China's taxi app merger shows that rivalry doesn't have to mean competition. The tie-up between two cab-hailing services backed by e-commerce company Alibaba and gaming giant Tencent is a rare co-operation between the two groups. Even for apparent adversaries, the chance to get more pricing power is irresistible.
Tencent-backed Didi Dache and Alibaba-backed Kuaidi Dache have been a great example of market forces chipping away at an over-regulated economy. Smartphone apps not only match local supply and demand, but also let passengers offer a higher fare to lure a cab their way when rides are scarce. Some 172 million passengers now use Didi or Kuaidi.
It has been a costly process. Together the two apps paid out some 2.4 billion yuan ($390 million) in subsidies - mostly tips to drivers and fare cuts for passengers - in the first six months of 2014 alone, according to Xinhua. Some of that helps lure drivers who otherwise wouldn't use the technologies at all, but a big chunk of it is just spent by the apps on winning market share from each other.
The tie-up doesn't look like a true merger: the two apps will continue operating independently with their own respective chief executives. That may be a way of softening up taxi drivers, who could end up with less bargaining power and fewer subsidies, and who might yet provide a challenge to the combination. But the fact that the two sides have come to an agreement is a tacit admission by China's fiercely competitive tech companies that in some cases carving up a market is better than fighting over it.
Tencent-backed Didi Dache and Alibaba-backed Kuaidi Dache have been a great example of market forces chipping away at an over-regulated economy. Smartphone apps not only match local supply and demand, but also let passengers offer a higher fare to lure a cab their way when rides are scarce. Some 172 million passengers now use Didi or Kuaidi.
It has been a costly process. Together the two apps paid out some 2.4 billion yuan ($390 million) in subsidies - mostly tips to drivers and fare cuts for passengers - in the first six months of 2014 alone, according to Xinhua. Some of that helps lure drivers who otherwise wouldn't use the technologies at all, but a big chunk of it is just spent by the apps on winning market share from each other.
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By getting rid of that war of attrition, investors of the two companies should benefit. New backers may also be set at ease. The two apps have raised a total of $1.3 billion since December, mere months after previous capital raisings. Moreover, a united front may be more effective when up against the country's regulators. China's ministry of transport recently banned unlicensed drivers from using taxi-hailing apps. As for consumers, they probably won't see any difference.
The tie-up doesn't look like a true merger: the two apps will continue operating independently with their own respective chief executives. That may be a way of softening up taxi drivers, who could end up with less bargaining power and fewer subsidies, and who might yet provide a challenge to the combination. But the fact that the two sides have come to an agreement is a tacit admission by China's fiercely competitive tech companies that in some cases carving up a market is better than fighting over it.