âThree years ago, I traveled to China with a small group of people to see if we might be able to launch Uber there,â Mr. Kalanick, Uberâs chief executive, said in a blog post, adding, âMost of the people we asked for advice thought we were naÃ¯ve, crazy â or both.â
âHowever, as an entrepreneur, Iâve learned that being successful is about listening to your head as well as following your heart,â he wrote. âUber and Didi Chuxing are investing billions of dollars in China and both companies have yet to turn a profit there.â
Under the terms of the deal, the new companyâs estimated worth is a combination of Didi Chuxingâs $ 28 billion valuation and Uber Chinaâs $ 7 billion, according to two people with knowledge of the deal, who spoke on the condition of anonymity because the information had not yet been made public. Uber shareholders would receive a 20 percent stake in the new company.
Didi Chuxing would also make a $ 1 billion investment in the companyâs operations in the rest of the world, called Uber Global, which was last valued at $ 62.5 billion, according to the two people with knowledge of the sale. Bloomberg first reported news of the deal.
Over the past two years, Uber upended expectations in China and its business there grew, despite heavy regulation and internet filters that often limit access to the products of foreign tech companies. The early 2015 rollout of Peopleâs Uber, a service that got ordinary Chinese drivers behind the wheel and taking passengers, helped Uber grab a chunk of market share from Didi.
As it grew in China, Uber avoided many of the mistakes made by of its American tech forebears. For one, the company created local teams based around different cities, allowing it to respond quickly and flexibly to moves by the competition. That set it apart from other companies, which sought to control Chinese operations from the United States, slowing their responses.
At the same time, Mr. Kalanick helped Uber overcome the biggest obstacle in China: the Communist Party. By traveling frequently to China, meeting with officials and speaking in language often used by party cadres, Mr. Kalanick helped the company avoid the regulatory tripwire that has led many companies to stumble in the market. Last week, Chinese officials said ride-hailing apps were legal and laid out a framework to license drivers.
Uberâs foray into China was the first time in recent history a major foreign tech company vied so intensely with a local Chinese business.
But entry is just the first obstacle to the Chinese internet market. Competition is fierce, and the focus is less on the product than on big spending to lure customers or on tricks to harm competitors. Fraudsters and opportunists also abound.
Uberâs engineers, operating from San Francisco, had to deal with drivers who simulated or faked rides to get commissions. At the same time, the company was blocked from marketing on Chinaâs biggest social network, WeChat, because the internet giant Tencent was an early investor in Didi. All of that made it much harder to compete with a company that already had an advantage in scale, not to mention the backing of Tencent, Alibaba and Apple. When it raised $ 7 billion in June, Didi made it clear it was willing to continue the fight for a long time.
That is perhaps not surprising given that Didi is itself the product of a spending war. In 2015, Didiâs merger with what was its largest rival at the time, Kuaidi, was driven by investor concern about overspending for market share. In that previous round of the ride-hailing wars, Didi and Kuaidi did everything from offering subsidies to handing out beers to drivers in exchange for their loyalty.
For all the publicity around the spat between Uber and Didi, the two had been in talks stretching back to the Didi-Kuaidi merger in the beginning of 2015, according to a person with direct knowledge of the matter. That person said the two sides could not overcome disagreements about valuations at the time.
In another quirk to the latest deal, two members of the same well-known family in the world of technology were on opposite sides of the negotiating table: Didiâs president, Jean Liu, is the daughter of Liu Chuanzhi, the Chinese founder of the largest computer maker in the world, Lenovo. Her cousin, Zhen Liu, is a vice president and regular spokeswoman for Uber China.
Although the tie-up is expected to reassure investors, Chinese analysts said it would probably lead to a decrease in commissions. That could hurt customers and drivers alike, the analysts said, making it harder for smaller players to compete because their larger rival would no longer be saddled with such an expense.
âFor smaller companies like Yidao or Shenzhou, if they keep subsidizing users, it will only be temporary and will bring more financial burdens,â said Hong Bo, an independent technology analyst in China.
Li Bo, a 22-year-old driver from Henan, said the loyalty of drivers is determined by where they could get the best pay. That meant they would continue to follow the subsidies, he said.
âAll we care is who gives us the best deal,â he said. âIf Didi buys Uber, we just work for Didi. It doesnât really matter.â