Didi Acquires Uber…. What’s next?
Wow, when I woke up this morning to read this headline, I was surprised but not shocked. In my previous post, I explained the dynamics and cutthroat competition between Uber and Didi. While it makes sense to consolidate in the Chinese market, I didn’t expect the battle to end so quickly given the aggressive fundraising and strategic partnerships form both sides. I do think that this is the smart move though, pending anti-trust regulations and Chinese government approval.
The next question that comes to mind is what precedent does this set for the US market. Can we expect an Uber acquisition of Lyft in the near future? Dynamics between the Chinese market and U.S. market are by no means the same, but the same underlying forces are at work. A race to provide both the cheapest solution for riders and lucrative careers for drivers is difficult to differentiate especially when customer and driver loyalty has little to no barriers. This creates a race to the bottom and increased subsidies for drivers that need to come out of Uber or Lyft’s pockets. While there do exist duopolies in the technology market, their products are usually differentiated in a significant manner to allow for more than one competitor.
Uber and Lyft at the core are not currently differentiated, and their target market is currently the same: Providing on-demand transportation means to the middle and upper class. Think about it this way, McDonalds and Burger King historically has been the two biggest producers of traditional hamburger and fries. They can both co-exist because people can argue that they differentiate by taste, convenience of location, and price.
Now, imagine if all three of those factors are the same between both companies. That is essentially how Uber and Lyft are competing. Most drivers have both applications downloaded and switch between the two services with no consequence. Now, the only factor Uber and Lyft can compete is on price and promotion for both riders and drivers. This will end when one company runs out of funds, or gives up in the case of Uber China. This is also why I am skeptical of all the on-demand services that essentially provide the same service, especially in the food-service delivery space nowadays. The differentiation is too minute, and the competition is too major.
In the U.S., Uber has dominant market share over Lyft, and the pressure on Lyft will increasingly mount as Uber can now focus money, resources, and time on dominating the U.S. and Rest of World (excluding China). Didi’s partnership with Lyft is also up in the air as Didi’s biggest rival has now exited China. Would Didi now want to partner with Uber or Lyft in the U.S. to get a cut of their profits? I predict that Didi will negotiate in the near future a partnership with Uber and renegotiate their agreement with Lyft.
It’s exciting to see what is in store in the future for Uber and Lyft in the U.S. market especially with the roll out of side projects like Uber Eats, Uber Delivery, Uber Self-Driving, etc. In the meantime as consumers, we should definitely be enjoying the promotions as much as we can!