someone snapping at their heels, trying to take a piece of them, he says. Will Apple’s refreshed relationship with China give them the boost they are looking for? Meanwhile, Uber CEO Travis Kalanick is mulling on questions of his own after receiving the news of the investment. https://twitter.com/travisk/status/731018873168764929