· TECH Uber’s Efforts to Build Chinese Business Ultimately Fail Against Homegrown Rival Didi So far, no U.S. internet-based company has succeeded in conquering the Chinese market By  EVA DOU and KATHY CHU Updated Aug. 1, 2016 10:05 p.m. ET BEIJING—Uber Technologies Co. entered China with billions of dollars to spend and ambitions to dominate the world’s biggest market for ride hailing. It wasn’t enough. After almost three years, Uber agreed to sell its China business to rival Didi Chuxing Technology Co., the Chinese company announced Monday. Despite launching private ride-sharing services in China a full year before Didi, Uber has been outmaneuvered by the homegrown player, which added localized features, landed powerful investors and wooed Chinese regulators and press. Uber and outside investors in Uber China will get 20% in the merged company, which has a combined valuation of $36 billion. U.S. internet companies have long struggled in vain to capitalize on the allure of China’s enormous population and growing wealth. Some have been stymied by strict government licensing and censorship, which contributed to Google Inc.’s decision in 2010 to shutter its China-base search engine and has effectively barred access to Facebook Inc. and Twitter Inc. Others have been bested by deep-pocketed local rivals that adapt quickly to Chinese consumer preferences. Amazon.com Inc. and eBay Inc. both faced off unsuccessfully against Alibaba Group Holding Ltd. “So far we haven’t seen a foreign internet company that has made it big in China,” said Andrew Teoh, managing partner of Ameba Capital, an early investor in Didi. Other companies in the technology industry and beyond have struggled with a range of hurdles in China, including government policies that favor domestic players. Apple Inc. and Microsoft Corp., for instance, have felt a sales chill in China amid Beijing’s growing focus on using “secure” domestic equipment. “The environment has become more challenging,” said Jeremie Waterman, executive director for greater China at the U.S. Chamber of Commerce. “There’s no question that there are Chinese companies that are more competitive than they were five or 10 years ago, but there’s also no question that the government has and is increasingly putting its thumb on the scales to benefit Chinese companies.” China is extremely important to many companies. General Motors Co., which used decades-old alliances in the region to become one of the largest players in the world’s biggest light-vehicle market, counts on Chinese operations for about $2 billion in operating profit annually and has committed to spend 100 billion yuan ($15.1 billion) between now and 2020 on new car development. Although less profitable than U.S. operations, China accounts for about a third of vehicle sales and its position has grown in 2016 as the wider auto market shakes off volatility. Still, a survey released in January by the American Chamber of Commerce in China found that only 64% of .

1. · TECH
Uber’s Efforts to Build Chinese Business Ultimately Fail
Against Homegrown Rival Didi
So far, no U.S. internet-based company has succeeded in
conquering the Chinese market
By EVA DOU and KATHY CHU
Updated Aug. 1, 2016 10:05 p.m. ET
BEIJING—Uber Technologies Co. entered China with billions
of dollars to spend and ambitions to dominate the world’s
biggest market for ride hailing. It wasn’t enough.
After almost three years, Uber agreed to sell its China
business to rival Didi Chuxing Technology Co., the Chinese
company announced Monday. Despite launching private ride-
sharing services in China a full year before Didi, Uber has been
outmaneuvered by the homegrown player, which added
localized features, landed powerful investors and wooed
Chinese regulators and press. Uber and outside investors in
Uber China will get 20% in the merged company, which has a
combined valuation of $36 billion.
U.S. internet companies have long struggled in vain to
capitalize on the allure of China’s enormous population and
growing wealth. Some have been stymied by strict government
licensing and censorship, which contributed to Google Inc.’s
decision in 2010 to shutter its China-base search engine and has
effectively barred access to Facebook Inc. and Twitter Inc.
Others have been bested by deep-pocketed local rivals that
adapt quickly to Chinese consumer
preferences. Amazon.com Inc. and eBay Inc. both faced off
unsuccessfully against Alibaba Group Holding Ltd.
“So far we haven’t seen a foreign internet company that has
made it big in China,” said Andrew Teoh, managing partner of
Ameba Capital, an early investor in Didi.
Other companies in the technology industry and beyond have
struggled with a range of hurdles in China, including

2. government policies that favor domestic players.
Apple Inc. and Microsoft Corp., for instance, have felt a sales
chill in China amid Beijing’s growing focus on using “secure”
domestic equipment.
“The environment has become more challenging,” said Jeremie
Waterman, executive director for greater China at the U.S.
Chamber of Commerce. “There’s no question that there are
Chinese companies that are more competitive than they were
five or 10 years ago, but there’s also no question that the
government has and is increasingly putting its thumb on the
scales to benefit Chinese companies.”
China is extremely important to many companies. General
Motors Co., which used decades-old alliances in the region to
become one of the largest players in the world’s biggest light-
vehicle market, counts on Chinese operations for about $2
billion in operating profit annually and has committed to spend
100 billion yuan ($15.1 billion) between now and 2020 on new
car development. Although less profitable than U.S. operations,
China accounts for about a third of vehicle sales and its position
has grown in 2016 as the wider auto market shakes off
volatility.
Still, a survey released in January by the American Chamber of
Commerce in China found that only 64% of the U.S. companies
surveyed were profitable in 2015—the lowest level in five
years. Nearly a third weren’t planning to expand their
investment in China, a higher percentage than during the global
financial crisis of 2008-09.
Uber Chief Executive Travis Kalanick’s decision to capitulate
in China came on the heels of new ride-hailing regulations
there, which were announced last week but had been in the
works for two years and were known to companies in the
industry in advance.
RELATED
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3. · Uber Sells China Operations to Didi Chuxing
· 5 Things to Know About the Uber-Didi Deal
· Didi: The Chinese Uber Rival Buying UberChina
· Inside Uber’s Fight With Its Chinese Nemesis, Didi Kuaidi
The guidelines officially legalized the industry, but gave an
edge to the player with the largest user base. That was Didi,
which is backed by Apple as well as Chinese internet giants
Alibaba and Tencent Holdings Ltd.
The rules forbid companies to operate ride-hailing services
below cost, putting an end to ruinous subsidy wars but making
it difficult for Uber China, with its smaller scale, to match Didi
on price.
The guidelines also require companies to implement stricter
driver oversight and incur other overhead expenses, measures
likely to be less costly per ride the larger the user base.
Didi and Uber disagree on their China market shares, but most
third-party researchers put Didi significantly ahead. According
to one research firm, Analysys International, Didi had 42.1
million active users in May while Uber China had 10.1 million.
Didi said it would maintain the Uber service and brand
separately in China. A similar promise was made after
the merger of Didi Dache and Kuaidi Dache in 2015 to form
Didi Chuxing, with the smaller Kuaidi product subsequently
marginalized.
Mr. Kalanick, in a statement Monday, acknowledged the
challenge Uber faced in entering China. “We were a young
American business entering a country where most U.S. internet
companies had failed to crack the code,” he said. Uber had
worked hard to localize in China, setting up Uber China as a
Chinese company and giving high autonomy to the local
executives at its helm.
Didi began in 2012 as an app to help Chinese taxi drivers find
passengers. Although the service didn’t make money for Didi, it
helped the company amass loyal users. By the time Didi
launched an Uber-like ride-sharing service in 2014, it had more
than 100 million registered users.

4. In July 2014, Mr. Kalanick offered to acquire Didi, saying that
he would conquer China one way or the other, recalled Didi
Chief Executive Cheng Wei in a 2015 interview. Mr. Cheng said
he had refused, saying, “There will be a day when we will
surpass you.”
An Uber spokeswoman confirmed the meeting at the time but
said Uber executives remembered it differently.
Didi’s status as the local champion helped it best Uber both in
relations with local governments and in the media.
Uber China found its accounts on China’s leading messaging
app, WeChat, repeatedly shut down, hobbling its attempts to
promote its services to regular consumers. WeChat is owned by
Tencent, a Didi investor. Tencent has declined to comment.
Uber’s decision to effectively join a rival echoes similar moves
by other big Western companies in China.
Wal-Mart Stores Inc., which has struggled to expand in China as
shopping rapidly shifts online there, switched gears in June.
Rather than continuing to build its own online business in
China, the world’s biggest retailer agreed to sell its Chinese
website to JD.com Inc., one of the country’s largest e-commerce
players. In exchange, Wal-Mart took a 5% stake in JD.com.
—Juro Osawa, Drew FitzGerald and John D. Stoll contributed to
this article.
Write to Eva Dou at [email protected] and Kathy Chu at
[email protected]
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Uber-Didi Tie-Up Threatens Lyft in U.S.
Lyft sees ally Didi team with its biggest rival, which is now no
longer burdened by China
ENLARGE
Lyft, whose cars are recognized by fuzzy pink mustaches, is
sustaining big losses at a time when venture capital is harder to
secure. PHOTO: GETTY IMAGES
By GREG BENSINGER and ROLFE WINKLER

5. Updated Aug. 2, 2016 12:07 a.m. ET
Uber Technologies Inc.’s retreat from China creates ripples in
what will now become its biggest market, the U.S., where it can
refocus on its simmering rivalry with hometown competitor Lyft
Inc.
The merger of Uber’s China operation with Didi Chuxing
Technology Co. adds a twist to the rapidly shifting landscape of
ride-hailing alliances and brings more uncertainty for San
Francisco-based Lyft, which has been shopping for a financier
to keep it flush with capital.
Didi had been Lyft’s biggest ally after the two companies in
recent months touted an anti-Uber alliance that would
effectively link their apps and share access to passengers
traveling abroad. The two companies also teamed up with
India’s Ola and southeast Asia’s Grab to make their apps
globally accessible.
By tying together their apps, the companies aimed to better
compete with Uber. Didi also is an investor in Lyft.
But Didi now has agreed to align with Lyft’s fiercest rival by
combining its operations with Uber’s China business. Uber will
receive a 18% stake in Didi, meaning Uber becomes an indirect
stakeholder in Lyft. Didi also will invest $1 billion in Uber’s
global operations, making Didi both a friend and foe to Lyft.
“Over the next few weeks, we will evaluate our partnership with
Didi,” a Lyft spokesman said in an emailed statement. “We
always believed Didi had a big advantage in China because of
the regulatory environment.”
The deal also means Uber can stanch the hemorrhaging in
China, where it had pumped in billions of dollars. Uber has
raised over six times more capital than Lyft, and its latest
valuation of $68 billion far outpaces Lyft’s $5.5 billion value.
Lyft has been in a bruising four-year battle with Uber for
passenger and driver loyalty. The Wall Street Journal reported
in June that Lyft hired boutique investment bank Qatalyst
Partners LP, which is known to help tech companies find a
buyer.

6. Lyft has tried to keep up with its larger competitor as both San
Francisco companies pour millions of dollars into subsidizing
low-price rides and giving cash bonuses to new drivers.
Uber and Lyft have sought to edge one another out by poaching
employees and have accused each other in the past of ordering
up fake rides that hinder service. The two firms believe they can
be a central means of transportation, rather than just replacing
existing taxi services.
FURTHER READING
· Uber’s Retreat Shows Limits U.S. Companies Face in China
· China Circuit: Financial Pressures Shaped Didi-Uber Deal
· Heard on the Street: Why Foreigners Never Win in Tech
· Uber Sells China Operations to Didi
· 5 Things to Know on Uber-Didi Deal
· Didi: Chinese Rival Buying UberChina
Lyft is sustaining big losses at a time when venture capital is
harder to come by, likely encouraging the company to find a
suitor.
Last year, Lyft posted an operating loss of around $360 million
on revenue of roughly $200 million, according to a person
familiar with the company’s financial statements. Riders paid a
total of about $1 billion for Lyft rides in 2015, and the company
kept 20% of that amount as its revenue.
The company has ample cash on hand to sustain itself for now.
As of June, Lyft had about $1.4 billion in cash, this person said.
It has recently been burning about $50 million in cash a month,
according to another person familiar with the matter, suggesting
it has more than two years of cash left at that rate. But its
spending could go up if the promotional arms race with Uber
kicks up a notch, and Lyft is forced to subsidize price cuts.
Lyft does have a major ally in auto maker General Motors Co.,
which invested $500 million for a 10% stake and indicated the
ride-hailing service could be crucial to the future of
automobiles. The two companies have since agreed to develop
self-driving cars and to offer deals on rental cars to Lyft
drivers.

7. ENLARGE
That partnership is critical in helping bolster GM’s electric
vehicle strategy. The auto maker’s battery-electric car,
Chevrolet Bolt, was designed with a bigger back seat to better
appeal to taxi services, for instance. GM also plans next year to
begin testing autonomous electric taxis in the Lyft network.
With Uber likely returning its attention on the U.S., it is unclear
whether GM is interested in buying all of Lyft or increasing its
stake. But GM has been involved in several discussions about
the company’s funding needs and strategic alternatives,
according to people familiar with the matter.
A GM spokesman said the Uber-Didi announcement doesn’t
change its strategic alliance with Lyft, and that the companies
will continue work on joint projects.
The Uber-Didi tie-up changes the calculus for Lyft’s other
China backers. Along with Didi, China’s largest internet
companies, Alibaba Group Holding Ltd. and Tencent
Holdings Ltd., invested in a May 2015 round that valued Lyft at
$2.5 billion. Those investments were meant to counter Uber’s
growth in China.
But Alibaba and Tencent also are investors in Didi and have
strategic partnerships including payments services and app
integration. So the two internet giants have more at stake in the
future success of Didi in China than in Lyft in the U.S. That
could put pressure on Lyft and Asian ride-hailing startups to
either find new allies or cut a deal with Uber or Didi in the
future.
—Rick Carew, Gautham Nagesh and John Stoll contributed to
this article.
Write to Greg Bensinger at [email protected] and Rolfe Winkler
at [email protected]
Corrections & Amplifications
A person familiar with Lyft Inc.’s financial statements said the
company earlier this year was on pace to more than double
revenue to around $450 million in 2016, and post an operating
loss of more than $200 million. An earlier version of this article

8. incorrectly attributed this projection to Lyft.
TOPICS: Global Strategy
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