painting of car in ocean with jaws

 

I read several papers each week. Every now and then, an article hits home and prompts reflections on the changing world and our product development business. The Wall Street Journal article[1] “Uber snags a ride to China with Baidu” affirms fundamental business conditions and highlights several significant challenges for new technologies and emerging markets.

Uber is a technology based, mobile app solution connecting passengers with private drivers in metropolitan areas. It is an alternative to traditional taxis and other modes of public transportation. Their website describes them in this way: “Uber is evolving the way the world moves. By seamlessly connecting riders to drivers through our apps, we make cities more accessible, opening up more possibilities for riders and more business for drivers. From our founding in 2009 to our launches in over 200 cities today, Uber’s rapidly expanding global presence continues to bring people and their cities closer.”

Uber saw a problem and developed a solution. They have become the market leader in the United States. Now they want to bring their solution to China. But, the San Francisco based leader is struggling with regulatory challenges domestically and abroad. They are challenged with nimble competitors and an unlimited range of local regulations. Additionally, the company is not that popular with most cab drivers, for obvious reasons.

The WSJ article announces something that could be a break-through for the besieged firm, “Uber Technologies, Inc. has a new ally in China, a market where the dominant car-hailing service finds itself the underdog. Chinese Internet-search giant Baidu, Inc. (think U.S. version of Google) has agreed to make a strategic investment in the San Francisco Company.”

Uber’s main competitor in the China market is Didi Dache. Launched in September 2012, three years after Uber’s start-up, the company now processes 3m transactions a day and recently booked orders of 5.2m in a single day. Didi is now 10x larger than Uber. The Chinese market has over 500m smart phone users and this number will continue to grow. The company does not have regulatory constraints from the central government and intellectual property rights in China are weak, if not unenforceable.

So then, Uber needs capital and a partner to enter the vast Chinese market. Uber also needs to focus on their primary market and find ways to work through local regulations and find wide acceptance of the application. It will be very easy for the company to misstep along the way. It seems the barriers to entry are many and the future will belong to large, scaled technology companies with bandwidth to leverage ride sharing and cab-hailing applications.

Baidu’s investment in Uber will proliferate their mobile payment service and bolster the brand. “Uber needs a local player like Baidu that really understands the Chinese market,” said Li Yujie, an analyst at RHB Research Institute Sdn in Hong Kong. “Baidu is trying to promote its mobile payment system, Uber would help it gain more traffic and boost its location-based services.” The investment is strategic and well timed, if not a bit late.This brings us to a few fundamentals for application to any business?

  • Work on the right problems and create user-friendly solutions.
  • Focus on what you are really good at and find partners to round out your talent set.
  • Do not let off the gas pedal when you have an opportunity to grow.
  • Plan strategically and execute in tactical mode. Be flexible, because things will change.
  • Work with fair and like-minded partners to construct fair and balanced deals.

The future for Uber remains uncertain based on significant challenges, globally scaled competitors and an unfair playing field in China. Who said life or business would be fair anyway?

Many of our clients have been building businesses in China for decades. The best ones have found ways to navigate the culture, government and business requirements to build significant and successful businesses. They will all agree that it’s not for the impatient, faint of heart or under funded companies.

It will be interesting to see how the Uber China story plays out over the next several months/years. They were the first kids on the block and I am pulling for them all the way. American innovation, drive and ambition should win out over shameless replication. At the end of the day, the couple standing in the rain trying to hail a taxi will not care who is driving the systems. The end user, once again, is the point.

America is built on innovation and execution of great ideas. We run the risk of thinking we are the only innovators and quickest cats in the global jungle. The pace of change and increased global competition will continue to accelerate and we need to be quick, agile and flexible.

Maury Fredricks

Fredricks Design, Inc.

[1] WSJ December 13-14, 2014, Gillian Wong and Douglas MacMillan

Fredricks Design imagerycreated after Roger Kastel

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