Alibaba Challenges LeTV, Didi Kuaidi Answers Uber

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Includes: BABA, NFLX, UBER
by: Doug Young

Bottom line: Alibaba’s new video streaming service could presage a buyout offer for Youku Tudou, while Didi Kuaidi’s massive new fund-raising presages a bloody battle with Uber in the hired car services market.

Two major strategic moves are in the Internet headlines today, reflecting growing rivalries between some of the biggest names in the red-hot markets for online video and hired car services. One move has e-commerce giant Alibaba (NYSE:BABA) disclosing its plans to launch a video streaming service that it hopes can emulate the success of US giant Netflix (NASDAQ:NFLX). The second has Didi Kuaidi, which was recently formed by the merger of China’s 2 largest taxi app operators, disclosing it is raising $1.5 billion in new funding to take on the aggressive Uber (NYSE:UBER).

Both of these stories involve some of China’s largest Internet companies in one way or another. Alibaba is already China’s most valuable Internet firm, and also owns a major stake in Youku Tudou (NYSE:YOKU), one of China’s leading online video sites. The main target of its new video service appears to be LeTV, another high-flyer which has also soared to prominence over the last year on the rapid success of its online video services.

Meantime, the Didi Kuaidi story has been in the news for much of this year, after China’s two largest taxi app operators announced their merger at the beginning of the year. The pair are already backed by China’s 2 most valuable Internet companies, Alibaba and Tencent (OTCPK:TCEHY). Uber, meanwhile, is also one of the world’s hottest Internet names, and is renowned for shaking up a global market for hired car services that was traditionally dominated by taxis and overpriced limousine services.

Let’s begin with the latest reports that say Alibaba will launch its online video streaming service called Tmall Box Office in the next 2 months. (English article; Chinese article) The service will be offered via Alibaba’s set-own top boxes and smart TVs equipped with its own operating system (OS).

There’s not much more detail to the reports, thought the Alibaba executive who discussed the plan was quoted saying the product hopes to emulate Netflix and HBO. There’s also no mention of what role Youku Tudou might have in the service, about a year after Alibaba and an affiliated fund paid $1.2 billion for nearly 20 percent of the company. I suspect Youku Tudou will become a major content provider for the service, and its even quite possible that Alibaba could make a bid to buy out Youku Tudou completely.

Meantime, the other major deal has media reporting that Didi Kuaidi is in the process of raising $1.5 billion from new and existing shareholders, which would value the company at $12-$15 billion. (Chinese article) That would be quite a healthy gain for a company whose value was pegged at just $9 billion when it was formed via a mega-merger earlier this year. But then again, this kind of rapid run-up in valuation seems to be quite common in China these days, fueled by strong investor interest both at home and abroad.

These new funds would help Didi Kuaidi to rapidly build up its service for private cars, comparable to what Uber offers. Both Didi and Kuaidi rose to prominence as taxi app operators, and have remained leaders in that space. But Uber has made rapid advances into the market with its alternate model that offers private hired cars, which are often cleaner, cheaper and offer friendlier and faster service than traditional taxis.

News of Didi Kuaidi’s plan comes just days after an internal email revealed that Uber plans to spend $1 billion to build up its China business this year. Didi Kuaidi is coming relatively late to this particular business model, and last month announced it would offer 1 billion yuan ($160 million) in subsidies to promote its own services for private hired cars. (previous post) Uber is hardly likely to sit back and give Didi Kuaidi a free ride into its territory, meaning we’re likely to see some lively and possibly bloody wars for dominance of this lucrative new business over the next year.

Disclosure: None