Following the official announcement by Didi that it has set up business in Mexico, where its arch-rival Uber has an 87% market share, the question that everybody wants answered is: who will win?
The two companies have engaged in a hugely costly battle before, in Didi’s home country of China, where Uber was eventually driven out. Given Didi’s unbelievably deep pockets and the home advantage, in retrospect it seems clear that this was a battle Uber was unlikely to ever win.
The opposite seems true in Mexico at first sight. Though not on home turf as such, the U.S. has far closer ties to Latin America, and in particular, Mexico, than China does. Other ride-hailing firms haven’t yet managed to get close to Uber in the country, where it dominates with a near-monopolistic market share.
This presents a problem for Didi. Its usual policy when it wants to compete with Uber is to plunge cash into existing competitor firms through ‘strategic partnerships.’ For instance, the Chinese firm has buddied up with taxi firm 99 in Brazil in order to take on Uber.
On this occasion, though, the dominance of Uber meant that this would be a losing game for any company without sufficient cash. Didi has previously invested in Taxify, one of Uber’s competitors in Mexico, but bosses at Didi evidently didn’t consider this to be the way to beat Uber out and out, given that it has opted to enter Mexico under its own brand name.
What are Didi’s chances?
A lot of the questions that immediately arise – who will win, why Didi has chosen Mexico, whether there is space for both of them in the country – can be partially answered by looking at the existing lie of the land. Not just in terms of the bank accounts of the opposing companies (though this is important), but also at things like Mexico’s roads, a growing level of consumerism and the type of person that becomes a taxi driver in Mexico.
Richard Lapper, associate fellow at Chatham House and former Financial Times editor for Latin America, believes Uber’s dominant market share doesn’t tell the whole story.
Something to remember about Uber and ride-hailing in Latin America, Lapper says, is that this is a growing consumer market in a very urbanised part of the developing world. Mexico is the second largest Latin American economy behind Brazil, but has what Lapper describes as a “deficient” public transport system.
The Mexican opportunity
Mexico’s workforce is also stuck in a halfway-house between advanced and developing. Many Mexicans are well-educated and unemployment has been falling, but, crucially for the ride-hailing firms, there is a significant amount of underemployment and people working outside of the formal economy. So, the more flexible and relaxed form of employment that the likes of Didi and Uber can offer would likely be an attractive proposition for a lot of Mexicans.
Some of these drivers turn to ride-hailing simply because it pays so much better than regular taxi driving. Gabriel Garcia, a 26-year-old Uber driver in Mexico City, said: “When I worked at the airport I was paying back the car I bought and also paying 5,000 pesos a month for the [airport taxi] licence plates. With Uber I am just paying the car.”
Garcia currently works for Easy as well as Uber, and says he has heard about Didi and expects he will add them to his list once they come to Mexico City – he’s already downloaded the app and was planning on joining Didi immediately, before finding out it is only operating in Toluca.
“I hope they pay better than Uber,” he says. “[Or] at least that the commission is lower. Uber is too cheap. You can wait around for an hour without a fare and then you get almost nothing for the ride you do.”
Another driver in Mexico City, Luis Miguel Espinosa, said he would choose to work with another company if it offered more money, but expressed scepticism about whether or not it would follow through on its promises.
“It seems to me that the market is already saturated,” he said. However, he also noted that with relatively few people having bank accounts in Mexico, companies that take cash tend to do better. If this is a problem Didi could get around, it might enjoy considerable success.
Part of the reason Mexico struggles with underemployment is because skilled jobs often don’t pay very well. A third Mexican Uber driver, Fernando Sanchez, 27, is a nurse.
He works in a hospital in the mornings and works as an Uber driver in the evenings. He says he earns just 10,000 pesos a month as a nurse for a 50-hour week, but almost doubles that with Uber working about 6 hours a night.
We know, then, that there is a high level of demand, thanks to poor public transport, and high supply in the form of potential drivers. But hasn’t Uber already cornered the market?
Lapper doesn’t think so. As well as the smaller cities and towns, which Uber struggles to conquer the world over, there is still plenty of opportunity in the big cities, he believes.
It is, he says, ‘such a purgatory’ driving in big Latin American cities, that commuters in cities such as São Paolo are turning from driving to work to getting an Uber, and Lapper sees no reason why the same couldn’t happen in Mexico.
Traditional taxis are also not at all efficient – users have to go to a fixed point rather than having the car come to them. What this all means is that there is a huge level of suppressed demand that Uber is yet to capitalise on.
One of the major and most consistent criticisms of Uber is that they aren’t safe. A lack of licensing and a pretty poor track record from senior management on tackling problems with its drivers means that the firm now has a reputation that it’s struggling to shake off. That being said, taxis in Mexico don’t have it a lot better. Things are better now, but Lapper recalls a common criminal tactic used in the 1990s, when taxis were carrying out ‘express kidnapping’ – you’d be taken at gunpoint to an ATM forced to withdraw cash, then dropped off.
So, though Uber doesn’t have a great reputation for safety, neither do traditional taxis. This hasn’t gone unnoticed at Didi. Its press release announcing its entry into Mexico states that it will introduce a ‘real-time SOS system and dynamic safety monitoring,’ and its mission statement says it looks to bring ‘safer mobility services’ to the masses.
A continent of consumers
There are other, more general trends that are promising for the ride-hailing industry in Mexico. The number of smartphone users in the country has, according to Statista, gone up from under 40 million in 2015, to 51 million in 2017, and is anticipated to reach more than 75 million by 2022. That is all part of a more general regional trend towards an American and European style of consumerism.
Another symbol of Latin America over the last decade or so, argues Lapper, is the shopping mall, for example, and he believes that the convenience that comes with ride-hailing is likely to be popular in the same way. With a high level of suppressed demand, both in existing markets and in new ones, a lot of people ready and willing to become drivers, Didi’s attempt to position itself as the safest option, and a population more willing to spend freely, its chances suddenly seem more promising.
With all these factors and the backing of super-powerful investors, Didi is likely to make, at the very least, a significant dent in Uber’s bodywork. With the American firm looking to go for an IPO within the next couple of years and recent rumours that Didi will do the same, it could well be a power play that knocks Uber some way off its perch.
With additional reporting by Jo Tuckman in Mexico City.