Here's why Apple made a billion-dollar bet on the Uber of China
This was a surprise investment for a number of reasons. $1 billion is a lot of money, even to Apple, and the company has been reluctant to make big investments in the past.
It's also an investment in a Chinese consumer-facing company. Apple has made investments in Chinese suppliers in the past, but nothing at this scale for a consumer service that primarily serves Chinese people.
Ultimately, the investment is particularly revealing for Apple, one of the two most valuable companies in the world, and signals many new directions the iPhone company could go.
1. Apple is serious about transportation
It's an "open secret" that Apple is building a car, according to Tesla CEO Elon Musk. But the biggest confirmation from the company or CEO Tim Cook was a tease: he once joked that it was going to be Christmas Eve "for a while" earlier this year.
But money talks, and now Apple has a $1 billion investment in transportation and transportation technology. Bottom line: Apple won't be able to stay coy on its car project for much longer.
Eventually, the thinking goes, self-driving technology will merge with ride-hailing services like Uber to create new ways and market opportunities for personal transit and cities.
Apple's car is probably electric, and probably self-driving as well. Is there a chance that Didi Chuxing could be the first major customer for the Apple Car or iCar when it ships in a few years?
2. "Services" doesn't just mean iCloud
Apple has been emphasizing its "services" business this year as iPhone sales have slowed. Investors have primarily focused on internet products like iCloud, App Store, and Apple Music as Apple's "services."
But what if Apple's services business will actually go far beyond internet apps? DidiChuxing is more of a services company than a technology company - its primary product for consumers is its network of drivers.
Plus, Apple's been leading the way in turning hardware into services with new programs that lease iPhones for a monthly fee. Could Apple's car work the same way? Apple could decide to not even sell its car directly to consumers, but to transportation services instead.
3. Apple's checkbook is out, especially for foreign companies
Apple's deal with Didi took only 22 days from the initial pitch to completion. It's clear that Apple wanted to make a deal and the investment closed "like lightning."
Cook has teased that he's been looking for billion-dollar purchases and investments several times in the past year, most recently during Apple's most recent earnings call.
To Apple, with over $250 billion in cash and marketable securities, $1 billion isn't as much as it is to rival companies. Lots of that money is essentially "stuck" overseas in China and other countries - if Apple brings the money back to the US, it faces the full 35% corporate tax rate.
So when Apple invests in or purchases foreign companies, there are huge potential tax benefits. Didi is likely to hit Apple up for more money soon - Didi says it has to "burn cash" to build enough scale to turn the business into a "virtuous circle."
4. Uber might be Apple's newest frenemy
CEO Tim Cook was spotted chatting with Uber CEO Travis Kalanick earlier this month at the Met Gala. It might be one of the last times the two are seen being friendly in public as Apple is now funding Uber's main rival.
Apple has a long history of being "frenemies" with other major companies, the most notable being Google - former Google CEO Eric Schmidt was on Apple's board before he had to leave because Google was working on its Android operating system, a direct rival to the iPhone.
Nobody from Apple is on Uber's board or vice versa, but the two companies have been close over the past few years. Uber was a key launch partner for the Apple Watch - and the invite for Apple's annual developers conference even had a sneaky shoutout to the ride-hailing giant.
The Information reported that Kalanick had a meeting scheduled at Apple headquarters for later this week - wonder what the two companies will discuss, if the meeting is even still on.
5. China is still the most critical market for Apple
One of the most notable Apple investors, Carl Ichan, recently sold his stake in Apple because of China concerns.
Earlier this month, Reuters reported that Cook had a trip planned to China to talk to "high-level government officials" after the state shut down two of Apple's digital media stores. Apparently, talks between Didi and Apple happened nearly simultaneously as the iTunes Books ban.
Apple is the most successful American tech company in China, and the country has been Apple's main engine of growth in the past few years. Last year, Apple pulled in $59 billion in revenue from China.
Clearly, there are still high-level discussions going on at Apple about its China strategy, and investing a billion dollars into one of its most valuable tech startups is only a piece of the puzzle.
Beijing is very protective of its tech companies, often tilting the playing field to greatly favor homegrown companies over American giants - just ask Google or Facebook.
It looks like Apple's strategy is now to invest in local companies and partnerships, and portray itself not as an American company, but an international company with huge stakes in the Chinese technology ecosystem. The New York Times reports that experts believe $1 billion will buy a lot of goodwill in China, especially with giants Tencent and Alibaba, both major shareholders in Didi.