Alibaba invests in Ucar, posing a low profile for the scruple of abandoning Didi
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E-mail China.org.cn, March 25, 2016
It is full of speculation when gossip is around. When fact comes to light, however, people lose curiosity.
The art of public relation is like from "warming up" to "climax" and finally "unveiling". However, the truth and false of Alibaba investing in Ucar is far more complicated.
On March 24th, the tech industry was thrilled by a piece of breaking news that Alibaba became a shareholder of Ucar. Market rumor said that Alibaba has bought into Ucar strategically at the price of 3 billion RMB and accounted for 10% of Ucar shares. After this round of capital raising, Ucar's valuation reaches 30 billion RMB.
Several hours later, Alibaba made an announcement that "Alibaba's relationship with Didi is close and pleasant, and will continuously support Didi's development. At present, Alibaba has no new plan in travel field."
Reading between the lines of Alibaba's announcement, it was more like a comfort letter for Didi while it didn't deny the investment in Ucar. Behind Alibaba's wording, we can see they have scruple to Didi, but how much?
If this whole investment thing comes with no source, then why Alibaba's name was on the shareholders' register roll of Shenzhou Ucar Company Ltd.(the major operation company of Ucar)?
According to internal sources, this shareholders' register roll is signed by Charles Lu, the chairman of Ucar, and is stamped with official seal of "Shenzhou Ucar Company Ltd." According to this register roll, Alibaba.com Ltd. China Company and Alibaba Network Company Ltd. (China) hold 33,597,312 shares and 33,597,312 shares respectively. The total amount is 67,194,624 shares, accounting for 9.8% of all 688,312,935 shares issued and outstanding.
If the information above is true, then why Alibaba takes a dodging attitude? Where does the scruple come from?
Inside Didi, Alibaba now is cornered. It is still a major shareholder of Didi. But when it invests in Ucar, the competitor of Didi, there will be a restrained factor when dealing with Didi. It is like "we are still in relationship, but you find another lover. As your current mate, have you ever considered my feelings (Didi)?"
But of course, Alibaba spoke publicly that "the relationship with Didi is close and pleasant". This may be true, but what about Didi's another shareholder Tencent? Currently, Alibaba and Tencent compete in all major fields including clothing, food, housing and travel markets.
Alibaba was a major shareholder of Kuaidi before, and Tencent was a shareholder of Didi. After Didi and Kuidi merged, the team of Kuaidi didn't lead the new Didi. What's more, Tencent holds more shares than Alibaba in new Didi, therefore Tencent has a louder voice than Alibaba.
The valuation of Didi is now over 20 billion USD, though Didi still confronts some uncertainties including the policy risks of C2C business mode and the timeline of going public. Mr. Cheng Wei, chairman and CEO of Didi, recently said that Didi had no clear timeline of going public. The investors need more patience from strategic perspective. It is still far from harvest time. The subsidy of Didi will continue to exist in the market for a long time.
Alibaba is also a shareholder of Meituan.com, and Tencent a shareholder of Dianping.com, while Meituan and Dianping recently completed a merger.
Certainly, the consolidation of the first and second players in the market, such as Didi and Kuaidi or Meituan and Dianping, conform the principle of maximizing shareholder's benefits. While the key in these two merger cases is that, Alibaba has less control power.
At the end of January, when responding to question about selling Meituan shares, Alibaba's vice president Cai Chongxin said, "It is only a matter of time to sell out Meituan." At the same time, Alibaba invested more resource in Koubei.com.
Now it comes to chauffeured car service market. Alibaba's choice of Ucar is in line with its business logic and company interest.
After one year's subsidy war, the players left are all "heavyweight", especially Didi, Uber and Ucar.
According to the statistics from Roland Berger's report in 2015, Ucar is showing a "catch-up" status entering the high-end market. The market share of Ucar is as high as 42%, much higher than Uber and very close to Didi.
For Charles Lu, part of reason of doing chauffeured car service in China is the synergies of car rental and car hailing. In the long term, Lu wants to seize the "entrance of travel on mobile devices", and it is also in line with Alibaba's long-term strategy.
Charles Lu emphasizes Ucar's B2C, heavy-asset model, despite doubts from outside world. His logic is that only the heavy-asset model can build industry barrier and control the service quality.
From the current policy, we can see that Ucar's advantage is in compliance with current governmental policy. With "professional car and professional driver" method, Ucar is considered as the only company that will gain profit due to the heavy assets after the new chauffeured car policy carries out.
In future, at least in near future, the market will be dominated by the so-called 'USD' (Uber, Shenzhou Ucar and Didi). The support of Alibaba and Tencet towards Ucar and Didi will undoubtedly upgrade the competition and capital burning in chauffeured car service market, till it reaches Matthew Effect: the strong one will be stronger and the weak one weaker.
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