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Cut-Throat Taxi App War Seen as Dry Run for O2O Payment Battles

With taxi-app operators offering ever more lucrative rebates to both passengers and drivers, it seems the real battle on the mainland is to build market share and driver consumer loyalty in preparation for the future profits offered by O2O.

Photo: All hail: taxi apps continue to rise and rise.
All hail: taxi apps continue to rise and rise.

Flagging down a taxi in many mainland cities is now far more of a challenge than once it was. Despite a number of empty taxis roaming the streets, many of them seem to have no interest in stopping to collect passengers. It is a clear indication that there has been a fundamental change in the way taxi drivers and passengers interact, with bookings, ever more frequently, being arranged via smartphone apps.

The real giveaway comes at the payment stage. Should you be fortunate enough to have successfully hailed a cab, upon reaching your destination, the driver may well request payment by Alipay, the online payment system developed by Alibaba. It is a sure sign of just how ubiquitous tax apps have now become, with two in particular – Didi Dache ("Didi Taxis") and Kuaidi Dache ("Fast Taxis") – coming to dominate the market.

Hangzhou is typical of many mainland cities in that hailing a cab has long been a frustrating affair. In a survey of taxis service standards in 15 mainland cities, Hangzhou came in as the third worst, behind only Beijing and Shanghai. The problems facing the sector are manifold – poor quality personnel, deliberate exploitation of near monopoly situations by taxi companies, unreliable reservation services, lack of non-standard taxi options and poor service oversight.

Dissatisfaction with many of these issues has provided fertile ground for the growth in taxi apps. Anecdotal evidence suggests there are, at present, some 30 available taxi apps, with Didi dominating in the north and Kuaidi dominating in the south.

At the start of the year, both Tencent-backed Didi Dache and Alibaba-backed Kuaidi Dache were offering taxi drivers and passengers an Rmb10 rebate per trip in a bid to secure market share. On 11 February, Didi reduced its rebate from Rmb10 to Rmb5, while Kuaidi maintained its existing level.

Predictably, Didi's market share took an immediate tumble, prompting the operator to revert to the Rmb10 level as of 16 February. Kuaidi responded by raising its rebate to Rmb11 later that same day. It also announced that it was committed to always offering an Rmb1 premium over any of its competitors. On 18 February, Didi raised its rebate to Rmb12, together with offering users a free WeFly gift package. Later that same day, Kuaidi moved to an Rmb13 rebate.   

Despite their cutthroat war for market share, both apps have developed impressively to date. According to a survey by China Economic Net, Didi Dache (developed by the Xiaoju Technology Co Ltd of Beijing) covers 23 cities, has been downloaded 7.4 million times and, to date, has 130,000 registered drivers. In terms of both reach and frequency of use, it has a commanding market share of 60%.

Kuaidi Dache (developed by the Kuaizhi Technology Co Ltd of Hangzhou), on the other hand, has the largest market share in Hangzhou and a number of other cities. Kuaidi Dache currently extends to 30 urban areas and has been downloaded around 10 million times. It currently claims to have more than 200,000 registered drivers. With a market share of 40%, it is the most serious challenger to Didi Dache.

Although now widely accepted, some of the practices permitted – if not encouraged – by the new technology have not been without controversy. One of the most divisive issues relates to the practice of tipping.

Although not required, passengers have the option of specifying a tip, over and above the actual fare, when making a booking. This has led to accusations that – particularly during peak usage periods – drivers are only making pickups where a tip has been indicated.

Dissatisfaction with this practice – particularly the way it disadvantages children and the elderly – has led to a number of local governments setting out to regulate the use of such apps. In Beijing, for instance, a taxi driver is only allowed to subscribe to one such app, while in Shanghai the use of apps during peak times has been banned entirely since 1 March.

The interventions in Hangzhou, though, have been less draconian. Drivers are, however, now required to turn on their busy/on call light as soon as accepting a smart app booking. In a tougher move, any drivers found accessing a smartphone while driving will be liable to action from both the local police and the traffic control authority.

For many industry observers, the fierce nature of the battle in the taxi apps sector is but a prelude to far more intense and competitive developments yet to come. With many internet companies seeing O2O (online-to-offline) as likely to be the future payment model across a wide variety of daily requirements, the fight is already on to build market share and drive customer loyalty. Alibaba and Tencent have a huge stake in the future development of this sector – particularly in terms of mobile payments – with both keen to ensure consumer commitment to their own transaction platforms.

Clare Xu, Hangzhou Office

Content provided by Picture: HKTDC Research
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