Even a juggernaut like Uber hits a roadblock now and then. It turns out that, for the last few months, UberChina has been blocked on the most popular messaging app in China, WeChat, hampering expansion in the country that accounts for half of the taxi-alternative’s 10 busiest cities.
The reason for the block presumably comes down to WeChat owner Tencent’s investments in car-booking app and Chinese domestic Uber rival Didi Kuaidi, according to Bloomberg. Before Uber reportedly had its accounts on WeChat shut off in March, the communication platform with more than 600 billion users played a key role in how the ridesharing service reached new customers, especially members of China's rapidly growing middle and upper classes.
It's a setback that could have material impact on Uber's $50 billion valuation, though it remains unclear how much. Here are some factors to weigh.
The role of UberChina in Uber’s valuation is unclear.
UberChina has been raising funds separately from Uber, and Uber has hinted that the subsidiary could IPO solo on the Chinese stock market, notes Michael Dempsey, a research analyst with venture-capital database CB Insights. He says the impact of UberChina’s performance on Uber’s overall valuation will depend on the role of Uber’s Chinese investments in its valuation. Uber’s most recent valuation came in at $50 billion, while that of UberChina has been pegged in the $7 billion to $8 billion range.
Uber is expanding rapidly in China.
Didi Kuaidi accounts for 78 percent of ride bookings in the Chinese market for ridesharing, according to Bloomberg. But Uber’s July investor letter, provided to Inc. by the company, maintains that it has seen a high rate of growth in Chinese cities as compared to the largest city it serves outside of China, New York. “Our riders are completing almost 1 million trips per day and the business has doubled in the last month,” the letter reads.
Network effects matter.
The more people hail Ubers and the more Ubers there are on the road, the more people will hail Ubers and the more Ubers there will be to accommodate those seeking rides. Bill Gurley, a Series A investor in Uber and member of the company’s board, has called this a network effect, an emergent phenomenon in which bigness begets even more bigness. Uber has the lion’s share of the U.S. market, pushing rival Lyft to the sidelines. In a business like ridesharing, why wouldn't a customer hail a car from the company that has the most of them? If a presumption that local transportation is a winner-takes-all game has been pumping up Uber's valuation in the U.S. and Europe, the same logic ought to apply in China, the world's biggest potential market, and one where Didi Kuaidi has not only a considerable head start but, in the form of its preferred status with WeChat, a formidable competitive moat as well.