Didi e-hailing software on a user's phone Photo: IC

Currently, the main concern for domestic taxi-booking app developers is not how to make a profit but how to move ahead of their rivals.

Given the lack of a mature business model and uncertainty over potential government intervention, industrial consolidation is needed to mitigate the cutthroat competition, analysts said.

Taxi hailing apps have become popular in large cities, as they make it easier to get a cab during rush hour, and more and more app developers have joined the market.

There are now over 30 e-hailing apps available in China and the number is still climbing, with competition growing ever more fierce.

The three most popular taxi-booking apps so far - Yaoyao, Kuaidi and Dahuangfeng - jointly posted a statement on September 18 calling for fair competition, claiming that their rival Didi induced cab drivers to uninstall other apps by spreading rumors that other e-hailing apps will cause software conflicts.

China's e-hailing taxi app market is "very chaotic" and many developers use dubious methods for conducting promotions, Zhang Qi, vice president of Beijing-based Yaoyao Taxi's marketing department, told the Global Times on September 17.

Beijing-based Xiaoju Technology Co, developer of Didi, could not be reached for comment by press time, but media reports said the company has claimed it has not tried to disturb other companies' development.

Zhang said it is normal for e-hailing app firms to adopt eye-catching practices, given that the current top priority for all players in the sector is to win as much market share as possible.

"The e-hailing taxi app market is promising due to the huge demand, but a mature business model has yet to be figured out and the only thing we are all sure of is the need to increase our market penetration," said Zhang.

Scramble for users

Yaoyao launched a promotion running from September 16 to October 6, promising to deposit 15 yuan ($2.5) to users' phone accounts in return for a successful order of a cab via its app, Yaoyao Zhaoche, during the period.

The company also plans to tie up with local taxi operators and individual taxi drivers to expand its business and enlarge its user base, said Zhang.

Zhao Shuhua, a Beijing taxi driver, has become used to continuous contact from staff members of various e-hailing app companies.

"They are all eager to make friends with me and persuade me to install their app, offering gifts like mobile chargers and Bluetooth earphones or even 20 yuan in cash. Both Yaoyao and Didi used to give drivers' some 10 yuan for each user to whom they recommend the software," said Zhao, who now uses four different e-hailing apps, including Didi and Yaoyao.

These rewards have helped build up users for the companies.

For instance, the current daily downloads of Yaoyao Zhaoche have increased by 40 percent since the beginning of September, according to Zhang from Yaoyao.

According to data from Beijing-based market research company Analysys International, downloads of e-hailing apps from 11 major app stores reached 6.97 million in August, up from 1.18 million in April.

However, despite the fast rise in users, none of the app firms have started making a profit yet.

Huge costs

The e-hailing apps are all free at present, and the companies are still looking for a way to commercialize the service, said Zhang.

"Initial investment in the sector has been huge. The cost of gaining users has accounted for the majority of the total expenses, costing tens of millions of yuan every year," Yin Xuejing, an industry analyst with Analysys International, told the Global Times.

In order to ease the pressure of high promotion costs, e-hailing app companies have started to look for partners who could either offer more funding or advanced technology.

Social networking services like WeChat and Weibo, and online mapping services like Amap are some of the more popular options.

Hangzhou-based Kuaizhi Technology Co, developer of Kuaidi, has gained funds via its partnership with e-commerce giant Alibaba, according to media reports. And Didi got investment of $15 million from Tencent Technology Co, according to media reports in April.

Yaoyao said that the company has established a tie-up with Alibaba's third-party online payment platform, alipay.com, which will give it direct access to Alipay's extensive user data and contribute to building up users, the company said.

However, analysts are concerned that the unclear business model of these apps as well as potential intervention by local governments could erode investors' interest in the companies.

Policy crackdown

The market is chaotic at present, but local governments have yet to figure out ways to regulate it, which is likely to remain a problem for e-hailing app developers, said Yin.

One function of the e-hailing apps allows users to pay a premium, ranging from 5 yuan to 20 yuan, to drivers when they are in urgent need of a taxi during rush hour.

But some large cities have tried to prohibit such practices, out of concern that it could lead to excessive tipping, or taxi drivers refusing to take passengers who don't offer tips.

Beijing, Shanghai and Shenzhen have launched measures such as integrating major e-hailing apps into a unified e-hailing platform and setting fixed e-hailing fares.

Beijing Municipal Commission of Transport has established a platform for four e-hailing apps, including Didi and Yaoyao. The official e-hailing service providers have to add "96106", Beijing's government-run taxi phone number, to the names of their apps.

Passengers using the service will be charged 5 yuan for each call requesting an immediate taxi pickup, and 6 yuan for reserving a cab more than four hours in advance.

But none of this money goes to the app developers. And the four selected firms have not been allowed to insert adverts in their apps, preventing them from gaining money from advertising as their user base grows, said Yin.

Beijing government's policy has also had a limited effect so far, as people can still download e-hailing apps that offer a tipping function.

"I could find 96106 Didi Dache and Didi Dache or 96106 Yaoyao Zhaoche and Yaoyao Zhaoche in the app store. I would prefer the second one, which is free of charge and allows me to tip the drivers," said Zhao Lining, a 28-year-old Beijing resident.

"Tipping drivers is caused by market demand. Even though governments could forbid app firms from providing such a function, consumers could still promise drivers a premium by negotiating the deal via text. It is not easy for the authorities to control this," said Zhao.

Government intervention is likely to make competition even more fierce, but it could also speed up industrial consolidation, according to an August report by Analysys International.