There is currently a war raging in China between two of the country’s biggest e-commerce juggernauts. This war is characterised by tactical manoeuvres and counter offensives from both sides. The two companies involved are e-commerce giant Alibaba and Internet behemoth Tencent and the prize is domination of China’s mobile payment market.
This war isn’t new. It’s been raging for years. But the latest flashpoint has been over control of taxi-booking apps. In this blog I’m going to examine the marketing battle between Alibaba and Tencent over these apps. Why do they want to dominate this sphere? What tactics and operations have they used to gain the upper hand? How has this offensive affected the civilian population, the customers?
Taxi-booking app headlines
During February there were a flurry of news stories about taxi-hailing apps being banned in Beijing and Shanghai. The complaints that I personally heard were that drivers were taking bookings then ignoring the booking to pick someone up on the street that offered to pay more than the standard fare.
Drivers were also refusing to pick up people on the street who refused to pay more than the standard fare. In China the local governments set the flat-rate fares that taxi drivers are allowed to charge. For example in Nanjing where I live the standard fare is ¥11 for up to 3km. The fare in Shanghai is ¥13 for up to 3km.
Taxi drivers were doing this as well as using two or more apps to take bookings and picking and choosing their fares. If someone on one app offered more, the driver would take that fare. And, from my experience, this affected foreigners more. If a foreigner leaves a message with their pick up details drivers often ignored them in favour of a Chinese customer. So how did it come to this?
There are two main taxi-booking apps that share about 90 per cent of the market in China according to iResearch. Didi Dache (嘀嘀打车) is venture backed by Tencent and is integrated into widely popular IM app WeChat. Kuaidi Dache (快旳打车) is backed by Alipay, the payment platform linked to Alibaba.
There are upwards of 30 of these apps in China making this a saturated market. Shanghai-based Dahuangfeng and Beijing-based Yaoyao Zhaoche were the next most popular apps vying for space and this lead to the price war that we see today. In fact Dahuangfeng is now part of Kuaidi Dache. But just why are the companies backing these apps prepared to lose so much money?
The major prize for Alibaba and Tencent is to have control of China’s lucrative mobile payment market. Alipay is winning this battle at the moment because it is the major payment platform for Taobao and Tmall, Alibaba’s C2C and B2C online shopping platforms respectively.
Tencent uses their own payment platform Tenpay. Since Didi Dache is the leading taxi app and because it has been integrated into WeChat, the highly successful messaging service, Tenpay is making inroads into this market. The current battle over taxi apps is merely one battleground in a much larger war.
The marketing strategies used by both Alibaba and Tencent are pretty similar in their effort to win the battle for hearts and minds of China’s taxicab using demographic. As I mentioned earlier, taxis are relatively cheap in China compared to big cities in developed Western nations.
Lets use Nanjing as an example to highlight the marketing strategy of the two big players in the taxi app fight. If you use either of the two apps to book a cab in Nanjing you’ll be subsidized to the tune of ¥10, if you pay using your phone.
The flat-rate fee in Nanjing is ¥11 for up to 3km. So in effect if I book a taxi through WeChat’s app Didi Dache I only pay ¥1 for my journey or $0.16US for up to 3km. I can do this three times in 24 hours.
As well as the saving I make personally, the driver also gets a rebate of ¥10. Hence why taxi drivers are so keen for customers to pay using the app. And also why some drivers have two phones each with a different app active scouting out the best fares.
On top of this is the fact that customers can add a tip to the fare when they make the booking. With Didi Dache it’s possible to add up to ¥20 to the fare therefore enticing the driver to take you ahead of other customers.
The tip you can add on Kuaidi Dache does not seem to have a limit.
It was partly for this reason that these apps were banned during rush hour in Shanghai as it was creating a situation where the rich would give such generous tips that drivers were compelled to collect them ahead of other less affluent people. Not very in the spirit of China’s communist ideals and indeed the authority of the local governments who set the flat-rate fees to avoid this very situation.
Indeed it would seem that the marketing used was taken from another foreign taxi-booking app firm with designs on the Chinese market. Uber is well known for its tactic of price surging and it seems that these two Chinese firms have taken a leaf out of their book.
Uber has made aggressive moves into the Eastern market since last year and their marketing obviously works well. But I feel they could struggle to compete against the Chinese firms, especially with the new regulations that have come into effect, unless their flanking tactics are successful.
Their business model is slightly different to the Chinese apps. Uber claims it won’t compete directly with taxis in China as it offers a premium service using a fleet of private cars. It remains to be seen if Uber will open up a third front in this war.
The other thing to look at in this marketing war is the people on the front line: the fare paying customers. Seemingly they are getting a great deal i.e. cheap (or cheaper than normal) fares. They also get a service where they don’t have to stand on the street in the cold and wet waiting to hail a taxicab.
The problem as we’ve seen is that being able to add tips to the fare before you get a cab is inherently unfair. As well as this people who don’t use a smartphone e.g. old people or poor people are cut out of this service completely.
What about the taxi drivers? They are making extra money and streamlining their efforts to get fares. Instead of driving around and looking for customers, the customers are coming to them. I’d suggest that the drivers are unfortunately the unwitting pawns in the war games between Alibaba and Tencent. The drivers are merely the light infantry being manoeuvred to position the heavy infantry for the final brutal assault.
Alibaba and Tencent want people to use their particular platforms to promote their payment services. To do this they are giving away money in the form of rebates to familiarise their target market with their products. Didi Dache claim to have distributed ¥1 billion ($160,000,000) in total while Kuaidi Dache said it has spent ¥100 million ($16,000,000) as of February this year.
Once the offers are finished and customers have to pay the normal fare it must be hoped that they will carry on using the platform they are most familiar with. The same is true of the taxi drivers. They will tend to stay with the service that has done them well and which they know works for them.
Whether this platform will be Kuaide Dache or Didi Dache remains to be seen, but no one can deny that this has been a brilliant if expensive offensive ploy by Alibaba. For Tencent they have used defensive marketing tactics to maintain Didi Dache’s market share as well as increase use of the payment platform Tenpay.
The spoils of war
It would seem that the only winners in this war are the protagonists and not the drivers or the customers. Customer service has certainly not improved. Indeed it can be argued it’s got worse. The taxi drivers may have made short-term gains, but because of their misuse of the apps they have been regulated.
As with all wars the only winners are the Generals and Officers who don’t fight on the front lines, but make the decisions and take the credit for the success. They promote themselves and their credentials and move onto their next war.
Well, Alibaba and Tencent have certainly done that. Both company’s efforts to invest in these taxi-booking apps with the long term aim of promoting their payment platforms has worked to a tee. Which one wins the overall war remains to be seen.
Have you had problems using taxi-hailing apps? What are your experiences? It’d be great to see what people think about this type of marketing.