Speaker 1: This August, Chung Wi, the CEO of a Chinese technology
Speaker 1: startup named Dee Dee Chuk Singh, went to an upscale
Speaker 1: Beijing bar for a drink of baiju, a traditional Chinese
Speaker 1: liquor that I know from personal experience is very difficult
Speaker 1: to drink. His drinking partner was Travis Kalenik, his arch nemesis,
Speaker 1: his better noir, the founder and the CEO of Uber.
Speaker 1: Uber and Deed were finalizing a historic deal. After a
Speaker 1: year and a half of furious money losing competition over
Speaker 1: the ride hailing market in China, the two companies had
Speaker 1: reached a Dayton truth the multibillion dollar price warfare China's
Speaker 1: ride hailing market. After losing nearly two billion dollars in
Speaker 1: just two years. Chung Wai was virtually unknown on the
Speaker 1: international business stage, but here he was thirty three years old,
Speaker 1: four years off a job as a salesman at Ali Baba,
Speaker 1: the Chinese e commerce giant, drinking with the world's most famous,
Speaker 1: controversial and feared entrepreneur. Now. Uber is the dominant ride
Speaker 1: sharing company in the US, in Europe and South America,
Speaker 1: in some parts of Asia, but not in China. They
Speaker 1: competed hard for China, spending about two billion dollars, but
Speaker 1: this was all akin to a defeat. It was abandoning
Speaker 1: its team in China and it's bid to win the
Speaker 1: world's largest transportation market. In late September, I flew to
Speaker 1: Beishing with my distinguished colleague Lu lu Chan to sit
Speaker 1: down with Chung Wei. Very little Chinese. Okay, he said
Speaker 1: that travis Is alcohol tolerance was only so so, but
Speaker 1: he really only had good things to say about Uber
Speaker 1: is also a great company. They have the best strategy
Speaker 1: in China among all the Silicon Valley companies. They're not
Speaker 1: like the usual phone company in China. They're more like
Speaker 1: a startup full of passion, feeling like they're fighting for themselves. Hi,
Speaker 1: this is Brad Stone and I'm Lulu Chen, and this
Speaker 1: week Undecrypted, we're bringing you the story of the Uberslayer.
Speaker 1: How does an entrepreneur with no previous experience running a
Speaker 1: business start a ride sharing app back in two thousand
Speaker 1: and twelve in the midst of at least three dozen
Speaker 1: other rivals, and how does he then compete his way
Speaker 1: to the very top of the pack in China to
Speaker 1: direct and ultimately victorious competition with the world's most highly
Speaker 1: valued and most feared start and more importantly, how does
Speaker 1: it start up? Like beating that has only lived in
Speaker 1: the short span of life, known furious competition, financial losses,
Speaker 1: and wartime environment. Can it turn into a real money
Speaker 1: making business? And can it fulfill its promise to solve
Speaker 1: the transportation problems of major Chinese cities. So let's let's
Speaker 1: start at the beginning. Tell me about Chung Wei. What's
Speaker 1: his story? Well, Choi was born in province that's the
Speaker 1: cradle of Multadon's revolution. He attended the Beijing University of
Speaker 1: Chemical Technology, not a top tier college in China. He
Speaker 1: had a series of odd stints. At his worst, he
Speaker 1: was the assistant to the manager of a foot massage
Speaker 1: parlor um. This was because some very misguided advertisements that
Speaker 1: he saw. He thought he was going to work for
Speaker 1: a healthcare company. How did he get the job at
Speaker 1: Ali Baba, Well, he just literally showed up at Ali
Speaker 1: Baba's office in Shanghai. He went to the front desk
Speaker 1: and asked for a job, and they welcomed him. So
Speaker 1: I was twenty two when I graduated from university and
Speaker 1: joined Ali Baba. That time I was a blank piece
Speaker 1: of paper. I could only get fifteen hundred you on
Speaker 1: a month at Ali Baba, A level P four the
Speaker 1: lowest level of employee at Ali Baba. And it was
Speaker 1: at Ali Baba selling ads that Chung reported to this
Speaker 1: guy named Wang Gong. When Wong was passed up for promotion,
Speaker 1: he gathered some of his mentees, including Cheung, and they
Speaker 1: brainstormed ideas for startups. The inspiration came from an unlikely
Speaker 1: source called the Tinder of China. Here's what Wang Gang
Speaker 1: told us. In February two twelve, we saw an app
Speaker 1: called Momo. We saw for the first time that you
Speaker 1: were able to track girls based on their location. The
Speaker 1: idea of location based apps came into view. So Chong
Speaker 1: left Ali Baba along with Wong and a few other colleagues.
Speaker 1: Wong funded the bulk of the eight hundred thousand yun
Speaker 1: the startup money that they had. It was worth about
Speaker 1: a hundred twenty dollars at the time. They rented out
Speaker 1: this shabby warehouse and they called themselves Did Data, which
Speaker 1: means Hong Kong Taxi. It was only later in and
Speaker 1: the dead of winter that I first heard about the company.
Speaker 1: It was a lucky break. At first, users had no
Speaker 1: habit of using phones to hail cars, but that winter
Speaker 1: on November three, we had a huge snowstorm. No one
Speaker 1: could get home, so people tried it out. The drivers exclaimed, wow,
Speaker 1: so many people hailing cars. This isn't afford and passengers
Speaker 1: were able to get cars, so they would say, I
Speaker 1: got a car. Amazing. In fact, it hasn't snowed as
Speaker 1: much in the past two years. If you didn't snow
Speaker 1: that year, maybe did, he wouldn't be here today. And
Speaker 1: at the time ded was in this battle with about
Speaker 1: thirty other startups doing similar things. The smart decision that
Speaker 1: d d made early on was to target taxi drivers
Speaker 1: instead of black car shoffers, because there are so many
Speaker 1: more cabs than black cars out there. These early employees
Speaker 1: called each other classmates as they had an ali baba,
Speaker 1: and they were a tight knick group, dedicated, scrappy, and
Speaker 1: pretty relentless. There was this one time when one of
Speaker 1: Dede's rivals rented out the entire Beijing airport to promote
Speaker 1: their app. What DEED did was flocked to Beijing's biggest
Speaker 1: train station instead, and as the cabbies moved along the
Speaker 1: pick up station. They would chase them down convinced them
Speaker 1: to use their app instead. It was pretty tough getting
Speaker 1: up at four am in the winter called not a
Speaker 1: lot of teams can commit to that. An interesting to mention.
Speaker 1: The competition on the Internet in China is a reliance
Speaker 1: on what's called the Big Three bay Do, which is
Speaker 1: China's big search engine, ten Cent the combination of social
Speaker 1: media and video games, and Ali Baba, the e commerce company.
Speaker 1: The company with the strongest connection to one of the
Speaker 1: Big three usually wins, and in early two thousand thirteen,
Speaker 1: Ded was dealt a big blow. Ali Baba actually invested
Speaker 1: in one of its chief rivals called Quite. Wang Gang
Speaker 1: told us that he called a friend of his at
Speaker 1: Ali Baba, who wouldn't commit to an investment. Indeed, so
Speaker 1: I thought them investing my competitor, that might mean that
Speaker 1: they want to kill me. So in order to survive,
Speaker 1: we needed to find a big tree to lean on.
Speaker 1: At that time, we Chat was story so as a
Speaker 1: user oriented product, ten Cent would help us more bid.
Speaker 1: You didn't have any highlights in mobile internet, so we
Speaker 1: didn't want to take bidus. Mon Cheung Wei taking on
Speaker 1: ten Cent as an investor and a partner. Indeed changed
Speaker 1: the whole ride sharing world in China because in early
Speaker 1: two thousand fourteen, over the Lunar New Year, ten Cent
Speaker 1: launched a promotion on wheat chat called Red and Blue.
Speaker 1: Chinese people have a custom of giving each other red
Speaker 1: packets over the New Year. Tencent thought, why not digitize
Speaker 1: it and change it into a game where people in
Speaker 1: group chats can fight over these little amounts of money,
Speaker 1: and so Tencent try this out with discounts on Ded's
Speaker 1: cab rights. It wasn't so much about the actual money,
Speaker 1: but the entertainment factor. One lucky person in the group
Speaker 1: might get a windfall while the other people just get
Speaker 1: a few cents. It was an instant hit. The discounts
Speaker 1: ended up attracting so many users that at one point
Speaker 1: the servers at both companies crashed. Ded's engineers would see
Speaker 1: users screwing to their side. After quite de servers crash
Speaker 1: and and back and forth. Yeah, it was pretty intense.
Speaker 1: At one point, chungwe had to go to ten Sent
Speaker 1: and asked the founder of Mahaton for a thousand servers
Speaker 1: and fifty people to help them out. They were hold
Speaker 1: up in the offices for so long that at the
Speaker 1: end of the soul called seven day seven night battle,
Speaker 1: one of their employees had to go to the hospital
Speaker 1: and have his contact lens is surgically removed. So the
Speaker 1: story became sort of this myth in the company that
Speaker 1: people still talk about today, and it's the name of
Speaker 1: one of their conference rooms. Even this was really the
Speaker 1: beginning of the irrational period in the Chinese ride sharing wars.
Speaker 1: It kind of spiraled into a free for all, free
Speaker 1: spending proxy battle between ten Cent and Ali Baba, which
Speaker 1: had its own payments app that they were promoting called
Speaker 1: Ali Pai d D and quitey were the ponds or
Speaker 1: the proxies in this high stakes war. The competition for
Speaker 1: users was fierce and vicious, and both sides seemed ready
Speaker 1: and willing to spend inordinate amounts of money. Since people
Speaker 1: know that the winn it takes all. Since people know
Speaker 1: that the competition and will be fierce, why not put
Speaker 1: in your best weapons from the very beginning. This is
Speaker 1: the background of this time, so only those competitors that
Speaker 1: know the rules best can have the chance to win
Speaker 1: the competition. Now, as the battle between the two Chinese
Speaker 1: right hailing companies intensified, there was also a barbarian at
Speaker 1: the gate. Uber had been experimenting in China for a year,
Speaker 1: and by now they were ready for a major expansion.
Speaker 1: So this is the end of two thousand and fourteen
Speaker 1: and De d and Quitee decided that it was time
Speaker 1: to end their blood feud. Urie Milner, who's the head
Speaker 1: of the Silicon Valley venture capital firm DST, acted as
Speaker 1: a go between for ten Cent and Ali Baba and
Speaker 1: told Cheung Wee, as long as you guys merge, I'll
Speaker 1: invest in you. So from the beginning of two thousand fifteen,
Speaker 1: Uber and the combined DD quite E embarked on a
Speaker 1: fifteen month war, and it was a brutal fight. The
Speaker 1: technology was ready and the global marketing strategy a lot
Speaker 1: of pressure on NOUS. At that time, we felt like
Speaker 1: the People's Liberation Army with basic rifles and we were
Speaker 1: being bombed by air forces and missiles. Both Uber and
Speaker 1: DEDI raised billions of dollars from every corner of the globe.
Speaker 1: DEE got a billion from Apple, Uber got three point
Speaker 1: five billion from Saudi Arabia. And this is what made
Speaker 1: Chungwai such a perfect foil for Travis Kalinak. He seems
Speaker 1: mild manner, but we could tell from visiting his office
Speaker 1: the kinds of books he has in his bookshelf, his
Speaker 1: use of military lessons from history, that this is a
Speaker 1: guy who loves competition. Indeed, he really up its marketing
Speaker 1: and i T infrastructure. After Uber came to China after
Speaker 1: half a year's of battle, they had some sense that
Speaker 1: they probably could win this battle. Uber ended up spending
Speaker 1: two billion dollars in China over the course of two years.
Speaker 1: Even for a giant like Uber, it was too much,
Speaker 1: and they decided to bow out of China this past August. Lulu,
Speaker 1: why was this such an important country for Uber to win? Well,
Speaker 1: Um to think about the market size. It's just so significant,
Speaker 1: such a great opportunity that Uber probably thinks they can't
Speaker 1: afford to lose out. If you think about it, there
Speaker 1: are seven cities in the world that limit purchases of automobiles.
Speaker 1: China has six. The country already has a d eighty
Speaker 1: four million vehicles, and if people all aspire to that
Speaker 1: middle class lifestyle where every family has two cars, that
Speaker 1: model is just not sustainable. Already. Beijing in Honjo have
Speaker 1: some of the worst traffic jams in the world, so
Speaker 1: the world simply can't support that many cars. Right, sharing
Speaker 1: is a great solution, and probably Uber saw this as
Speaker 1: one of the biggest opportunities outside of the US. Did
Speaker 1: the home field advantage have anything to do with it?
Speaker 1: I mean, do you think that the Chinese government made
Speaker 1: sure the deity would win? Exactly? The road to China
Speaker 1: is not smooth and all sunshine if you look at it.
Speaker 1: It's been littered with the corpses of other foreign companies
Speaker 1: like Microsoft and also Facebook. Regulatory hurdles have all has
Speaker 1: been something that foreign tech companies have faced in China.
Speaker 1: In this case, Uber definitely was facing local restrictions hurdles
Speaker 1: at both the central and local government level, but that
Speaker 1: was also true for DD. In fact, this is a
Speaker 1: company that has been halted some thirty times um due
Speaker 1: to local regulations, and it's also had to pay hundreds
Speaker 1: of millions and fines to cover for the private car drivers.
Speaker 1: And it's probably worth pointing out the deeds battles with
Speaker 1: the government seemed to be getting worse right now. China's
Speaker 1: three largest cities just proposal rule that would have huge
Speaker 1: implications for DP. Yeah, that's actually right. Shanghai, Beijing, Shinjin
Speaker 1: have all proposed draft rules that stipulate only drivers with
Speaker 1: local residencies can be allowed to operate on the private
Speaker 1: car hailing platforms. If that rule is past, it means
Speaker 1: like in Shanghai, for example, only less than three percent
Speaker 1: of the currently registered drivers are qualified and only about
Speaker 1: twenty of the vehicle's meet the demand. So that could
Speaker 1: be a huge blow TODD and lead to drop and
Speaker 1: supply and rising costs. Do you think d D can
Speaker 1: be successful in peacetime when it doesn't have in our
Speaker 1: chenemy to fight well. I think they still face a
Speaker 1: pretty steep task um for when they need to become profitable.
Speaker 1: And then also they face all these regulatory hurdles that
Speaker 1: are not clear yet. They need to be more attractive
Speaker 1: to investors if they wanted to aim from an I
Speaker 1: P O right, and that's already creating friction with both
Speaker 1: riders and drivers. The war was good for everyone except
Speaker 1: d D. I mean, we took some rides in an
Speaker 1: uber and in the d D last week, and you know,
Speaker 1: we talk a little bit about what we heard. People
Speaker 1: are complaining that it does seem like UH fares have
Speaker 1: gone up and driving for d D has become a
Speaker 1: less lucrative gig exactly, and you know for Tronway, ultimately,
Speaker 1: taxi is just the beginning of his empire that he envisions. Um,
Speaker 1: what he really wants probably is much bigger. You mentioned
Speaker 1: a few other services like buses, bike ship are basically
Speaker 1: anything with a seat on it, not to mention driver
Speaker 1: list technology. Those are all areas that you wants to
Speaker 1: expand in. That's it for this week's Decrypted. Thanks for listening.
Speaker 1: If you have an iPhone, be sure to subscribe to
Speaker 1: the show on iTunes for any of your favorite podcast
Speaker 1: apps out there. And while you're there, please take a
Speaker 1: moment to rate and review our show and tell us
Speaker 1: what you thought of today's podcast. Write to me on
Speaker 1: Twitter at at brad Stone and I'm at lolu Ellen.
Speaker 1: This episode was produced by aki Ito, Tara Zorovich, Magnus Hendrickson,
Speaker 1: and Liz Smith, with help from Nita Malhotra Hora. Aaron
Speaker 1: Black and Matt Burley assisted with recording. Alistair Barr and
Speaker 1: Eric Newcomer recorded the English translations from our interviews with
Speaker 1: Chungwei and Wang Gone. Alec McCabe as head of Bloomberg
Speaker 1: Podcast And before we let you go, just a quick note.
Speaker 1: In last week's episode on fab dot com, we said
Speaker 1: that a private equity firm bought FAB for fifteen million,
Speaker 1: but Fab was actually sold to pc H, which is
Speaker 1: a manufacturing company. Despite that error, it's still a great
Speaker 1: episode and if you haven't already, I hope they'll check
Speaker 1: it out. We'll see you next week, yeah,