Apple Investment in Chinese Didi Chuxing - Opportunity for Collaborator vs. Threat for Competitors


Apple is known for their bullet proof secretive research initiative and offer shockwaves with innovative products. Mostly believed in in-house research panel and team but shocked the technology world with their investment in Chinese ride-hailing service Didi Chuxing. The tune of $1 Bn investment at a valuation of $20 Bn also shocked many and perceived it as Apple attempted to be popular among Chinese userbase using Didi Chuxing as advertisement platform.
Recently, ride hailing services companies are attracting huge investment which include General Motor's investment of $500 Mn in Lyft at a valuation of $ 5.5 Bn whereas UBER valuation stand around $64.5 Bn.  I will write another post on the overvalued scenario in separate article.
I observed that most of the analyst came out with similar comments that Apple is losing market share and hence invested in an organization wherein they can use Didi Vehicle for its phone advertisement to shore up their sales as Didi also forayed into car selling and received overwhelming response as they have more than 300 million and 14 million plus registered users and Drivers respectively.
It's the well know fact that Apple most important criteria for any penny investment revolve around very robust technology and future roadmap of product line and the collaboration validates the same for Didi. It is also a known fact that none of the ride - hailing app is profitable and in next few years they will not achieve the same.
It raises few pointers such as
  1. Does that mean that most of the investment investors are doing on the basis of userbase?
  2. Number of Drivers they have?
  3. Number of daily ride?
  4. By when the above mentioned companies will stop giving incentives to keep attracting userbase and Drivers?
  5. How they will manage the security issues faced by commuters in developing countries?
  6. And So on...
Given the above pointer, it prompts me to do some research to find out the other angle of Apple thought process which might be right.
Here are some pointers which I would like to highlight that
  1. Apple connected active device worldwide is more than 1.1 Bn
  2. In USA only, around 28-30% of High Net worth users are using Apple or connected devices
  3. Apple Brand is very powerful in many countries of European Union such as Switzerland where per capita income is one of the highest
  4. Apple Technology is known for its security and User are bound to give its complete information including Credit card information in order to access attached closed loop services offered by Apple to its registered user 
 Apple strategically invested in Didi and can leverage the investment into constant stream of service revenue. Apple only needs to enable Didi in their internal ecosystem which is protected by Apple. It will enable Apple user across Global to access Didi services if Didi and Apple chooses to enter into that segment. Forexample, In US, more than 80 Million active Apple users are there and they can avail Didi service on the fly. At the same time, its double sword earning potential of Apple service business unit. As Apple users are generally high net worth user and hence they do not require to attract users by discounting the ride as its Apple policy to maintain the brand and never go for discounting.
On a contrary, it would be cash drainage for its competitor in USA as they are on funding lifeline. For example, for me; it’s beyond my imagination that an application supported by few server is valued by 65 Billion $ which is equal to EMC which recently got acquired by Dell. EMC generated $ billions of profitability and UBER generated Billions of $ of loss to achieve the same. Just imagine if they manage to achieve $Bn profitability then they will cross the valuation of Microsoft.

In my point of view, I will not be surprised that there will be valuation markdown in such over inflated valued organization.
Apple never do anything in hurry and follow very stringent evaluation process and that is the mantra of their success. I have not highlighted their benefit part in China and will leave it on to Analyst to go deeper and think about it.
Very Good investment to improve its bottom line
This Article is written by devendra prasad : soruces

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