WEBVTT - What It Takes to Vanquish Uber

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<v Speaker 1>This August, Chung Wi, the CEO of a Chinese technology

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<v Speaker 1>startup named Dee Dee Chuk Singh, went to an upscale

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<v Speaker 1>Beijing bar for a drink of baiju, a traditional Chinese

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<v Speaker 1>liquor that I know from personal experience is very difficult

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<v Speaker 1>to drink. His drinking partner was Travis Kalenik, his arch nemesis,

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<v Speaker 1>his better noir, the founder and the CEO of Uber.

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<v Speaker 1>Uber and Deed were finalizing a historic deal. After a

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<v Speaker 1>year and a half of furious money losing competition over

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<v Speaker 1>the ride hailing market in China, the two companies had

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<v Speaker 1>reached a Dayton truth the multibillion dollar price warfare China's

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<v Speaker 1>ride hailing market. After losing nearly two billion dollars in

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<v Speaker 1>just two years. Chung Wai was virtually unknown on the

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<v Speaker 1>international business stage, but here he was thirty three years old,

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<v Speaker 1>four years off a job as a salesman at Ali Baba,

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<v Speaker 1>the Chinese e commerce giant, drinking with the world's most famous,

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<v Speaker 1>controversial and feared entrepreneur. Now. Uber is the dominant ride

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<v Speaker 1>sharing company in the US, in Europe and South America,

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<v Speaker 1>in some parts of Asia, but not in China. They

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<v Speaker 1>competed hard for China, spending about two billion dollars, but

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<v Speaker 1>this was all akin to a defeat. It was abandoning

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<v Speaker 1>its team in China and it's bid to win the

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<v Speaker 1>world's largest transportation market. In late September, I flew to

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<v Speaker 1>Beishing with my distinguished colleague Lu lu Chan to sit

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<v Speaker 1>down with Chung Wei. Very little Chinese. Okay, he said

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<v Speaker 1>that travis Is alcohol tolerance was only so so, but

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<v Speaker 1>he really only had good things to say about Uber

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<v Speaker 1>is also a great company. They have the best strategy

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<v Speaker 1>in China among all the Silicon Valley companies. They're not

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<v Speaker 1>like the usual phone company in China. They're more like

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<v Speaker 1>a startup full of passion, feeling like they're fighting for themselves. Hi,

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<v Speaker 1>this is Brad Stone and I'm Lulu Chen, and this

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<v Speaker 1>week Undecrypted, we're bringing you the story of the Uberslayer.

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<v Speaker 1>How does an entrepreneur with no previous experience running a

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<v Speaker 1>business start a ride sharing app back in two thousand

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<v Speaker 1>and twelve in the midst of at least three dozen

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<v Speaker 1>other rivals, and how does he then compete his way

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<v Speaker 1>to the very top of the pack in China to

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<v Speaker 1>direct and ultimately victorious competition with the world's most highly

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<v Speaker 1>valued and most feared start and more importantly, how does

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<v Speaker 1>it start up? Like beating that has only lived in

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<v Speaker 1>the short span of life, known furious competition, financial losses,

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<v Speaker 1>and wartime environment. Can it turn into a real money

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<v Speaker 1>making business? And can it fulfill its promise to solve

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<v Speaker 1>the transportation problems of major Chinese cities. So let's let's

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<v Speaker 1>start at the beginning. Tell me about Chung Wei. What's

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<v Speaker 1>his story? Well, Choi was born in province that's the

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<v Speaker 1>cradle of Multadon's revolution. He attended the Beijing University of

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<v Speaker 1>Chemical Technology, not a top tier college in China. He

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<v Speaker 1>had a series of odd stints. At his worst, he

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<v Speaker 1>was the assistant to the manager of a foot massage

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<v Speaker 1>parlor um. This was because some very misguided advertisements that

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<v Speaker 1>he saw. He thought he was going to work for

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<v Speaker 1>a healthcare company. How did he get the job at

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<v Speaker 1>Ali Baba, Well, he just literally showed up at Ali

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<v Speaker 1>Baba's office in Shanghai. He went to the front desk

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<v Speaker 1>and asked for a job, and they welcomed him. So

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<v Speaker 1>I was twenty two when I graduated from university and

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<v Speaker 1>joined Ali Baba. That time I was a blank piece

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<v Speaker 1>of paper. I could only get fifteen hundred you on

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<v Speaker 1>a month at Ali Baba, A level P four the

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<v Speaker 1>lowest level of employee at Ali Baba. And it was

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<v Speaker 1>at Ali Baba selling ads that Chung reported to this

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<v Speaker 1>guy named Wang Gong. When Wong was passed up for promotion,

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<v Speaker 1>he gathered some of his mentees, including Cheung, and they

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<v Speaker 1>brainstormed ideas for startups. The inspiration came from an unlikely

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<v Speaker 1>source called the Tinder of China. Here's what Wang Gang

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<v Speaker 1>told us. In February two twelve, we saw an app

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<v Speaker 1>called Momo. We saw for the first time that you

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<v Speaker 1>were able to track girls based on their location. The

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<v Speaker 1>idea of location based apps came into view. So Chong

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<v Speaker 1>left Ali Baba along with Wong and a few other colleagues.

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<v Speaker 1>Wong funded the bulk of the eight hundred thousand yun

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<v Speaker 1>the startup money that they had. It was worth about

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<v Speaker 1>a hundred twenty dollars at the time. They rented out

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<v Speaker 1>this shabby warehouse and they called themselves Did Data, which

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<v Speaker 1>means Hong Kong Taxi. It was only later in and

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<v Speaker 1>the dead of winter that I first heard about the company.

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<v Speaker 1>It was a lucky break. At first, users had no

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<v Speaker 1>habit of using phones to hail cars, but that winter

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<v Speaker 1>on November three, we had a huge snowstorm. No one

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<v Speaker 1>could get home, so people tried it out. The drivers exclaimed, wow,

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<v Speaker 1>so many people hailing cars. This isn't afford and passengers

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<v Speaker 1>were able to get cars, so they would say, I

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<v Speaker 1>got a car. Amazing. In fact, it hasn't snowed as

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<v Speaker 1>much in the past two years. If you didn't snow

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<v Speaker 1>that year, maybe did, he wouldn't be here today. And

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<v Speaker 1>at the time ded was in this battle with about

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<v Speaker 1>thirty other startups doing similar things. The smart decision that

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<v Speaker 1>d d made early on was to target taxi drivers

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<v Speaker 1>instead of black car shoffers, because there are so many

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<v Speaker 1>more cabs than black cars out there. These early employees

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<v Speaker 1>called each other classmates as they had an ali baba,

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<v Speaker 1>and they were a tight knick group, dedicated, scrappy, and

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<v Speaker 1>pretty relentless. There was this one time when one of

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<v Speaker 1>Dede's rivals rented out the entire Beijing airport to promote

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<v Speaker 1>their app. What DEED did was flocked to Beijing's biggest

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<v Speaker 1>train station instead, and as the cabbies moved along the

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<v Speaker 1>pick up station. They would chase them down convinced them

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<v Speaker 1>to use their app instead. It was pretty tough getting

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<v Speaker 1>up at four am in the winter called not a

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<v Speaker 1>lot of teams can commit to that. An interesting to mention.

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<v Speaker 1>The competition on the Internet in China is a reliance

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<v Speaker 1>on what's called the Big Three bay Do, which is

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<v Speaker 1>China's big search engine, ten Cent the combination of social

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<v Speaker 1>media and video games, and Ali Baba, the e commerce company.

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<v Speaker 1>The company with the strongest connection to one of the

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<v Speaker 1>Big three usually wins, and in early two thousand thirteen,

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<v Speaker 1>Ded was dealt a big blow. Ali Baba actually invested

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<v Speaker 1>in one of its chief rivals called Quite. Wang Gang

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<v Speaker 1>told us that he called a friend of his at

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<v Speaker 1>Ali Baba, who wouldn't commit to an investment. Indeed, so

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<v Speaker 1>I thought them investing my competitor, that might mean that

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<v Speaker 1>they want to kill me. So in order to survive,

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<v Speaker 1>we needed to find a big tree to lean on.

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<v Speaker 1>At that time, we Chat was story so as a

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<v Speaker 1>user oriented product, ten Cent would help us more bid.

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<v Speaker 1>You didn't have any highlights in mobile internet, so we

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<v Speaker 1>didn't want to take bidus. Mon Cheung Wei taking on

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<v Speaker 1>ten Cent as an investor and a partner. Indeed changed

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<v Speaker 1>the whole ride sharing world in China because in early

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<v Speaker 1>two thousand fourteen, over the Lunar New Year, ten Cent

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<v Speaker 1>launched a promotion on wheat chat called Red and Blue.

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<v Speaker 1>Chinese people have a custom of giving each other red

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<v Speaker 1>packets over the New Year. Tencent thought, why not digitize

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<v Speaker 1>it and change it into a game where people in

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<v Speaker 1>group chats can fight over these little amounts of money,

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<v Speaker 1>and so Tencent try this out with discounts on Ded's

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<v Speaker 1>cab rights. It wasn't so much about the actual money,

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<v Speaker 1>but the entertainment factor. One lucky person in the group

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<v Speaker 1>might get a windfall while the other people just get

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<v Speaker 1>a few cents. It was an instant hit. The discounts

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<v Speaker 1>ended up attracting so many users that at one point

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<v Speaker 1>the servers at both companies crashed. Ded's engineers would see

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<v Speaker 1>users screwing to their side. After quite de servers crash

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<v Speaker 1>and and back and forth. Yeah, it was pretty intense.

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<v Speaker 1>At one point, chungwe had to go to ten Sent

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<v Speaker 1>and asked the founder of Mahaton for a thousand servers

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<v Speaker 1>and fifty people to help them out. They were hold

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<v Speaker 1>up in the offices for so long that at the

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<v Speaker 1>end of the soul called seven day seven night battle,

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<v Speaker 1>one of their employees had to go to the hospital

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<v Speaker 1>and have his contact lens is surgically removed. So the

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<v Speaker 1>story became sort of this myth in the company that

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<v Speaker 1>people still talk about today, and it's the name of

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<v Speaker 1>one of their conference rooms. Even this was really the

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<v Speaker 1>beginning of the irrational period in the Chinese ride sharing wars.

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<v Speaker 1>It kind of spiraled into a free for all, free

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<v Speaker 1>spending proxy battle between ten Cent and Ali Baba, which

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<v Speaker 1>had its own payments app that they were promoting called

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<v Speaker 1>Ali Pai d D and quitey were the ponds or

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<v Speaker 1>the proxies in this high stakes war. The competition for

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<v Speaker 1>users was fierce and vicious, and both sides seemed ready

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<v Speaker 1>and willing to spend inordinate amounts of money. Since people

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<v Speaker 1>know that the winn it takes all. Since people know

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<v Speaker 1>that the competition and will be fierce, why not put

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<v Speaker 1>in your best weapons from the very beginning. This is

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<v Speaker 1>the background of this time, so only those competitors that

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<v Speaker 1>know the rules best can have the chance to win

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<v Speaker 1>the competition. Now, as the battle between the two Chinese

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<v Speaker 1>right hailing companies intensified, there was also a barbarian at

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<v Speaker 1>the gate. Uber had been experimenting in China for a year,

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<v Speaker 1>and by now they were ready for a major expansion.

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<v Speaker 1>So this is the end of two thousand and fourteen

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<v Speaker 1>and De d and Quitee decided that it was time

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<v Speaker 1>to end their blood feud. Urie Milner, who's the head

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<v Speaker 1>of the Silicon Valley venture capital firm DST, acted as

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<v Speaker 1>a go between for ten Cent and Ali Baba and

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<v Speaker 1>told Cheung Wee, as long as you guys merge, I'll

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<v Speaker 1>invest in you. So from the beginning of two thousand fifteen,

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<v Speaker 1>Uber and the combined DD quite E embarked on a

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<v Speaker 1>fifteen month war, and it was a brutal fight. The

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<v Speaker 1>technology was ready and the global marketing strategy a lot

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<v Speaker 1>of pressure on NOUS. At that time, we felt like

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<v Speaker 1>the People's Liberation Army with basic rifles and we were

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<v Speaker 1>being bombed by air forces and missiles. Both Uber and

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<v Speaker 1>DEDI raised billions of dollars from every corner of the globe.

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<v Speaker 1>DEE got a billion from Apple, Uber got three point

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<v Speaker 1>five billion from Saudi Arabia. And this is what made

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<v Speaker 1>Chungwai such a perfect foil for Travis Kalinak. He seems

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<v Speaker 1>mild manner, but we could tell from visiting his office

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<v Speaker 1>the kinds of books he has in his bookshelf, his

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<v Speaker 1>use of military lessons from history, that this is a

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<v Speaker 1>guy who loves competition. Indeed, he really up its marketing

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<v Speaker 1>and i T infrastructure. After Uber came to China after

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<v Speaker 1>half a year's of battle, they had some sense that

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<v Speaker 1>they probably could win this battle. Uber ended up spending

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<v Speaker 1>two billion dollars in China over the course of two years.

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<v Speaker 1>Even for a giant like Uber, it was too much,

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<v Speaker 1>and they decided to bow out of China this past August. Lulu,

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<v Speaker 1>why was this such an important country for Uber to win? Well,

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<v Speaker 1>Um to think about the market size. It's just so significant,

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<v Speaker 1>such a great opportunity that Uber probably thinks they can't

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<v Speaker 1>afford to lose out. If you think about it, there

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<v Speaker 1>are seven cities in the world that limit purchases of automobiles.

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<v Speaker 1>China has six. The country already has a d eighty

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<v Speaker 1>four million vehicles, and if people all aspire to that

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<v Speaker 1>middle class lifestyle where every family has two cars, that

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<v Speaker 1>model is just not sustainable. Already. Beijing in Honjo have

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<v Speaker 1>some of the worst traffic jams in the world, so

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<v Speaker 1>the world simply can't support that many cars. Right, sharing

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<v Speaker 1>is a great solution, and probably Uber saw this as

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<v Speaker 1>one of the biggest opportunities outside of the US. Did

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<v Speaker 1>the home field advantage have anything to do with it?

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<v Speaker 1>I mean, do you think that the Chinese government made

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<v Speaker 1>sure the deity would win? Exactly? The road to China

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<v Speaker 1>is not smooth and all sunshine if you look at it.

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<v Speaker 1>It's been littered with the corpses of other foreign companies

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<v Speaker 1>like Microsoft and also Facebook. Regulatory hurdles have all has

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<v Speaker 1>been something that foreign tech companies have faced in China.

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<v Speaker 1>In this case, Uber definitely was facing local restrictions hurdles

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<v Speaker 1>at both the central and local government level, but that

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<v Speaker 1>was also true for DD. In fact, this is a

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<v Speaker 1>company that has been halted some thirty times um due

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<v Speaker 1>to local regulations, and it's also had to pay hundreds

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<v Speaker 1>of millions and fines to cover for the private car drivers.

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<v Speaker 1>And it's probably worth pointing out the deeds battles with

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<v Speaker 1>the government seemed to be getting worse right now. China's

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<v Speaker 1>three largest cities just proposal rule that would have huge

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<v Speaker 1>implications for DP. Yeah, that's actually right. Shanghai, Beijing, Shinjin

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<v Speaker 1>have all proposed draft rules that stipulate only drivers with

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<v Speaker 1>local residencies can be allowed to operate on the private

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<v Speaker 1>car hailing platforms. If that rule is past, it means

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<v Speaker 1>like in Shanghai, for example, only less than three percent

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<v Speaker 1>of the currently registered drivers are qualified and only about

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<v Speaker 1>twenty of the vehicle's meet the demand. So that could

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<v Speaker 1>be a huge blow TODD and lead to drop and

0:13:00.120 --> 0:13:02.640
<v Speaker 1>supply and rising costs. Do you think d D can

0:13:02.679 --> 0:13:05.000
<v Speaker 1>be successful in peacetime when it doesn't have in our

0:13:05.080 --> 0:13:08.240
<v Speaker 1>chenemy to fight well. I think they still face a

0:13:08.280 --> 0:13:11.760
<v Speaker 1>pretty steep task um for when they need to become profitable.

0:13:12.120 --> 0:13:15.920
<v Speaker 1>And then also they face all these regulatory hurdles that

0:13:15.960 --> 0:13:18.920
<v Speaker 1>are not clear yet. They need to be more attractive

0:13:18.960 --> 0:13:21.640
<v Speaker 1>to investors if they wanted to aim from an I

0:13:21.720 --> 0:13:24.880
<v Speaker 1>P O right, and that's already creating friction with both

0:13:25.040 --> 0:13:28.240
<v Speaker 1>riders and drivers. The war was good for everyone except

0:13:28.280 --> 0:13:31.280
<v Speaker 1>d D. I mean, we took some rides in an

0:13:31.360 --> 0:13:34.720
<v Speaker 1>uber and in the d D last week, and you know,

0:13:34.800 --> 0:13:37.400
<v Speaker 1>we talk a little bit about what we heard. People

0:13:37.440 --> 0:13:41.280
<v Speaker 1>are complaining that it does seem like UH fares have

0:13:41.400 --> 0:13:43.800
<v Speaker 1>gone up and driving for d D has become a

0:13:43.880 --> 0:13:48.599
<v Speaker 1>less lucrative gig exactly, and you know for Tronway, ultimately,

0:13:49.000 --> 0:13:53.600
<v Speaker 1>taxi is just the beginning of his empire that he envisions. Um,

0:13:53.679 --> 0:13:56.800
<v Speaker 1>what he really wants probably is much bigger. You mentioned

0:13:56.840 --> 0:14:01.199
<v Speaker 1>a few other services like buses, bike ship are basically

0:14:01.280 --> 0:14:03.760
<v Speaker 1>anything with a seat on it, not to mention driver

0:14:03.880 --> 0:14:06.960
<v Speaker 1>list technology. Those are all areas that you wants to

0:14:07.000 --> 0:14:11.680
<v Speaker 1>expand in. That's it for this week's Decrypted. Thanks for listening.

0:14:12.320 --> 0:14:14.560
<v Speaker 1>If you have an iPhone, be sure to subscribe to

0:14:14.600 --> 0:14:17.280
<v Speaker 1>the show on iTunes for any of your favorite podcast

0:14:17.320 --> 0:14:19.960
<v Speaker 1>apps out there. And while you're there, please take a

0:14:20.000 --> 0:14:22.800
<v Speaker 1>moment to rate and review our show and tell us

0:14:22.800 --> 0:14:24.960
<v Speaker 1>what you thought of today's podcast. Write to me on

0:14:25.000 --> 0:14:28.800
<v Speaker 1>Twitter at at brad Stone and I'm at lolu Ellen.

0:14:29.280 --> 0:14:33.760
<v Speaker 1>This episode was produced by aki Ito, Tara Zorovich, Magnus Hendrickson,

0:14:33.840 --> 0:14:37.760
<v Speaker 1>and Liz Smith, with help from Nita Malhotra Hora. Aaron

0:14:37.800 --> 0:14:41.560
<v Speaker 1>Black and Matt Burley assisted with recording. Alistair Barr and

0:14:41.680 --> 0:14:45.240
<v Speaker 1>Eric Newcomer recorded the English translations from our interviews with

0:14:45.320 --> 0:14:48.720
<v Speaker 1>Chungwei and Wang Gone. Alec McCabe as head of Bloomberg

0:14:48.760 --> 0:14:52.200
<v Speaker 1>Podcast And before we let you go, just a quick note.

0:14:52.240 --> 0:14:55.200
<v Speaker 1>In last week's episode on fab dot com, we said

0:14:55.240 --> 0:14:58.240
<v Speaker 1>that a private equity firm bought FAB for fifteen million,

0:14:58.520 --> 0:15:01.160
<v Speaker 1>but Fab was actually sold to pc H, which is

0:15:01.160 --> 0:15:04.440
<v Speaker 1>a manufacturing company. Despite that error, it's still a great

0:15:04.480 --> 0:15:07.000
<v Speaker 1>episode and if you haven't already, I hope they'll check

0:15:07.040 --> 0:15:13.080
<v Speaker 1>it out. We'll see you next week, yeah,