Does Apple's strategic investment in Didi have hidden agenda?

A mobile device displaying the Didi Chuxing app is posed near the Apple store logo in Beijing on May 13, 2016. Photo: AP

Apple has joined the ranks of Alibaba and Tencent, the two largest Internet companies in China, to make a venture investment in the country's leading ride-hailing service Didi Chuxing, after the US technology giant saw a drop in both sales and profits last quarter.

The news has made a splash in China's promising car-hailing industry where Didi and its archrival Uber are wrestling for users, since the iPhone maker has long been known for outright acquisition of companies having something to do with its business rather than making investment. The investment, which is valued at $1 billion, is regarded by Didi as an "accelerator to its effort of building a data-based mobile ride-hailing platform".

The investment also shows Apple's long-term goals in China, a market pivotal to its business development which will go beyond production of computers and smartphones.

Long-term goals

Some analysts speculated that the deal will allow Apple to access Didi's massive data related to ride-hailing, car usage and passengers' travel habits, which will be used by the US technology company to develop its self-driving vehicle, a long-running rumor that gained credence after the company hired driverless vehicle experts like Paul Furgale, former deputy director of the Autonomous Systems Lab at the Swiss Federal Institute of Technology. A Wall Street Journal report said that Apple is planning to produce a fully autonomous electric car, which is a part of its long-term project codenamed Titan, citing people familiar with the matter. It has set 2019 as the car's delivery date.

Didi said that it works with more than 14 million drivers in some 400 cities across China and has about 300 million users who place 11 million ride orders a day. In an interview with Bloomberg, Didi CEO Jean Liu revealed that the considerable daily ride orders enabled her company to "accelerate investment to develop artificial intelligence and machine learning. According to Didi, machine learning, computer vision, artificial intelligence, data mining, optimization theory and distributed computing are among the areas of focus for Didi Research, a machine-learning research institute that Didi established this year in an attempt to solve problems in estimated time of arrival, dynamic pricing, order processing, transport scheduling and thermodynamic chart analysis.

At the Worldwide Developers Conference (WWDC) 2013, Apple unveiled iOS in the Car, a smart system which can put things a driver wants to do with an iPhone on the car's built-in display, thus enabling the driver to stay focused on the road. The system was officially dubbed CarPlay in 2014. Just by plugging in an iPhone, a driver can get directions, make calls, send and receive messages, and listen to music through the CarPlay system., a business news portal in China, said in an article that the CarPlay system is just a transitional product in Apple's car project and will serve as a collector of data used for the function design of the Apple-branded car. And Didi's large driver base may contribute to the extensive installment of the CarPlay system in Didi cabs, it added. It is also foreseeable that Apple will integrate Didi into its map app.

Further, the partnership with Didi will promote the popularity of Apple's NFC-based mobile payment service Apple Pay in China. But some reports said that physical stores are more suitable than cabs for that mode of payment because transactions must be completed via a point-of-sales (POS) machine. And Alibaba and Tencent, the owners of Alipay and WeChat Payment, are reluctant to let Apply Pay encroach into the market.

Political considerations

Some analysts reckoned that Apple's investment in Didi is a symbol of appeasement, especially after its iBooks and iTunes Movies stores were shut down by the country's State Administration of Press, Publication, Radio, Film and Television, which is responsible for overseeing digital content in order to prevent "negative" cultures from the West from influencing the Chinese people.

Last month, Apple lost a lawsuit in China, in which it failed to stop a local leather accessory producer from using the "IPHONE" brand name. At the same time, Facebook, the social network banned in China, scored a victory in a similar trademark infringement case against a Chinese beverage maker registering the "face book" trademark, a ruling which was partly attributed by Facebook founder Mark Zuckerberg's effort of courting the Chinese government.

The Apple investment comes as the Chinese government is considering transportation as a vital sector, a view that is reinforced by its Internet Plus policy, which underlines the belief that transportation industry is an industry that can be boosted by Internet companies such as Didi.

A loss-making business

Some industry insiders are concerned that the Apple investment will not bring returns, citing the fact that Didi dominated the car-hailing market by offering higher subsidies to its drivers. How long the incentive policy will continue is a tough question to answer. Will users stick when the subsidies are abolished?

In April, drivers from Didi staged a strike during rush hour in Beijing in a protest against the reduction in subsidies imposed since January, which caused a near-breakdown of the car-hailing app.

Didi and its rivals including Uber, Ucar and Yidao have been subsidizing fares and supplementing drivers' income to battle for market share in China.

In addition, the $1 billion investment is only loose change in Didi's market value of $15 billion, leaving Apple little say in the car-hailing company's decision-making.

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