“Online to offline” (O2O) is an e-commerce model that leaves plenty of room to the investor’s imagination.
Take the case of Chinese mobile taxi-hailing application maker Didi Dache, which announced on Monday it has secured US$100 million in a new round of funding from two investors — US$70 million from Citic Private Equity and US$30 million from Tencent (00700.HK).
Tencent had invested US$15 million in the company during the previous round of fundraising, and the fresh funding is a clear signal that it is standing solidly behind the Beijing-based startup.
Didi said the app is now integrating with Tencent’s instant messaging platform WeChat. WeChat users can use Didi’s services without downloading the app since they can make payments through their WeChat accounts starting next month.
Taxi-booking apps have become popular among mobile users, especially in China’s major cities where getting a cab during rush hours can be a daily ordeal, but the fast and furious manner that both the app makers and their financial backers are burning money indicates that competition in the business is quite fierce.
In order to attract more taxi drivers to join its community, rival Kuaidi Dache, which is backed by another internet behemoth, Alibaba, claims it has allocated 100 million yuan (US$16.5 million) to give out as subsidies to cabbies. Didi, on the other hand, is giving participating drivers as much as 100 yuan subsidy per ride.
In such a viciously competitive environment, many media watchers are wondering how the players can make any profit at all. But the bigger question is: why do investors continue to pour money into those apps?
We might get some insight from Uber, a US-based private luxury car service whose business model is similar to that of Didi and Kuaidi.
Say you’re in a hurry to get to an appointment. All you need to do is open the Uber app on your smartphone and choose which car you would like to hire. Then you key in the place where you want to be picked up and taken, and then pay for your ride using your credit card. The rate, of course, depends on the travel distance and your choice of vehicle.
Since its launch in 2009, the service has become very popular in the United States and received glowing media reviews. Some analysts expect its revenue to reach US$200 million this year, according to Valleymag, a Silicon Valley media blog.
Some optimists even predict Uber will be a US$100 billion company in five years, which means it can become as valuable as social media giant Facebook.
What’s the logic behind such over-the-top optimism? Analysts believe that by leveraging its rich storehouse of user and driver data and its ability to link them up through its app, Uber can easily transform itself into a traffic and logistics platform.
Uber CEO Travis Kalanick has envisioned a similar transformation, describing the company as an “urban logistics fabric” that is about physically delivering products and services.
In fact, Uber has experimented with other products to go with its on-demand taxi-hailing service. For example, users have requested the firm to deliver Christmas trees, roses and even ice cream during a trial period.
Taxi-hiring apps are now seen as an entry point into O2O service, and as a step towards this transformation, the companies are giving out generous subsidies to train users to become more familiar with the mobile payment system.
Maybe it’s still early days to say Didi, Kuaidi or even Uber could ride the O2O wave, but one thing is for sure: the competition in the business will only get tougher.
Didi now runs taxi-booking services in 32 China cities, and counts more than 20 million users and 350,000 registered drivers. With such a vast coverage, Didi now holds about 60 percent of the market.
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