After three years, Uber has finally given up on expanding into China. Native Cab Company Didi Chuxing invested $1 billion in Uber along with 20 percent of their shares to end the heated competition over drivers. Uber’s next target market will be India. Uber will compete with ANI Technologies Pvt. Ltd., holder of Ola cab service. The firm has been established for six years now and has the advantage of knowing the local consumers.
India currently represents 12 percent of Uber’s business and there’s plenty of room for growth. Densely populated cities in countries such as China and India are popular targets for cab companies. Consumers cannot afford to own a car or park one in the gridlocked streets. As a result, consumers are looking for alternative ways to travel. Uber and Ola represent substitute opportunities for these individuals and could swiftly replace traditional means.
With attention shifting to different markets, resources being spent in China can now be allocated elsewhere for more effective purposes. Uber will need the capital in the competition with Ola. The two service providers have been fighting for the top nonstop by introducing new features like accepting cash or ordering cars without the app. Ola, knowing the customer base, understands most of their customers don’t have smartphones or prefer to ride in rickshaws. Uber has made adjustments to their service but more tailoring will be required if they hope to capture the market.
Maruti Suzuki announced on September 15th that they would be partnering with Uber to provide consumers with affordable cars and job opportunities. Ola has made a similar agreement with Mahindra and Mahindra. Investors have the opportunity to buy shares in these publically traded companies and indirectly invest in their partnered private cab companies.
Uber’s continuous expansion threatens other car companies, especially those investing in self-driving cars. From Tesla and Google to Toyota and Nissan, all these companies are racing to make semi-autonomous automobiles. Uber, however, is unaffected by publicly traded shares, allowing it to raise funds undisturbed. There may be a negative correlation between Uber’s globalization and the value of their competitor’s shares in the self-driving car market.
The deal Uber struck with Didi is more valuable than face value may imply. Didi, Ola, Lyft and Asia’s Grab all have an alliance of sorts to assist each other with Uber’s constant market penetration. By partnering with Uber, Didi now awkwardly stands in the middle of their original allies.
Investors are eager to see Uber’s IPO, which is predicted to be announced sometime in 2017. Uber’s CEO Travis Kalanick and other upper-level employees have stated that they wish to see the tech company progress further into the global market before going public. Compared to other tech startups, they’ve already proven fairly successful in doing so, but management still sees potential. As of 2015, Ola was valued at $5 billion.
Uber has been valued at $68 billion, a sum that could place it in the top 15 percent of the S&P 500 if it were to go public.
By Michael McDonald of Oilprice.com
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