Uber's fledgling service in China will face tough competition from taxi-hailing company Kuaidi, which already boasts more than 150 million riders in 350 cities.
Imagine being stuck in a traffic jam for nine days. Creeping along a nine-lane highway, inhaling smog and surrounded by exasperated drivers. As improbable as this sounds, it happened outside Beijing in 2010. The jam was an estimated 62 miles long.
Though many consider this among China's worst traffic jams, extreme road congestion has become common across the People's Republic. So what better place to launch a taxi-hailing and ride-sharing app and service?
Over the past couple of years, dozens of ride-sharing companies have come onto the scene in China, taking advantage of the country's crowded roads and more than 240 million vehicles. Uber, which entered the market earlier this year, faces some stiff competition. One of its biggest rivals is Kuaidi -- backed by Chinese e-commerce titan Alibaba -- which already serves more than 150 million riders in 350 cities.
The 2-year-old startup rolled out in 44 new cities in the last two months alone. These numbers are striking when compared with 5-year-old Uber, which now serves roughly 220 cities worldwide. According to internal financial documents leaked by ValleyWag last year, Uber has an estimated 3.8 million users.
So what's Kuaidi's secret? Working with government regulators before launch, said CEO Joe Lee.
"China is a very different country, the control of the government is high," Lee said. "One thing we learned is if we want to grow fast, we need to make sure the government supports us. Because in China, they can stop you in one day -- they shut down your server and you're out."
Working with regulators has become Kuaidi's competitive advantage in China and why it's been able to add so many new cities in such a short amount of time.
In contrast, government regulations have been the Achilles' heel for Uber. The ride-sharing service, along with rivals Lyft and Sidecar, has encountered roadblocks and cease-and-desist orders from regulators across the US. Uber's method has been more of a "launch first, deal with regulators later" approach.
During an interview with The Wall Street Journal in January 2013, Uber CEO Travis Kalanick said Uber is legal, despite regulators' concerns about insurance and safety.
"We don't have to beg for forgiveness because we are legal," Kalanick said. "There's been so much corruption and so much cronyism in the taxi industry and so much regulatory capture that if you ask for permission upfront for something that's already legal, you'll never get it," he told the Journal.
Kuaidi differs from Uber in other ways, too. For starters, Kuaidi has two separate services: taxi-hailing and limo booking. The taxi-hailing service flags down city cabs and is completely free for both the driver and the passenger. The limo booking is Kuaidi's premium service and has fare rates about twice the cost of a typical taxi ride. Roughly 20 percent of the company's total users have upgraded to Kuaidi's limo booking service, which serves about 40 cities, said Lee.
US ride-sharing companies don't typically use the freemium model. Instead, most services take a percentage, usually about 20 percent, of each fare.
Kuaidi also doesn't use surge pricing -- a common practice in the US that raises the price of rides when demand is high and fewer cars are available, such as during rush hour and bad weather. Instead, Kuaidi lets passengers voluntarily add an extra tip for the driver as an incentive to be picked up.
"In some extreme situations you can add whatever amount to try to get the car. You can either wait for another hour, or you can add some money," Lee said. "It's voluntary. We don't push, we collaborate."
As another rider incentive, Kuaidi has partnered with dozens of merchants in a loyalty points program. Each time users take a ride, recruit a friend or post something about Kuaidi on social media, they rack up points. With these points, users can buy items from nearly 400 merchants -- anything from a basic lottery ticket to a night's stay in a hotel.
Uber has some catching up to do. It brought its premium black car service to China in April and then launched its UberX ride-sharing service dubbed "People's Uber" in Beijing in July. The company does appear to have followed Kuaidi's lead with a freemium approach. The service pairs passengers with car owners and -- as with Kuaidi -- doesn't take a cut. Earlier this week, Uber announced it will pilot People's Uber in six more Chinese cities.
It remains to be seen how well Uber can compete in a completely unfamiliar arena -- one that requires working shoulder-to-shoulder with regulators.
"Uber is a very respectable player in the market," Lee said. "However, in China, we have a lot of unique competitive advantages."