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China Roundup: Y Combinator’s short-lived China dream

19:00 | 23 November

Hello and welcome back to TechCrunch’s China Roundup, a digest of recent events shaping the Chinese tech landscape and what they mean to people in the rest of the world. Last week, we looked at how Alibaba and Tencent fared in the last quarter; the talk in Silicon Valley and Beijing this week is on Y Combinator’s sudden retreat from China. We will also discuss the enduring food delivery war in the country later.

Brief adventure in the East

The storied Silicon Valley accelerator Y Combinator announced the closure of its China unit just a little over a year after it entered the country. In a vague statement posted on its official blog, the organization said the decision came amid a change in leadership. Sam Altman, its former president who hired legendary artificial intelligence scientist Lu Qi to initiate the China operation, recently left his high-profile role to join research outfit OpenAI. With that, YC has since refocused its energy to support “local and international startups from our headquarters in Silicon Valley.”

What was untold is the insurmountable challenge that multinationals face in their attempt to win in a wildly different market. Lu Qi, who wore management hats at Baidu and Microsoft before joining YC, was clearly aware of the obstacles when he said in an interview (in Chinese) in May that “multinational corporations in China have almost been wiped out. They almost never successfully land in China.” The prescription, he believes, is to build a local team that’s given full autonomy to make decisions around products, operations, and the business.

A former executive at an American company’s China branch, who asked to remain anonymous, argued that Lu Qi’s one-man effort can’t be enough to beat the curse of multinationals’ path in China. “All I can say is: Lu has taken a detour. Going independent is the best decision. When it comes to whether Chinese startups are suited for mentorship, or whether incubators bring value to China, these are separate questions.”

What’s curious is that YC China seemed to have been given a meaningful level of freedom before the split. “Thanks to Sam Altman and the U.S. team, who agreed with my view and supported with much preparation, YC China is not only able to enjoy key resources from YC U.S. but can also operate at a completely independent capacity,” Lu said in the May interview.

Moving on, the old YC China team will join Lu Qi to fund new companies under a newly minted program, MiraclePlus, announced YC China via a Wechat post (in Chinese). The initiative has set up its own fund, team, entity and operational team. The deep ties that Lu has fostered with YC will continue to benefit his new portfolio, which will receive “support” from the YC headquarters, though neither party elaborated on what that means.

Alibaba’s food delivery nemesis

The food delivery war in China is still dragging on two years after the major consolidation that left the market with two major players. Meituan, the local services company backed by Tencent, has managed to attain an expanding share against Alibaba-owned According to third-party data (in Chinese) provided by Trustdata, Meituan accounted for 65.1% of China’s overall food delivery orders during the second quarter, steadily rising from just under 60% a year ago., on the other hand, has lost nearly 10% of the market, slumping to 27.4% from 36% a year ago.

In terms of monetization, Meituan generated 15.6 billion yuan ($2.2 billion) in revenue from its food delivery segment in the quarter ended September 30. That dwarfs, which racked up 6.8 billion yuan ($970 million) during the same period. Both are growing north of 30% year-over-year.

meituan dianping

Source: Meituan

This may not be all that surprising given Alibaba has arguably more imminent battles to fight. The e-commerce leader has been consumed by the rise of Pinduoduo, which has launched an assault on China’s low-tier cities with its ultra-cheap products and social-driven online shopping experience. Meituan, on the other hand, is fixated on beefing up its main turf of on-demand neighborhood services after divesting its costly bike-sharing endeavor. 

When both contestants have the capital to burn through — as they have demonstrated through heavily subsidizing customers and restaurants — the race comes down to which has greater control of user traffic. Meituan holds a competitive edge thanks to its merger with Dianping, a leading restaurant review app akin to Yelp, back in 2015. Dianping today operates as a standalone brand but its food app is deeply integrated with Meituan’s delivery services. For example, hundreds of millions of users are able to place Meituan-powered food delivery orders straight from Dianping.

Alibaba and Meituan used to be on more friendly terms just a few years ago. In 2011, the e-commerce giant participated in Meituan’s $50 million Series B financing. Before long, the two clashed over control of the company. Alibaba is known to impose a heavy hand on its portfolio companies by taking up majority stakes and reshuffling the company with new executives. That’s because Alibaba believes that “only when you operate can you generate synergies and really create exponential value,” said vice chairman Joe Tsai in an interview. Whereas if you just make a financial investment, you’re counting an internal rate of return. You’re not creating real value.” lived through that transformation. As of September, Alibaba has reportedly (in Chinese) completed replacing’s management with its pool of appointed personnel.’s founder Zhang Xuhao left the company with billions of yuan in cash and joined a venture capital firm (in Chinese).

Meituan’s founder Wang Xing had more unfettered pursuits. In a later financing round, he refused to accept Alibaba’s condition for portfolio companies to eschew Tencent investments, a strategy of the giant to hobble its archrival. That botched the partnership and Alibaba has since been gradually offloading its Meituan shares but still held onto small amounts, according to Wang in 2017, “to create trouble” for Meituan going forward.



Opera’s Africa fintech startup OPay gains $120M from Chinese investors

09:05 | 18 November

Africa focused fintech startup OPay has raised a $120 million Series B round backed by Chinese investors.

Located in Lagos and founded by consumer internet company Opera, OPay will use the funds to scale in Nigeria and expand its payments product to Kenya, Ghana and South Africa — Opera’s CFO Frode Jacobsen confirmed to TechCrunch.

Series B investors included Meituan-Dianping, GaoRong, Source Code Capital, Softbank Asia, BAI, Redpoint, IDG Capital, Sequoia China and GSR Ventures.

OPay’s $120 million round comes after the startup raised $50 million in June.

It also follows Visa’s $200 million investment in Nigerian fintech company Interswitch and a $40 million raise by Lagos based payments startup PalmPay — led by China’s Transsion.

There are a couple quick takeaways. Nigeria has become the epicenter for fintech VC and expansion in Africa. And Chinese investors have made an unmistakable pivot to African tech.

Opera’s activity on the continent represents both trends. The Norway based, Chinese (majority) owned company founded OPay in 2018 on the popularity of its internet search engine.

Opera’s web-browser has ranked No. 2 in usage in Africa, after Chrome, the last four years.

The company has built a hefty suite of internet-based commercial products in Nigeria around OPay’s financial utility. These include motorcycle ride-hail app ORide, OFood delivery service, and OLeads SME marketing and advertising vertical.

“Opay will facilitate the people in Nigeria, Ghana, South Africa, Kenya and other African countries with the best fintech ecosystem. We see ourselves as a key contributor to…helping local businesses…thrive from…digital business models,” Opera CEO and OPay Chairman Yahui Zhou, said in a statement.

Opera CFO Frode Jacobsen shed additional light on how OPay will deploy the $120 million across Opera’s Africa network. OPay looks to capture volume around bill payments and airtime purchases, but not necessarily as priority.  “That’s not something you do ever day. We want to focus our services on things that have high-frequency usage,” said Jacobsen.

Those include transportation services, food services, and other types of daily activities, he explained. Jacobsen also noted OPay will use the $120 million to enter more countries in Africa than those disclosed.

Since its Series A raise, OPay in Nigeria has scaled to 140,000 active agents and $10 million in daily transaction volume, according to company stats.

Beyond standing out as another huge funding round, OPay’s $120 million VC raise has significance for Africa’s tech ecosystem on multiple levels.

It marks 2019 as the year Chinese investors went all in on the continent’s startup scene. OPay, PalmPay, and East African trucking logistics company Lori Systems have raised a combined $240 million from 15 different Chinese actors in a span of months.

OPay’s funding and expansion plans are also harbinger for fierce, cross-border fintech competition in Africa’s digital finance space. Parallel events to watch for include Interswitch’s imminent IPO, e-commerce venture Jumia’s shift to digital finance, and WhatsApp’s pending entry in African payments.

The continent’s 1.2 billion people represent the largest share of the world’s unbanked and underbanked population — which makes fintech Africa’s most promising digital sector. But it’s becoming a notably crowded sector where startup attrition and failure will certainly come into play.

And not to be overlooked is how OPay’s capital raise moves Opera toward becoming a multi-service commercial internet platform in Africa.

This places OPay and its Opera-supported suite of products on a competitive footing with other ride-hail, food delivery and payments startups across the continent. That means inevitable competition between Opera and Africa’s largest multi-service internet company, Jumia.








Hellobike, survivor of China’s bike-sharing craze, goes electric

07:33 | 15 July

Just two years ago, investors were heavily pouring money into China’s dockless bike-sharing startups. Now that boom has busted with derelict bikes littering the streets of cities.

Meanwhile, a new race has started for two-wheelers with motors — and one of the main players is a survivor from the bike-sharing craze. Blessed with fundings from the world’s most valuable fintech company Ant Financial through its Series D to F funding rounds, Hellobike provides a range of mobility services such as shared e-bikes and rented electric scooters to its 230 million registered users.

Electric push

Hellobike first launched in 2016 by deploying shared bikes in smaller cities and towns — where Ofo and Mobike were largely absent early on — rather than large urban centers like Beijing and Shanghai. This allowed Hellobike to largely avoid the cash splurging competition against Ofo and Mobike.

Ofo is now battling a major financial crisis as it struggles to repay user deposits. Its archrival Mobike has slowed down expansion since it was sold to Hong Kong-listed local services giant Meituan. And Hellobike, which boasts about its operational efficiency, has begun an electric push.

“When the two major powers were at war, neither of them went after electric bikes. They were fighting over bicycles,” Hellobike’s chief financial officer Fischer Chen (pictured above) recently told TechCrunch at Rise conference in Hong Kong, referring to the feud between Mobike and Ofo. “As such, there was no price war for e-bikes from the outset. The competition is rational.”

Electric two-wheeled vehicles are in high demand in the country where nearly 1.4 billion people live. According to data collected by Hellobike, nearly 300 million rides are completed on analog bikes every day in China. What many don’t realize is that pedal-assist electric bikes and pedal-free scooters together more than double that number, generating 700 million rides per day.

As with bicycles, there are benefits to rent rather than buy an electric bike in China. For one, users don’t need to worry about getting their assets stolen. Second — and, this is specific to electric vehicles — finding a safe, convenient charging spot can be a challenge in China.

That’s why Hellobike put up charging stations as it went about offering shared ebikes in 2017. At these kiosks, riders swap their battery out for a new one without having to plug in and wait. They then have the option to pay with Alipay, Ant’s mobile wallet with a one-billion user base.


Hellobike’s bike (left and middle) and e-bike (right) models / Photo: Hellobike via Weibo

Of all the monthly two-wheeler electric bikes activity in China, Hellobike has captured 80% of the market share, Chen claims. For bike-sharing, it accounts for 60-70%. It’s hard to verify the share by looking at data compiled by third-party app trackers, for they don’t usually break out the user number for individual features. The Hellobike app is a one-stop-shop for bicycles, e-bikes, e-scooters as well as carpooling, a service complementary to its main two-wheeler business intended to “capture price-sensitive small-town consumers” according to Chen.

Similarly, Mobike has been folded into Meituan’s all-in-one service app. What further complicates the inquiry is some of Hellobike’s rides are accessed directly on Alipay rather than its own app.

When it comes to competition in electric two-wheelers, Chen maintained that other challengers are “relatively small” and that acquiring online users has become “very difficult.” For Hellobike, getting existing customers to try out new features takes as much effort as “adding a new tab to its app,” Chen suggested.

But other internet giants have also set their sight on plugged-in micromobility. Both Mobike and ride-sharing leader Didi Chuxing have their own e-bike sharing programs. It won’t be an easy game, as all contenders need to cope with China’s increasingly strict rules for electric bicycles.

Scooter rental is next

What’s for certain is that Hellobike has big ambitions for electric micromobility. While shared bikes and e-bikes are meant for one-off uses, Hellobike plans to rent out e-scooters for longer swathes of time as many people might want the powered-up vehicles for their daily commute.


Hellobike’s electric scooter. Caption: “App-enabled lock. Smart anti-theft. Real-time location tracking for checking the vehicle’s status.” / Photo: Hellobike homepage  

Hellobike founded a new joint venture last month to fulfill that demand. Joining forces with Ant — which is controlled by Alibaba founder Jack Ma — and China’s top battery manufacturer CATL, Hellobike is launching a rental marketplace for its 25 km/h e-scooters targeted at millions of migrant workers in Chinese cities.

“People might be able to afford an e-scooter that costs several thousand yuan [$1 = 6.88yuan], but they might be leaving the city after a year, so why would they buy it? So we come in as a third-party partner with a new rental model through which people pay about 200 yuan a month to use the scooter,” explained Chen. “By doing so, we convert people from buying vehicles to paying for services, renting the vehicles.”

The three shareholders will also work to install more battery-swapping stations nationwide that not only recharge Hellobike’s shared e-bikes but also its e-scooters, that will be made by manufacturing partners.

“We function as a platform and won’t compete with traditional scooter manufacturers,” suggested Chen. “They still get to use their own designs and SKUs [stock keeping units], but we will put smart hardware into their models… so users know where their vehicles are… and they can unlock the scooters with a QR code just like they do with a shared bike or e-bike.”

Hellboke has raised at least $1.8 billion to date, according to public data compiled by Crunchbase. Bloomberg reported in April that it was seeking to raise at least $500 million in a new funding round. The company declined to comment on its fundraising progress.

When it comes to financial metrics, Chen, a veteran investment banker, declined to disclose whether Hellobike overall is profitable but said the company “performs much better than its competitors” financially. The most profitable segment, according to the executive, is the electric bike business.

As for bicycles, Chen noted that China’s main bike-sharing companies are “no longer burning money” since they’ve raised prices in recent times. Hellobike’s bike unit has achieved cash-flow positive during the warmer, peak seasons, Chen added.



Meituan, Alibaba, and the new landscape of ride-hailing in China

21:09 | 8 July

Instead of switching between apps to secure a ride during rush hour, people in China can now hail from different companies using a single app. Some of the country’s largest internet companies — including ride-hailing giant Didi itself — are placing bets on this type of aggregation service.

The nascent model is reminiscent of a feature Google Maps added in early 2017 allowing users to hail Uber, Lyft, Gett and Hailo straight from its navigation app. A few months later, AutoNavi, a maps app owned by Alibaba, debuted a similar feature in China. Other big names like Baidu, Hellobike, Meituan and Didi subsequently joined forces with third-party ride-booking services rather than building their own.

The trend underscores changes in China’s massive ride-hailing industry of 330 million users (in Chinese). The government is tightening rules around vehicle and driver accreditation, leading to a widescale driver shortage. Meanwhile, established carmakers including BMW and state-owned Shouqi are entering the fray, offering premium rides with better-trained fleet drivers, but they face an uphill battle with Didi, which gobbled up Uber China in 2016.

By corraling various ride-booking services, an aggregator can shorten wait time for users. For new ride-hailing players, riding on a billion-user platform like Meituan opens up wider user acquisition channels.

These ride-hailing marketplaces let users request rides from any number of third-party services available. At the end of the trip, users pay directly through the aggregator, which normally takes a commission of about 10%, although none of the players have disclosed how revenue is exactly divided with their mobility partners.

In comparison, a ride-hailing operator such as Didi charges about 20% from each trip since they take care of driver management, customer support and other dirty work which, to a great extent, helps build the moat around their business.

Here’s a look at who the aggregators are.



Kurly, a grocery e-commerce startup in Korea, closes upsized $113M Series B round

10:07 | 30 May

Kurly, a startup that operates a grocery delivery service in Korea, said today that it has closed an upsized Series D round that reached a total of $113 million.

The company announced the round in April when it was $88 million led by investors that include Sequoia China, however it has now increased by $25 million. That’s thanks to an injection from China’s Hillhouse Capital, a firm which counts Tencent, Meituan and among its most successful investments.

Launched in 2015 by former Goldman Sachs and Temasek analyst Sophie Kim, its Kurly Market service is designed to provide groceries and produce to customers who don’t have the time or interest to visit regular retail stores for their shopping.

Kurly Market delivers orders by 7am each morning with customers given until 11pm the previous day to place their order.

Korea is the place for speedy deliveries, if that’s your thing. Coupang, a company backed by SoftBank’s Vision Fund that’s widely seen as ‘the Amazon of Korea’ — and valued at $9 billion, to boot — has built out an impressive network that allows same- and next-day delivery for its “millions”of customers.

Coupang CEO Bo Kim told TechCrunch last year that his company was “approaching” $5 billion in revenue for 2018 with 70 percent annual growth. Additionally, he said, one in every two adults in Korea have the Coupang app on their phone and, having started out in Amazon-like areas, Coupang is doubling down on fresh produce with its own cold chain logistics network.

That represents a direct challenge to Kurly, which differentiates itself by operating through its own brands, unlike Coupang, which runs using a marketplace model to connect retailers with consumers. Kurly is also focused on convenience over cost savings, indeed its service began in Seoul’s high-end Gangnam neighborhood but has since expanded more widely.

Kurly Market products are focused on quality and convenience over price

Still, investors are bullish on Kurly and its laser focus on produce and groceries.

Kurly said its revenue grew three-fold year-on-year to reach $131 million in 2018, although it did not provide profit/loss figures.

“The latest round of investment is a major endorsement of the progress we’ve made differentiating ourselves in the market through our cold-chain fulfillment infrastructure and unique offering of premium, curated products. Our focus is on further strengthening our relationships with our suppliers, developing our fulfillment infrastructure and continually improving our customer experience,” Kim said in a statement.



Alibaba reportedly mulling to raise $20B through a second listing in Hong Kong

03:06 | 28 May

Massive news just dropped for Hong Kong’s capital markets. Alibaba, one of the world’s largest tech companies, is considering raising $20 billion through a second listing in Hong Kong, Bloomberg reported on Monday citing sources.

Unnamed people told Bloomberg that the money raised in Hong Kong is intended to help Alibaba “diversify funding channels and boost liquidity.” The Chinese ecommerce behemoth is aiming to file a listing application confidentially as early as the second half of 2019, according to the report. That would come five years after Alibaba famously snubbed a record $25 billion listing on the New York Stock Exchange following Hong Kong’s refusal to approve its filing due to rules around company structure.

But the Hong Kong Stock Exchange is becoming an increasingly popular destination for public offerings that put Chinese tech businesses closer to investors at home, as my colleague Jon Russell explained in 2017. The turning point came when the bourse finally introduced dual-class tech stock listings last year, a major appeal that helped HKEX attract such tech darlings as smartphone maker Xiaomi and food delivery service Meituan Dianping.

The news also arrived at a time when Chinese tech firms are coping with increasing hostility in the US amid a series of prolonged trade negotiations. Just last week, China’s largest chipmaker announced that it would delist from the NYSE and focused on its existing Hong Kong listing, although the company claimed the plan had been brewing for some time and had nothing to do with the trade war.



The misunderstandings of 18-month-old Luckin’s $500m IPO

21:30 | 13 May

Luckin Coffee is the most energizing IPO in recent memory, and not just because it sells caffeine.

Most venture-backed startups can take a decade to reach the public markets. Luckin cut that time down to about 18 months. Founder Jenny Qian Zhiya opened a trial coffee shop in Beijing, with a focus on rapid coffee delivery and mobile app ordering. Fast forward to today, and the company’s 2,370 stores conducted nearly 17 million transactions in the most recent quarter ending March 31.

Now Luckin — which can barely offer year-over-year comparables — intends to list its American depository shares (ADSs) on Nasdaq in the coming weeks, hoping to raise over $500 million through the IPO.

Understanding and going long or short on this company requires that we drop the facile analogies (aka it’s Starbucks!), understand the context of startup growth in China, and take a (rare) bet on a high-flying growth company in the public markets.

The incredibly useless Starbucks analogy

Lonely Planet via Getty Images

There is nothing in the United States that compares to Luckin. But that hasn’t stopped journalists, financial analysts, and what I suspect is Luckin’s own PR folks from making the obvious coffee chain comparison.



Can China’s ride-hailing leader Didi repair its troubled reputation?

11:27 | 6 May

2018 was supposed to be another bright year for Didi Chuxing. The ride-hailing upstart had been celebrated as a success story in China’s booming sharing economy. Six years after founding, it had become the default app for Chinese people to move around, thanks in no small part to its acquisition of Uber China in 2016. Meituan Dianping and other challengers struggled to curb its dominance and the confident, promising startup was reportedly on course for a public listing as early as 2018.

Then all the excitement ceased. Last May, a female passenger was raped and killed by her driver on Didi’s popular hitch-hiking service. Just three months later, another incident shocked China after a Didi customer was killed in a similar circumstance.

The murders cast a huge shadow over the world’s largest ride-sharing company by number of rides. Celebrities rushed to social media with calls to #DeleteDidi, while Chinese authorities lashed out at Didi’s “unshirkable responsibility,” ordering it to indefinitely suspend its Hitch feature and ramp up safety standards.

Didi said there’s “no definite timetable” for relaunching Hitch, but people familiar with the matter told TechCrunch the service will likely resume later this year after Didi fully consults the public and all other stakeholders.

In a humbling move, Didi apologized and admitted that its fixation on growth had caused irreversible harm. In an open letter (link in Chinese) to the public, President Liu Qing and CEO Cheng Wei promised to “stop using scale and growth as a measurement.”

Safety, the executives pledged, would become the company’s top priority going forward. That’s despite the fact that Didi has not generated a profit since launching, but it’s apparently in no rush to shore up its balance sheet. Didi “has no timeline or schedule for an IPO,” a source with direct knowledge of the matter told TechCrunch.

Eight months in, Didi’s effort to brighten its dented image as an unsafe service has cut across its key leaders and internal departments, and it has proven a challenging journey.

Moral reckoning

“30 million trips are completed on Didi’s platform every day. That’s more than 10 billion trips a year. How do we make sure there is no incident in these 10 billion trips? This is indeed a challenge for the world,” asked Didi CTO Zhang Bo, clad in a plain blue shirt, during an interview with TechCrunch at the company’s Beijing headquarters.

While absolute safety is a nearly impossible task, there are other more tangible goals pertaining to growth and market share. As Didi brought on more shareholders in each funding round — the company has raised at least $20.6 billion to date, Crunchbase data shows — the bottom line inevitably became more pertinent.

Economic goals aside, many tech startups set out with an inherent sense of mission, or zeal, as some claim, to make the world a more efficient place. Didi’s was to shorten wait times for both cab drivers and passengers in China.

“When Didi first started, we had one simple goal. We realized taxi hailing was very inefficient. Before Didi existed, people in Beijing had to wait at least 20 minutes until a taxi pulled up. Even then, drivers often refused passengers,” Zhang recalled. “We wondered if we could overcome this sort of information asymmetry using the mobile internet.”

Didi entered Australia in June 2018. / Photo: Didi Chuxing

That was 2012. Didi has since morphed into a one-stop app for hiring cabs and private cars, in addition to a slew of mobility services like rental bikes and scooters, car insurances and next-gen technologies like autonomous driving that are still in the lab. Its global footprint now spans China, Japan, Australia, Mexico and Brazil. When the startup took over Uber’s local business in 2016, it quickly ballooned to account for 90 percent of China’s ride-sharing market.

Safety has, along the way, been somewhere at the back of Didi’s mind. Statistics from China’s Supreme Court show that crime incidents per 10,000 ride-hailing drivers are 0.048, and 77.8 percent of the time, riders are victimized. But until a fatal killing, the company’s drive to dominate the market seemingly outweighed the need for moral reckonings.

“Didi has always emphasized safety internally, but the two incidents from last year really sounded an alarm for us,” reflected Zhang.

The need to get millions of drivers “made [ride-sharing companies] lower their standards and affected safety, [including] background checks, driver training and education, experience, continuous checks, monitoring of working hours for fatigue and drowsiness, distraction by multitasking with a cell phone and passenger demands,” Alejandro Henao, a mobility researcher at the National Renewable Energy Laboratory in Colorado, told TechCrunch in an email.

“Safety needs to be a top priority for these companies but it doesn’t seem to be,” Henao added. “It’s a reflection of what I call a ‘quantity over quality’ mistake, where rushing to get volume — millions, billions of rides, passenger and drivers — compromises other factors, including safety.”

Safety at all costs

The dilemma of Didi is not unique. All ride-sharing businesses, regardless of scale, face the tough decision between responsible growth and safety.

They can of course work on both; but often they must pick one. In a world where algorithms run many aspects of our lives, every decision tech bosses make can shape our movement, consumption, mental state among many other things.

The murders revealed major deficiencies in the Didi app and its processes. One key vulnerability was the decision to outsource its passenger support system, which was criticized for failing to act on a prior complaint against one of the drivers suspected of killing. Keeping an in-house customer service team would clearly fortify the overall safety system, but it is a move that will impact the bottom line for a company that is already some way from profitability.

Didi reportedly suffered from a $1.6 billion loss last year. The firm recently shed some light on its financials during a Q&A with the public. While its core ride-hailing business charged an average of 19 percent in commissions, overall expenditures, including tax payments and driver bonuses, stood at 21 percent, meaning the segment lost 2 percent per ride.

Didi’s headquarters in Beijing / Photo: Didi Chuxing

Unlike other tech-powered offline transactions, where the encounter between the supply and demand sides is usually brief, such as food and online shopping delivery, ride-hailing passengers and drivers enter an enclosed space together for far longer periods of time.

“Before the encounter [between the driver and the passenger], neither of them can predict exactly what will happen. This kind of experience is unique [to ride-sharing], and other online-to-offline transactions almost never have to deal with the same circumstance. As such, many problems can emerge, especially given Didi’s size,” Zhao Shuai, head of artificial intelligence at Didi, told TechCrunch at the company’s headquarters.

Following the incidents, Didi announced it would spend 140 million yuan ($20.8 million) to improve its support system and set up an 8,000-strong customer service team. A flurry of other measures ensued, including the addition of a panic button linked to regional police stations. In-trip audio recording is now compulsory — the clips are deleted a week later assuming no dispute is reported, Didi assures. Drivers are asked to scan their face for identity checks throughout the day, as opposed to just once a day when they began their shift per the old setup.

The list of new measures continues, and there’s probably no correct answer when it comes to the right amount of safety features handling millions of daily rides.

“I had no confidence when I was given the job,” conceded Huang Yuanjian, who was appointed to lead a team of 30 top product managers to build out Didi’s safety feature. “No one knew how safety should be done in the mobile transportation industry, but it’s been a very fulfilling task being able to bring more safety through technology.”

When asked if Didi is concerned about the costs generated by its pivot, Zhang claimed that the company will “spare no effort to invest in safety.”

“Our investors are very supportive. They share our view that safety and long-term development go hand in hand… It’s hard to do safety well, but when the work is completed, it will inevitably become an industry standard,” the technology chief asserted.

Aside from the outsized investment in staffed customer support, Didi is also trying to minimize costs by replacing human labor with artificial intelligence technology. A team led by Zhao, who was previously one of the earliest product managers for Microsoft’s Chinese chatbot Xiaobing, is building an AI-powered assistant to aid Didi’s customer support staff. The bot is able to answer “the majority of” inquiries before pointing riders to a human agent if needed, according to Zhao. AI is also able to automatically create support tickets and log most of the conversation details for the agent.

“In the long run, passengers will choose what they believe is the safer option,” said Zhang. “We hope to not only be the world’s biggest one-stop transportation platform, but also the platform that offers the best experience and commands the most respect.”

Drivers’ grievance

As Didi works to appease customers who worry about riding with strangers, its new stringent rules have sparked concerns among drivers.

“Didi clearly prioritizes customers over drivers. When a passenger complains, even if it’s not the driver’s fault, Didi often assumes it is,” said a Beijing-based Didi “fleet leader” who manages more than 100 ride-hailing drivers.

Didi’s chauffeur service. / Photo: Didi Chuxing

Several other Didi drivers TechCrunch spoke to echoed that complaint, recounting cases of short-fused customers who take their frustration in life out on the drivers. It’s challenging to monitor what exactly happens inside a vehicle, save for determining the true nature of the dispute and resolving it. The public often overlooks the fact that driving a taxi, or joining as a ride-hailing driver, is one of the most dangerous jobs out there as it requires dealing with customers of all kinds, carrying significant amounts of cash and, at times, driving to remote areas late at night.

“The stricter the rules are, the less genuine the drivers become,” said the fleet leader. “Didi drivers have a lot to put up with.”

In response to the alleged unfair treatment, a Didi spokesperson said the platform “focuses on both drivers and passengers.”

“When passengers trust us and continue to use our services, it translates to better income for drivers,” said the spokesperson. “Our recent safety upgrades, including more stringent driver vetting and driver training programs, aim to address riders’ concerns and improve their trust in us and our drivers.”

Indeed, safety is not something that ride-hailing apps can solve on their own as it is “a three-part responsibility of regulators, companies, and drivers,” Adam Cohen, a researcher at the Transportation Sustainability Research Center at the University of California, Berkeley, told TechCrunch.

“Drivers have a responsibility to self-regulate and ensure that they are complying with all regulatory requirements and serving the public professionally,” added Cohen.

Didi is now under pressure to not only please its riders but also keep its 31 million drivers loyal and accountable. To that end, the company recently announced to set up a team of 2,000 support staff by year-end to serve, train and seek feedback from its drivers on a daily basis.

Besieged by challengers

As tightening regulations in China put a squeeze on the number of ride-hailing cars and drivers, new business models threaten to take customers away from Didi. One of them is AutoNavi, the mapping and navigation service owned by Alibaba, which is also an investor in Didi. It offers a ‘super aggregator’ app that allows customers to hire rides from an array of different apps — including Didi — in one place to, in theory, shorten wait times.

BEIJING, CHINA – SEPTEMBER 16: (CHINA OUT) Drivers stand by cars of Shouqi Limousine & Chauffeur, a taxi-booking app launched by state-owned enterprises Shouqi Group and Xianglong Taxi Co, during the release of Shouqi Limousine & Chauffeur on September 16, 2015 in Beijing, China. (Photo by VCG/VCG via Getty Images)

The model has already spawned followers. In late April, Tencent-backed Meituan introduced its own marketplace for ride-hailing apps after struggling to establish a major foothold with its Didi equivalent. Didi is also open to working with outside partners, according to Zhang, although he did not give further details of how such a collaboration might work.

“We don’t think Didi itself can revolutionize the massive transportation industry. We hope to be more open and create win-win situations. We are considering allowing outside automakers to tap some of Didi’s technology capabilities,” the executive said.

When asked if these new players constitute a threat, Zhang argued that Didi’s stepped-up safety measures “will be a huge competitive advantage in the long run.”

Didi also enjoys a significant network effect, which denotes that services or goods become more valuable when more people use them. A platform with more drivers, Zhang explained, means less waiting time for passengers.

Didi still holds a great lead over its rivals even after losing about 4 million monthly active users between August and December, stats from data provider Jiguang show. The app recorded 66 million MAUs in December, dwarfing runner-ups Shouqi Limousine & Chauffeur and Caocao Zhuanche, which are both backed by traditional automakers and each served around 4 million MAUs in the same month.

“Didi’s network is in itself a competitive advantage,” assured Zhang.



China’s Source Code Capital raises $570M as it builds a powerful investor network

11:17 | 8 April

Source Code Capital, the venture capital firm that’s backed some of China’s most prominent tech unicorns and boasts a network of high-profile investors and founders, announced Monday it has closed a new $570 million fund as it continues to hunt down early to mid-stage companies.

The latest close catapults Source Code’s capital under management to $1.5 billion and 3.5 billion yuan divided between six funds. Investors in the new fund, according to the company, span major pensions, sovereign wealth funds, college endowments, charities, private equity firms, among other institutions.

Source Code was founded in 2014 by Cao Yi, who studied computer science at China’s prestigious Tsinghua University and later became vice president at Sequoia Capital China, stints that might have helped him spot high-potential startups early on. To date, Source Code has backed close to 150 startups, including up-and-comers Bytedance, the TikTok parent that’s now the world’s most valuable startup; food delivery leader Meituan Dianping, which listed in Hong Kong last year; micro-credit provider Qudian, whose New York IPO marked one of the biggest for a Chinese fintech company that year; Mogu, a Tencent-backed fashion ecommerce site that floated on the Nasdaq last year; just to name a few.

With the new money, Source Code will continue to back businesses focused on the global market, “internet plus” or “AI plus” sectors, the last two of which are buzzwords in China pertaining to upgrading traditional sectors using the internet and artificial intelligence.

The fresh capital will also enable Source Code to bring more overseas investors into its peer and mentor alliance Ma Hui, which directly translates to “Code Club.” The thinking behind the community is akin to the investor network a16z has nurtured to channel support and resources between investors and portfolio companies. Ma Hui’s class of 30 big-name limited partners count Bytedance founder Zhang Yiming and Meituan founder Wang Xing.

“The goal of Source Code is to look for, invest in, and serve the best businesses in emerging economies. These companies and entrepreneurs are diligently working to let mass consumers eat better, wear better, live better, play better, access more inclusive finance and better transportation… among other ways to live a better life,” said Cao in a statement.

“[Our goal is] also to help enterprises across the board to grow sales, cut procurement and logistics costs, improve working capital turnover, unleash the potential of talents, and increase their global competitiveness… among other know-how to run a sustainable business,” the managing partner added.



China’s grocery delivery battle heats up with Meituan’s entry

16:38 | 31 March

Fast, affordable food delivery service has been life-changing for many working Chinese, but some still prefer to whip up their own meals. These people may not have the time to pick up fresh ingredients from brick-and-mortar stores, so China’s startups and large companies are trying to make home-cooked meals more effortless for busy workers by sending vegetables and meats to apartment doors.

The fresh grocery sector in China recorded 4.93 trillion yuan ($730 billion) in total sales last year, growing steadily from 3.37 trillion yuan in 2012 according to data collected by Euromonitor and Hua Chuang Securities. Most of these transactions still happen inside wet markets and supermarkets, leaving online retail, which accounted for only 3 percent of total grocery sales in 2016, much room for growth.

Ecommerce leaders Alibaba and have already added grocery to their comprehensive online shopping malls, nestling in the market with more focused players like Tencent-backed MissFresh (每日优鲜), which has raised $1.4 billion to date. The field has just grown a little more crowded with new entrant Meituan, the Tencent-backed food delivery and hotel booking giant that raised $4.2 billion through a Hong Kong listing last year.

meituan grocery

Screenshots of the Meituan Maicai app / Image: Meituan Maicai

The service, which comes in a new app called “Meituan Maicai” or Meituan grocery shopping that’s separate from the company’s all-in-one app, set out in Shanghai in January before it muscled into Beijing last week. The move follows Meituan’s announcement in its mid-2018 financial report to get in on grocery delivery.

Meituan’s solution to take grocery the last mile is not too different from those of its peers. Users pick from its 1,500 stock keeping units ranging from yogurt to pork loin, fill their in-app shopping carts and pay via their phones, the firm told TechCrunch. Meituan then dispatches its delivery fleets to people’s doors in as little as 30 minutes.

The instant delivery is made possible by a satellite of physical “service stations” across neighborhoods that serve warehousing, packaging and delivering purposes. Placing offline hubs alongside customers also allows data-driven internet firms to optimize warehouse stocking based on local user preferences. For instance, people from an upscale residential area probably eat and shop differently from those in other parts of the city.

Meituan’s foray into grocery shopping further intensifies its battle with Alibaba to control how Chinese people eat. Alibaba’s Hema Supermarket has been running on a similar setup that uses its neighborhood stores as warehouses and fulfillment centers to facilitate 30-minute delivery within a three-kilometer radius. For years, Meituan’s food delivery arm has been going neck-and-neck with, which Alibaba scooped up last year. More recently, Alibaba and Meituan are racing to get restaurants to sign up for their proprietary software, which can supposedly give owners more insights into diners and beef up customer engagement.

As part of its goal to be an “everything” app, Meituan has tried out many new initiatives in the lead-up to its initial public offering but was also quick to put them on hold. The firm acquired bike-sharing service Mobike last April only to shutter its operations across Asia in less than a year for cost-saving. Meituan also paused expansion on its much-anticipated ride-hailing business.

But grocery delivery appears to be closer to Meituan’s heart, the “eating” business, to put in its own words. Meituan is tapping its existing infrastructure to get the job done, for example, by summoning its food delivery drivers to serve the grocery service during peak hours. As the company noted in its earnings report last year, the grocery segment could leverage its “massive user base and existing world’s largest intra-city on-demand delivery network.”


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