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Is Appleas Didi Investment More About R&D Than Tie-Ups?

- By Nicholas Kitonyi

Apple's (AAPL) $1 billion investment in the China-based transportation service Didi Chuxing caught the investment world by surprise. However, when you look at the technology giantas recent developments, it would appear to align well with its long-term growth.

Apple has been trying to grow its business empire by expanding its service offerings. Indeed, the companyas CEO Tim Cook has emphasized Appleas goal of growing its services in the last few quarters, highlighting that this section of the business could yet be the one that optimally augments its slowing iPhone business.


However, just as the investment community has been expecting over the last two to three quarters, it could yet be another indication that Apple is really planning on launching its own automobile business at some point in the future.

According to a report published by The Wall Street Journal, Apple's plans for its investment could be data related, where the ride-sharing company is an important component for mining the data, mostly as it relates to self-driving vehicles and Apple Pay.

"Didi provides Apple with a rich data source for its self-driving vehicle push. It also could provide benefits to Appleas mobile ecosystem. Ride-sharing apps are closely linked to payment services, such as Apple Pay. They also can be the foundation for other mobile commerce transactions such as deliveries," the report noted.

Although there is no true confirmation that Apple is trying to come up with self-driving cars, electric cars or both, Cook has not entirely ruled out the idea of Apple at least putting into consideration the possibility.

So how exactly does Apple benefit from the Didi investment?

Didi is by far China's biggest ride-hailing company, possessing about 87% share in China's taxi market. The company locks over 11 million rides daily, with a user base of an estimated 300 million across China.

While the rationale for Apple's investment in Didi hasn't been stated publicly, Cook noted that the investment could allow potential future collaborations and give Apple a chance to gain an understanding of specific sections of the Chinese market.

Apple launched its mobile payment service earlier this year, Apple Pay, in China, and the company is working to integrate the service with Didi's app in order to drive adoption.

Didi has also formed an alliance with Lyft, India's Ola Cabs and Singapore's Grab. This deal with Didi could, therefore, hand Apple an opportunity to work with these companies as well as for mapping and payment services.

Also, Didi has 14 million registered drivers all over its transportation services. It is plausible that they will be shepherded toward making use of iPhones and other Apple-made gadgets for booking rides and dealing with passengers. Ideally, Apple could leverage the advantage of working with Didi to have the iPhone SE in all cars or even an Apple Watch for every driver's wrist.

While nothing in the form of gadget tie-ups has been confirmed yet, investors can be sure that whatever Apple is planning to do in the car market will be huge and could potentially result in a major revenue source for years to come.

Just to put things in a little bit of light, Apple hired Tesla's (TSLA) former vice president for vehicle engineering in a bid to explore the auto industry, which has now become one of the biggest sources of tech innovations. Tesla is the worldas leading electric carmaker by market capitalization.

When commenting on the auto industry, Cook said, aI do think that [the] industry is at an inflection point for a massive change. Not just an evolutionary change." And he also mentioned that autonomous driving could become much more important.

If Apple is actually working on something that has to do with autonomous driving, Didi's 11 million-plus rides produced daily will give Apple a lot of on-the-road data about people, routes and vehicles. This is why Appleas deal with Didi could turn out to be one of the shrewdest investments in R&D.

Conclusion

In summary, Appleas investment in Didi may have been seen as an out-and-out rivalry against Uber.

However, based on the information discussed here, it is pretty clear that Apple could actually be aiming at Alphabetas Google (GOOG), which has explored the self-driving cars industry extensively over time.

The investment could also be driven by data that Apple could mine by associating itself with Didi, in which case it would apply it in its advances toward creating its own self-driving cars or increasing utilization of its services.

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This article first appeared on GuruFocus.


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