These are difficult and uncertain times for the popular ride-sharing service Uber. Allegations of sexual harassment have cast a pall over its corporate image; it has been accused of stealing documents from a major competitor; and the resignation of its CEO Travis Kalanick has thrown the company into turmoil.
The latest bad news this week came from an unexpected source. The Singapore-based ride-sharing company Grab, which is largely seen as the market leader in the increasingly lucrative Southeast Asian region, received a massive financial boost on Monday in its battle to stave off competition from Uber. The company announced that it would raise $2.5 billion from investors, including $2 billion from the Japanese investment firm SoftBank and Uber’s Chinese competitor Didi Chuxing, as well as an additional $500 million from existing investors. That represents a significant improvement from the $750 million that Grab raised late last year, signifying a growing faith in the company’s future economic prospects.
With this latest round of fundraising, Didi and Grab may calculate that they can freeze out Uber from Southeast Asia or force it to partner up. This deal narrows down Uber’s growth opportunities in the Asia region following its embarrassing retreat from the Chinese market last year. Uber spent $1 billion of subsidies each year as part of its strategy to increase its visibility and clout in the world’s most populous nation, but its expansion was stanched in part by the Chinese authorities, who laid down new rules making it nearly impossible to subsidize drivers. That left Didi as the only significant ride-sharing service in the massive Chinese market. The roots of Uber’s failures, though, ran much deeper. According to The Economist, “Didi understood the local culture, integrated better with social-media platforms, and got taxi drivers onside by incorporating them into its app from the beginning.” Uber, meanwhile, repeatedly struggled to crack the Chinese market, which it didn’t fully understand. Its mistakes eventually became too costly. Uber sold its remaining operations to Didi in exchange for a 17.7 percent stake in the company. That effectively ended its foray into China.
Uber is not yet in danger of losing its crown. With a valuation of almost $70 billion, Uber is still the most successful ride-sharing company in the world. Didi, its closest competitor, is valued at about $50 billion. Lyft is at $7 billion, and Grab, after an impressive start, is at $6 billion. Yet Uber’s retreat from China removes a significant plank of its overseas strategy, and it adds to the strong headwinds that are currently buffeting the company. Uber is already spending heavily to retain its domestic customers in the face of increasing pressure from Lyft. Its expansion into hostile and competitive foreign markets adds to the financial strain, and it raises questions about how much money Uber can afford to lose. Uber wants to replicate Amazon’s success of squeezing margins and muscling out competitors. Yet if Uber constantly struggles to turn a profit, it may have to settle for merely being the biggest company in a multi-polar world.