Few months ago, I predicted that Uber and Lyft would eventually merge. My point is that most of these category-kings, after destroying value, pivot to eke out something at the end by combining. They need to because very soon both Uber and Lyft will have to battle a new enemy: Didi Chuxing, the China-based ride-sharing startup.
In this piece, I explain why Uber and Lyft will merge. The trajectories both are following show that they will have challenges with Lyft gaining on Uber, but the overall industry cooling. As soon as that happens, their margins, if they have any, will collapse. Once that happens, they will begin to talk of merger, with each other. Government will see their struggles, and will dismiss any anti-trust concern gone. The result: it will bless their union. Uber is today’s Category-King, but its past behaviors have slowed it down, offering a window for Lyft to catch-up. As they become peer-competitors and rivalries, they will destroy the sector. I do see many close rivalry typical of others that ended together: Elance/Odesk (now UpWork), Groupon / LivingSocial, Sirius / XM and Rover / DogVacay. Please add DraftKings and FanDuel in the list; I predict they will merge also despite any FCC ruling, at the moment. They will struggle, owing to wounds they inflict on each other, in coming years, and will be saved via merger.
Didi Chuxing defeated Uber in China, and absorbed Uber’s Chinese assets. The company just raised $4 billion to pursue a global expansion. That brings the year total to $10 billion. The company is now worth $56 billion, only behind Uber (2016; $68 billion) or ahead if you use the Softbank-led latest round (2017, $50 billion), in the most valued private technology startup category.
Didi Chuxing, the Chinese ride-hailing app that is Uber’s biggest rival overseas, has raised another $4 billion to aid its international expansion. Softbank and Mubadala Capital, a state fund of Abu Dhabi, both participated. Didi said it would use the cash to buy a fleet of 1 million new-energy vehicles (NEV) and the expansion of charging infrastructure
With this money, Didi Chuxing wants to move into Brazil, Latin America’s largest economy. It plans to take majority stake in 99, a leading ride-sharing startup that operates from Brazil. Didi plans to start operations in Mexico in 2018.It already controls the Southeast Asian market through Grab where with Softbank it invested $2 billion. Grab leads the Southeast Asian ride-sharing market. With 99 and Grab, Didi is holding two important regions. India’s Ola, which is the leading startup there, in the sector, has Didi and Softbank as leading investors. (Softbank is a Uber investor, so it will win irrespective of who survives.)
Interestingly, Didi has given up in U.S. (it has shut down its U.S. app), pushing its customers to choose Lyft to make life harder for Uber. Yes, Didi wants a stronger Lyft to weaken Uber at home and distract its global expansions. With multiple legal issues before Uber to deal with, Didi is expected to gain more grounds internationally. Lyft is gaining grounds on Uber already in U.S. Of course, Uber can manage the amalgam of bad press and distractions to evolve under its new leadership.
As Didi raises this unbelievable amount of money and Uber struggles globally and locally, even as Lyft remains largely a U.S. business, both Uber and Lyft may decide to combine. If they combine, Uber will be saved the trouble of fighting for its position at home (U.S.) and can then focus to challenge Didi internationally. On that premise, I believe that Uber and Lyft will merge to handle the challenges coming from Didi.
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