Apple Looks to Regain Lost Glory with $1 Billion Deal

Iconic Tech major strategizes to penetrate the fast-growing Chinese market

Apple Inc. (NASDAQ: AAPL), which has been facing flak from investors after a drop in sales in early 2016 following a decade of continuous growth, is now looking to gain a firm foothold in the booming Chinese market to extend its product reach. In recent times, what has added to this household name’s woes, is the ascension of Alphabet Inc. (NASDAQ: GOOG), Google Inc.’s parent company, as the latter dethroned Apple as the world’s most valuable company following a magical four-year run.

Driven by sales of its most popular products – the iPod, iPad and, above all, the iPhone, the company’s revenue skyrocketed to $233 billion in the most recent fiscal year ended September 30th, 2015, from $14 billion a decade earlier. However, Apple now has to solve a big riddle as to whether its current business model is really sustainable for years to come. What will it take to set right the applecart?

Heavy reliance on iPhone

The biggest source of concern for Apple is its major dependency on its blockbuster product iPhone, which accounted for 66% of its FY2015 revenue. In January 2016, Apple forecast its first decline in sales in more than a decade, underpinning concerns that Apple is reaching the limits of iPhone growth. To boost sales in China and India, Apple launched a smaller, cheaper version of the iPhone in March 2016. When that did not help, Apple started looking at deals that could tap synergies in the areas of technology, marketing, not to forget products.

annual sales apple

Apples and Oranges – What’s Apple looking for through the Didi deal?

In the second week of May 2016, Apple struck a $1-billion deal with Chinese company Didi (legal name Xiaoju Kuaizhi Inc., which means “little orange”), which is seen as a win-win deal for both parties. For Apple, the deal is seen as a lucrative investment since it could provide access to big-ticket companies in the Chinese market. For Didi, which has locked horns with San Francisco’s Uber Technologies Inc. for control in the Chinese ride-hailing taxi services, the deal will give it additional capital to expand into new cities, recruit drivers, and market to potential customers. Didi has strategic partnerships with Lyft Inc. in the US, India’s Ola, and Southeast Asia’s Grab.

Didi was aiming to raise more than $1.5 billion in April, 2016. The target was increased to about $2 billion in May, 2016. The Apple investment will bring the amount Didi is raising in its current round of funding to $3 billion. Indeed, Didi has gained a powerful ally in Apple, which is expected to up the ante by intensifying competition for Uber in China.

What does ‘Little Orange’ have to offer to the Falling Apple?

Didi, which started as a taxi-hailing service, has metamorphosed into a company that offers ride-sharing, bus hiring, chauffeur services, auto financing, and test-drive services. Didi’s app completes over 11 million rides a day, or 127 rides a second, and is the second-biggest platform for online transactions in China after Alibaba’s Taobao shopping mall. Didi operates in 400 Chinese cities with 14 million registered drivers. Didi has a 99% share of the market for taxi-hailing apps and 87% of the private car-hailing services. By 2018, Didi wants to serve 30 million passengers a day, with a waiting time of less than three minutes.

Didi is backed by China’s two largest Internet companies, Alibaba Group Holding Ltd. and Tencent Holdings Ltd. These companies could help Apple market the Apple Pay electronic payments system and other services, as well as help the US Company foray into transportation. In turn, Apple will help Didi build up a ride-sharing platform that already handles more than 11 million rides a day and serves about 300 million users across China. Didi is also in talks with Apple for working in sectors including technology, marketing and products. Looks like Apple and Little Orange can enjoy a sweet ride as they benefit from each other…

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