Beijing drivers strike over lowered Uber, Didi subsidies

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Drivers who signed up to taxi-hailing mobile apps Uber and its Chinese equivalent Didi are threatening to continue their strike.

CCTV’s Han Peng has this report.

Beijing drivers strike over lowered Uber, Didi subsidies

Beijing drivers strike over lowered Uber, Didi subsidies

Drivers who signed up to taxi-hailing mobile apps Uber and its Chinese equivalent Didi are threatening to continue their strike. CCTV's Han Peng has this report.

On April 15, the nightmare of hailing a taxi on the street revisited many passengers in Beijing, as tens of thousands of Didi and Uber private car drivers went on a one-day strike.

“In 2015, it was normal for us to earn over 20,000 yuan, or $300 a month,” a driver told us. “That means within just three or four months, we would be able to earn back the price of the car. So some even quit their jobs and bought a car on bank loans to become a full-time driver.”

How did taxi driving suddenly become so profitable? Because a major part of the money drivers earned was not from passengers, but from subsidies given by the app company. The policy was that for each yuan the passenger paid the driver, Didi would pay the driver the same amount, or even twice or three times as much during rush hours.

So why does a company give out money for free? The answer is simple: Didi and Uber are competing fiercely for China’s market. Their strategies are similar: finding huge venture capitals, and then pouring them into subsidizing both the drivers and passengers. The aim is to attract as many customers as they can before their venture capital is used up.

But the driver’s honeymoon period with Didi may have ended last Friday with the strike.

“The subsidies have been falling for months, and now the app has even started to charge us around 20 percent of the money from passengers as intermediary fees,” another driver told us. “Many drivers have seen their income shrink to just a quarter of last year’s. Now we are locked in the car loans and have to keep on working for the app without any bargaining chip.”

But the mobile apps seem to be equally struggling.

According to the CEO of Uber, it spent $1 billion in China last year, with no profit back. His rival Didi said it spends $4 billion a year on the cultivation of the Chinese market, mostly by subsidizing the users.

So is such a business model profitable at all? We tried to reach some venture capitalists, but most of them were reclutant to comment on this particular case.

“Over-promise. I think one very important issue for any business is to manage the stakeholders’ expectation,” Liu Baocheng of the University of International Business and Economcs, said. “Number two is that do you have a very much calculated business plan that you earn and profit on a gradual basis, and based on improved operation and service to those customers and to those drivers participating in your business model.”

According to the lastest announcement from Didi, it is about to get another $1 billion in venture capital. And Uber said that in 2016 it will pour most of its profit from other countries into China, hoping that this time around, they will win the game of money burning. \