Who Gets Paid In Alibaba, Tencent Ride-Hailing App Merge?

Despite a fierce rivalry in all other areas, Chinese mobile payment giants Alibaba and Tencent have agreed to a rare truce in the taxicab industry, according to The Wall Street Journal, as the companies look to focus their energies — and their cash — in areas where they might have a greater advantage.

The two taxicab companies, Kuaidi Dache and Didi Dache, were seen as a mini battleground for the two payments companies given that consumers could hail and pay for rides using their smartphones, paying through Alibaba (Kuaidi) or Tencent (Didi) systems, depending on what cab was being hailed. At the end of 2014, Kuaidi had the advantage with a 57 percent market share, but according to research firm Analysys International as reported by WSJ, they were too closely matched for that statistic to be meaningful in a market that attracted 172 million users last year.

The merger had been in negotiations for some time, undertaken due to the growing costs of competing with each other rather than merging, especially as Baidu entered the market with an Uber partnership in China. The two companies spent over $325 million in perks for the first half of 2014, with Kuaidi going so far as to offer its drivers a free case of beer if they signed up their colleagues for the service. It’s a lot of money to plunk down for what appeared to be a way to get consumers familiar with Alibaba and Tencent rather than an attempt to disrupt the taxicab industry a la Uber, according to WSJ reporter Aaron Back. Such giveaways are not new for either company, especially in light of the huge red envelope giveaways being rolled out for the upcoming spring festivities in China.

While the terms of the merger are unclear, it is believed that it will enable consumers to use either type of payment now for taxicab services. This would likely give Alibaba the upper hand, as it controls 50 percent of the mobile banking market compared to just 20 percent for Tencent, though both companies are set to expand their banking departments to include small loans to consumers and startup companies after winning government approval. Baidu, which has entered the now shrunken taxicab industry, will use its dominant search engine and map features as a way of connecting users to local merchants as a way to offset its late arrival to the mobile payment party.