Here’s why Apple spent $1-billion on Chinese cab service Didi

Apple has made headlines this morning after it announced a US$1-billion investment in smart cab service Didi.

The investment thus pits Apple directly against current cab king Uber in China, with the latter being backed by Google and Chinese web giant Baidu. Aside from Apple, Didi already has heavyweight backing in the form of Tencent and Alibaba.

Why would Apple invest in the service though? Well, aside from the expected financial return, the Cupertino firm’s explanation was a tad vague…

A focus on services instead?

“We are making the investment for a number of strategic reasons, including a chance to learn more about certain segments of the China market,” Apple CEO Tim Cook was quoted as saying by Reuters.

“Of course, we believe it will deliver a strong return for our invested capital over time as well.”

According to Jack Kent, Director of Operators and Mobile Media at IHS Technology, Apple is focusing on growing revenue from services, as its hardware businesses (particularly iPhones) see a slowdown.

“This move shows how Apple is increasingly focused on services, such as Apple Pay, App Store, Apple Music, iTunes and iCloud,” Kent explained in a statement.

The investment illustrates the need for international firms to work with local companies in China, Kent said, adding that the move would also help Apple understand the behaviour of users beyond its own ecosystem.

Stepping up its auto presence?

IHS suggested that the move into taxi apps could be part of a larger push into the automotive sector, beyond merely having Carplay and Maps.

But the investment is more than just an automotive play.

“Taxi apps provide a number of strategic opportunities for mobile ecosystems. Unlike many other mobile apps, taxi apps are able to quickly establish a billing relationship with their audience as they require an immediate transactional relationship with users. Ride-sharing is often only the first step,” Kent elaborated.

“Once these apps have started charging users for the journeys they take, they can then use this payment information as a platform for a range of other services, such as deliveries and then wider mobile commerce services. These apps also capture a huge amount of valuable contextual user data.”

Feature image: Didi website