1 May 2020 | By DF
This is a 9-part essay series on Apple’s Success in China. Part 1 introduces the essay series. Part 2 explains Apple’s product-zeitgeist fit in China. Part 3 looks at product localization. Part 4 looks at Apple’s services in China and relationship with Tencent. Part 5 looks at the complexities of operating in China. Part 6 and Part 7 look at Apple’s compliance efforts in respect of the App Store and iCloud respectively. Part 8 looks at Apple’s investment in DiDi. Part 9 concludes with lessons from Apple’s experience in China.
Apple's investments in China have always deviated somewhat from its usual practices.
For example, since 2017, Apple “has set up four research and development centers in China—one each in Beijing, Shenzhen, Shanghai, and Suzhou—entailing a combined investment of 3.5 billion yuan ($509 million) and employment for over 1,000 people dedicated to innovation in hardware, software and services”.
This is despite Apple's highly centralized organizational makeup, which tends to concentrate its staff in Cupertino and had only recently expanded to San Francisco.
But most atypical of all is Apple's ostensibly inexplicable $1 billion investment in DiDi, a Chinese Internet ride-sharing company, in 13 May 2016.
Apple’s DiDi investment cannot be explained as a strategic investment. Apple’s mergers and acquisitions strategy typically involves Apple acquiring outright small companies whose products and technologies can be easily integrated into existing company projects, rather than investing in a minority stake. (See this Wikipedia list.)
For example, the semiconductor company, P.A. Semi, was acquired at $278m and lay the groundwork for what became Apple’s propreitary A-series SOC. Similarly, Siri Inc. was acquired at >$200m, whose technology later became Siri on iOS.
This philosophy is explained by Apple tendency towards vertical integration and the so-called Tim Cook doctrine of “owning and controlling the primary technologies behind the products [Apple] makes”.((In the instances where Apple invested a minority stake (e.g. Akamai Technologies and Imagination Technologies), these companies were relatively small, the size of Apple’s stake was small and Apple was a client of these companies’ services.))
The investment in DiDi clearly bucks this trend.
First, the investment is simultaneously too large ($1 billion) and too small (no controlling stake) by Apple's standards. It also does not make sense as a purely financial investment as it is Apple's general position to either hold onto cash or to return cash to shareholders, as opposed to making purely financial investments on behalf of its shareholders.((This is unlike, say, Google's "Other Bets".))
Second, there is no clear synergy between a B2C ride-hailing company and Apple's businesses. Speculation of collaboration between DiDi and Apple's long-rumored foray into the automobile industry frankly does not make any sense. Given that Apple's organizational DNA is geared towards creating vertically integrated products, rather than partnering with other companies, it is not clear there is any meaningful scope for collaboration between Apple and DiDi. If there is any worthy opportunity for Apple to pursue in this space, it must be significantly larger than the $1 billion Apple has invested.
Third, perhaps most tellingly, DiDi is also notable for being the only China-based company to have received an investment from Apple.
To make sense of the DiDi investment, it is important to note that the deal was negotiated by DiDi’s president, Jean Liu Qing, who is the daughter of Liu Chuanzhi, the politically connected founder of Chinese computer maker Lenovo Group Ltd.