How WeChat Killed Uber in China
Editor's note: Like Google or Kleenex, ride-sharing service Uber has become so ubiquitous in the U.S. that folks have started to use its name as a verb.
But in China, it's a different story altogether. Uber is dead.
Today's edition of our weekend Masters Series originally appeared in the June issue of Steve Sjuggerud's True Wealth China Opportunities newsletter. In it, he shares the background of Uber's demise in China... and explains how the company that killed it has incredible upside potential for investors today...
How WeChat Killed Uber in China
Uber is dead in China.
It was killed by a button.
That's not what they say in the media. But that's what I realized on the ground in China earlier this year.
Uber, of course, is the ride-hailing service that took over the world... Click a button on your phone and a car comes to pick you up and take you where you want to go.
It's all over the U.S. and most of the rest of the world. (Need a ride in Kazakhstan or Qatar? Uber will get you there.)
To give you an idea of how powerful Uber is today... it's worth about $70 billion. That's a higher market value than Ford or General Motors.
But it doesn't matter how powerful Uber is in the rest of the world. Uber is dead in China. WeChat killed it.
WeChat is the "do everything" app from Tencent Holdings (TCEHY).
I didn't realize the power of WeChat (or Tencent) until I went to China last year. On that trip, I saw how much people relied on the social-media app in their everyday lives...
People don't make phone calls using their phone numbers... They call each other on WeChat. People don't use e-mail... They send WeChat messages. They even use it to pay bills. People are linked to WeChat in a way that we can't imagine in the U.S.
I came home from China last year and predicted that – thanks to WeChat – Tencent would become the world's largest company someday.
Fast-forward to today...
I recently got back from another trip to China. And the WeChat story has gotten even bigger...
Earlier this year, I hosted our first ever Asia Investment Opportunities Conference Series, taking dozens of subscribers around China, from Beijing to Hong Kong. I was blown away by how powerful WeChat has become since last year.
You can't do anything in China without it.
The death of Uber in China tells the WeChat story well. But it's just one example of how WeChat has become a way of life in the country.
Today, I'll share a handful of the unbelievable WeChat experiences our team had on our recent China trip.
Let's get started...
The Death of Uber in China
Uber was killed by a button. No kidding.
You see, the largest ride-sharing service in China is called Didi Chuxing.
Uber went in to compete with Didi. It put up billions of dollars, got cozy with local governments, and hired local drivers.
It did everything right... But it failed. It didn't have "the button"...
Uber basically admitted defeat and sold its operations to Didi.
The U.S. news media told us that Uber sold out to Didi so it could focus on other markets... and possibly go public.
That may be true, but it gives Uber too much credit.
The truth is that WeChat – not Didi – killed Uber in China.
You see, Didi is backed by Tencent...
WeChat added "the button" – the ability to hail and pay for a taxi straight from WeChat – in January 2014. So if you needed to call for a cab in China, you could easily do it through Didi on WeChat. You didn't need Uber anymore.
The button made it too easy...
Users were already on the WeChat app. They already used it for everything.
They were not going to leave the WeChat app to go to the Uber app. And they weren't going to waste time setting up a payment mechanism on Uber. (Not that it's hard, but WeChat makes it too easy.)
Instead, just press "the button" for Didi that's already on the WeChat app, and it hails a cab for you and pays for it through WeChat.
Game over for Uber.
It took Uber six years (from 2009 to 2015) to give 1 billion rides globally. Didi gave 1.43 billion rides in China in 2015 alone.
Users booked 21 million rides – 700,000 per day – on WeChat in its first month. (Another interesting little fact: Didi pays its drivers via WeChat's online payment system, too.)
Today, Didi is such a big deal in China that it can be difficult to hail a cab without it during rush hour. And the company is now raising money after crushing Uber...
In April, Didi raised a round of capital that valued the company at $50 billion. That's nearly triple the company's valuation from just two years ago.
Is Didi worth $50 billion? I don't know for sure. But I know this...
If Didi hadn't been planted into the WeChat app, it would never have become what it is today... Chances are good it wouldn't have beaten out Uber. But it did.
Didi scored "the button" inside the WeChat app. And it crushed its competition as a result.
This is just one example of the vast importance of WeChat in China.
One button crushed Uber. That little button is worth $50 billion today.
It's an example of how WeChat is the most important app by far in a country where people use their mobile phones for everything.
My team and I just got back from China, and we're more bullish on WeChat and Tencent than we thought possible.
We saw another shining example of the power of "the button" in a simple rental service...
Renting a Bike in Beijing? I Hope You've Got WeChat
"What are these bicycles doing everywhere?"
We were in Tiananmen Square. Like the rest of Beijing, bicycles were everywhere. Not far from the 20-foot-by-15-foot painting of Chairman Mao at Tiananmen Square, you'll see hundreds of shiny new bicycles.
Yellow, orange, green, blue... and yet they all look the same.
They are part of a massive fleet of rental bikes. But they're not for tourists. They're big business in China.
If you're renting from Mobike – China's leading bike-sharing company – the process of getting a bike is simple...
Get out your phone. Open WeChat. And access Mobike directly from the wallet section of the app.
If you don't have WeChat, you're out of luck. You can't pay for a Mobike rental with cash or credit card. Only with mobile payment.
Knowing what we know about Didi and Uber, it's not surprising that Mobike is the big winner in its space. Mobike has its "button" – just like Didi.
Mobike now has 100 million users who take 25 million rides a day. It recently raised $600 million. Tencent led the funding round – so it will get a cut of the action. And that's the thing...
Tencent is finding new ways to get in on the success it has helped create... like putting Mobike front and center in the WeChat app.
But WeChat's not just for getting a ride... WeChat is just as necessary for your day-to-day spending...
Imagine you're at your local farmers' market. You've found a fruit stand that has exactly what you want – fresh strawberries.
You get out your wallet and take out your cash. Street markets are traditionally "cash only." But not this one. The person working the stand doesn't want your cash. Or your credit card. She won't accept it.
She only wants you to pay with your phone.
Sounds crazy, right? But that's the way it is in China today. It's faster and safer than carrying around cards or cash.
I saw it myself on our recent trip. Wandering through China, you see everyone from little corner stores to vendors in markets accepting WeChat Pay and its competitor Alipay.
Together, these two systems make up nearly 90% of the mobile-payment market in China. And nearly every dollar spent in major Chinese cities is spent via mobile payments.
Why carry your wallet to the market when all you need is a phone?
Do you have Alipay? So does the fruit vendor. Do you prefer WeChat Pay? No problem. The fruit vendor can process that, too.
In 2013, year-over-year growth of mobile payments in China was 707%. That was with a transactional volume of more than $180 billion.
While that explosive growth rate has slowed, it's still impressive. Growth in 2015 was 70% on $1.5 trillion in volume.
Mobile payments are the future. And WeChat is the future of mobile payments in China.
How WeChat Is Taking Over Its Largest Competitor in Mobile Payments
Mobile payments aren't simply for buying things at the store...
There's an ancient tradition in China to give gifts of money in red envelopes for the Chinese New Year, weddings, or other special occasions.
WeChat launched a digital version of "red envelopes" in 2014.
In that year, WeChat users sent 250 million red envelopes during the Chinese New Year. In 2015, that number was close to 1 billion. And in 2016, it hit a staggering 8 billion digital red envelopes.
2017 blew that away...
Tencent reported a near double in red envelopes sent during the Chinese New Year this year (which was in February)... for a total of around 14 billion.
That's 14 billion WeChat payments – person-to-person – over a very short period of time.
More important than those numbers, these digital red envelopes got folks used to using WeChat – instead of its main competitor Alipay.
In early 2015, Alipay had 75% market share against WeChat's 11% market share in mobile payments. But thanks to the red envelopes, those numbers are changing dramatically.
By fall 2016, Alipay had fallen to 50% market share and WeChat had soared to 38%.
WeChat's brilliant digital red envelopes have strengthened its market share in Chinese mobile payments. Based on 2017's Chinese New Year, that's likely to continue.
As WeChat users get even more comfortable with payments through the app, the company will continue to win market share over Alipay.
You get the idea... WeChat is massive.
I learned the true power of WeChat on my trip to China last year. But seeing it in action this year – even more prominently than last year – won me over again.
WeChat's total users grew to 938 million in the first quarter of 2017. That's about a 20% increase over the prior year...
There are 1.37 billion people in China. Of WeChat's 938 million users, at least 70 million are from outside China.
So while nearly 870 million Chinese people are on WeChat, 500 million aren't.
Said another way, WeChat's enormous user base can still grow dramatically.
Even better, unlike Facebook in the U.S., which has started "monetizing" its user base through ads, WeChat has been remarkably careful about not monetizing its users – so far. This gives WeChat incredible upside potential to earn money from its massive (and growing) user base.
WeChat's owner Tencent is one of my favorite investments in the world right now.
I predict it will become the world's largest company someday – thanks to WeChat.
Editor's note: Tencent has gone on to become one of the world's largest publicly traded companies. And as of this week, Steve's True Wealth China Opportunities subscribers were up more than 100% on the position.
In fact, since launching True Wealth China Opportunities a little more than a year ago, Steve's track record has been phenomenal. Of the 23 positions in his portfolio, 22 are showing a profit, with an average return of 33%. But according to Steve, the gains are just getting started...
Until Tuesday night, you can lock in a lifetime of access to True Wealth China Opportunities for less than the regular price of a single year. This offer is such a "no brainer" that we may never be able to offer it again. Click here for the details.