Uber has sold its China assets to Didi Chuxing for a 17.7 percent economic interest in the new enterprise, putting a stop to a rivalry that cost both companies billions of dollars to dominate the country.
Sources familiar with the matter said that Cheng Wei, Didi's Chairman, and Travis Kalanick, the founder of Uber, will join each other's board.
The deal is a win-win for both ventures that can now focus on development instead of cutting each other off.
Uber, for example, was purportedly losing about $1 billion a year in China. The truce will allow the company to expand into other markets and to put the pedal to the metal in its autonomous driving technology and AI research.
With the deal on-board, Didi can focus on becoming profitable. Despite its overwhelming market share of 85 percent in China's private car-hailing market, the venture missed on its profit targets due to extensive marketing and subsidy costs.
"Now that Didi can stop playing subsidy war, they are going to make a lot of money," says Jeffrey Towson, a professor at Peking University's Guanghua School of Management.
With the new wind in its sails, Didi might also have all it needs to enter a public offering. The Chinese regulations on the stock market demand that companies that list for public trading have to report profitability over three years.
Didi previously invested massively in ride-sharing companies from other markets, such as Ola, Lyft and Grabtaxi. However, the Uber deal means that the Chinese company secured a global partner with a strong name to have by its side.
We might just see the cooperation between the two companies going further: for example, a Chinese traveler might be able to request an Uber car through the Didi app and vice-versa.
"For Didi, there is no conflict in working with Uber in addition to the partnerships with Ola, Lyft and Grabtaxi," says Wang Xiaofeng, a senior analyst at Forrester.
The analyst adds that the company will keep its ties with former, smaller partners.
Insiders from Ola are backing her statement and note that it is "business as usual." Ola did not wish to comment more on the Uber-Didi arrangement, and both Grabtaxi and Lyft abstained from any official statement.
Until recently, nobody gave a chance to an Uber-Didi truce. One main reason for it was the fact that Kalanick faced tremendous pressure from investors who frowned upon the money-losing China operations.
Allen Zhu, the helm of GSR Ventures, explains that Uber aimed higher in its initial negotiations with Didi, as it requested 40 percent of the Chinese venture's stake. In the end, Uber settled for slightly under 20 percent.
Zhu mentions how challenging it is to convince investors to channel their money to China, which explains the heavy pressure Kalanick was under, leading to the lower stock percent he settled for.
Meanwhile, Didi kept investing and managed to maintain its top position in China's private car-hailing market. Didi reported 85.3 percent market share after Q1 2016, 5.1 percent higher than last year's performance.
On the other hand, Uber's market share in the country sank from 11.5 percent in 2015 to only 7.8 percent in 2016, during the wake of strong competition from smaller players, such as Ucar and Yidao.
Another difficult task for Uber was to face the entangled regulatory environment. No sooner than last week, China published its official rules about ride-hailing companies, and at a first glance they are less restrictive than most feared.
However, they are slanted in a direction that is unfavorable to Uber. Beijing still asks the online platforms to put their subscribed drivers through thorough background checks, while also retiring vehicles that have been on the road for longer than eight years.
Ken Xu, a partner at venture capital firm Gobi Partners, explains that Didi features a much tighter grip on its drivers and cars. Ken mentions that after the central authorities in Beijing ratify the policies for car-hailing services, guidelines will be deployed by the local authorities.
"Local rules generally will favor local companies," Ken points out.
