Apple Inc. just placed a significant bet on a Chinese version of Uber. It’s a big bet – about $1B USD. Apple doesn’t hide the fact that it has its focus on the automobile sector – however, the scope and scale of its interest in the sector is what most people outside of Apple don’t understand. It is an “open secret” that the firm is working on “Project Titan” and we all love the occasional glimpse into what Tim Cook has brewing for the electric, autonomous future of cars.
On Thursday, Reuters reported that Apple has invested $1B in Didi Chuxing, a ride-hailing service similar to Uber operating in China. The $1B investment has Tim Cook backing Didi against Uber’s intrusion into the Chinese market and it doesn’t take a rocket scientist to know that Tim Cook’s move is both strategic and operational.
Investing in China is strategic and operational
The $1B investment is strategic in that it provides the iPhone-maker with an opportunity to better understand what makes the Chinese market tick. Tim Cook says, “We are making the investment for a number of strategic reasons, including a chance to learn more about certain segments of the China market… Of course, we believe it will deliver a strong return for our invested capital over time as well.”
The $1B investment is operational in that Apple gets a perfect front to test its ideas on building self-driving car technology. Apple has been struggling with declining sales in China because of slowing economy and hurdles from regulators. Getting it foot in the doorway of the emerging trends in the ride hailing-sharing service could provide Apple with a hub and spoke model as it seeks to diversify its business away from being solely dependent on the iPhone.
Tim Cook thinks China is a better auto market that might offer the best return on investment; hence, its $1B bet on the Didi. Didi notes the investment from the iPhone maker is the single largest investment it has received even though it has raised a couple of billion dollars in previous financing rounds. Interestingly, Uber has taken the threat posed by an Apple-backed Didi seriously and Uber CEO Travis Kalanick said he is ready to lose $1B a year in order to compete with Didi.
Apple testing business models around the automobile
Apple is reportedly building a self-driving car in its Project Titan and the firm has been poaching workers away from Tesla Motors Inc and other auto firms. Yet, the firm has refused to acknowledge that it is building a car and the only thing we have heard from the firm is its work on the in-car experience that its CarPlay provides is connecting smartphones to infotainment systems. Tim Cook opines that CarPlay “is what we do today in the car business, so we will have to see what the future holds.”
However, industry watchers maintain that the recent investment by Apple has provided insight into its plans going forward. Patrick Moorhead an analyst of Moor Insights & Strategy notes that “after all the hints about the service business and what they would like to do in the future, it’s all starting to fit together.” Bob O’Donnell, an analyst with TECHnalysis Research opines that “this investment shows they are thinking not just about cars but business models around transportation, and that is a very encouraging and interesting sign,”