Faced by tighter regulations from the Chinese government over security concerns, Didi’s (滴滴出行) taxi-hailing business (its original field), is expected to hit rough times in the near future.
Anticipating trouble, the company is incubating other businesses to diversify its activities, sources consulted by financial portal Caijing (财经) say.
One of the fields in which Didi could step in is the hotel industry. A third of the team that was in charge of Didi’s attempt at its food delivery foray, has been tasked with the development of a hotel business line since September, Caijing reveals.
That team (called R-Lab) was established at the end of 2017 with the purpose of expanding Didi’s boundaries and to incubate new products. It was led by product manager Luo Wen and so far the team has produced a minibus service and established Didi’s food delivery business that is similar to Uber Eats.
In the last months, group-buying website Meituan (美团) and Didi, both bitter rivals in various fields, have called for a truce.
Meituan had stepped into ride-hailing services, Didi’s forte, in March 2018. Didi seemed to retaliate by launching Didi Delivery, entering an industry in which Meituan is one of the main players. However, instead of escalating the competition, both companies seem to have chosen a cooling-down attitude. In July, Didi canceled its plans to expand its food delivery service to Jinan and Xi’an. Despite its original ambitions to operate in many cities, Meituan’s taxi service is limited to Shanghai and Nanjing.
In September, Meituan’s vice chairman Wang Huiwen declared that Meituan would not increase its investment in the taxi service.
After reaching what seems to be a tacit armistice in China, Didi is now aiming to expand its food delivery service internationally, in countries such as Brazil and Mexico.
According to the sources consulted by Caijing, the hotel project is still at the research stage. The team is still studying the potential competitors, adjusting its quality-price ratio and finding the best geographical locations.
It is not the first time Didi is rumored to be interested in the hotel industry. In July 2018, Didi and travel fare aggregator Booking announced the signing of a strategic partnership agreement. Didi received USD 5 million from Booking as a strategic investment.
In September 2018, India Times reported that Didi was planning an investment in the Indian hotel chain OYO. After raising around USD 9 billion in its last investment round, OYO is planning big on international expansion. The Indian company has already entered the Chinese market. Didi is believed to be an investor in OYO China.
So far, Didi’s services have been mainly local, linking people with services. By stepping into the hotel industry, Didi aims to service people who are temporarily in another city, through hotel and travel services. However, Didi will not have it easy. Competition in the local hotel industry is fierce. There are powerful players such as online travel agencies Ctrip (携程) and Qunar (去哪儿), which provide transport tickets, visiting tours, hotel bookings and other services. Feizhu (飞猪), Alibaba’s travel agency, and Meituan Hotels are already competing in this field too.
In the first quarter of 2018, the online hotel reservation market reached USD 17 billion, with a growth of 37.8% compared to a year earlier, according to local analyst firm Big Data Research. According to analyst portal Trustdata, online booking users grew by 20 million people in the second quarter of 2018. 70 percent of them were from third or lower-tier cities. Meituan currently has a market share of 49.8% in the online bookings industry, followed by Ctrip (20.4%), Qunar (11.4%), Tongcheng Yilong (9.6%) and Feizhu (5.4%).
If Didi entered this market, it could reignite the battle against Meituan. Not only that, it would also have to face the previously mentioned competitors. Unlike the food delivery industry, controlled by Meituan and the Alibaba-backed Eleme, the online hotel booking industry has many competitors. Also, this industry is different to the car-hailing one.
Chen Liang, Meituan’s vice chairman, explained to Caijing: “Hotel booking is a service that is not frequently used by consumers. This is an industry in which it is not suitable to pull out the big guns. This a long war of positions.”
Didi’s original intention was to have the car-hailing service as the core of its activity and follow a vertical development while it attempted going international. But after the incident in which a Didi female passenger was killed by a driver in August 2018, the company’s car-hailing service faces tighter regulations and mistrust of consumers, which could affect its business. This could be the reason why Didi is attempting a diversification in China.
By diversifying, Didi hopes to transform itself into a life services company. Whether it will succeed or not, depends on its ability to find a good leader, investment, cooperation of partners and its positioning.