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First comes China, then ... Japan?
While smaller than it's giant neighbor to the West, Japan is becoming the next frontier in the increasingly global fight between Uber, Lyft, Didi Kuaidi and others to dominate the fast-growing ride-hailing business.
While Japan's market is much smaller than India's or China's — 127.3 million potential consumers versus the 1.3 billion in China — the need for transportation alternatives and demographic realities presents a big opportunity.
Today, residents of Tokyo have buses, subways and taxis as transportation options. The subway lines are competing, privately owned companies often forcing commuters to switch lines halfway through their ride.
Taxis can be prohibitively expensive, leading many potential riders to rent hotel capsules for the night rather than travel across town. This leaves a gap between limited but affordable public transportation, and costly private car or taxi transport.
Enter e-hailed car rides.
Strictly speaking, ride-sharing isn't legal in Japan, but several businesses are supporting similar e-hailing-enabled private car services. Uber is already in Japan — using this model — currently serving only Tokyo.
There are others, of course. The U.K.-born Hailo uses e-hailing to place consumers in taxis rather than private cars. The company left the U.S. market in 2014 with growing domestic competition from Lyft and Uber, citing "astronomical marketing spend" as a reason for the exit.
Domestic competitors include Tokyo Hire-Taxi and Nihon Kotsu Co., the nation's largest taxi company. Both are car services that have added the functionality of e-hailing by developing an app.
Nihon Kotsu is partnered with the Line messaging app, leveraging their 211 million active-user base. For Line users, they have the option of hailing a ride in the Tokyo metropolitan area, with plans for a nationwide release in the near future.
Line's coverage area has expanded to 32 prefectures with 76 taxi companies. "We looked at the number of partner companies they have and the area covered by their services," said a representative of Line on the decision to align with Nihon Kotsu. While the company has not released any data on ride numbers, this partnership allowed Line to capture a new user base.
Users can pay through Line's mobile payment service and gain access to Nihon Kotsu's 23,000 taxis and 129 partners in Japan.
Japan offers a particular opportunity for Lyft, which is a distant second to Uber in most markets where they compete, and which does not yet operate outside the U.S.. The company has already formed partnerships with, among others, China's biggest ride-hailing company, and gotten financing from Japan's biggest e-commerce player.
A potentially important signal for Lyft is a recent investment from China's Didi Kuaidi — Uber's largest competitor there — worth $100 million in a round of funding led by Japanese e-commerce giant Rakuten. (Other investors in the company include Carl Icahn, Alibaba and Tencent.) The two companies also announced a strategic partnership in which Lyft users can e-hail Didi Kuaidi cars when traveling to China.
What does this have to do with Japan? Didi Kuaidi often invests to form strategic alliances in cities where it is not currently operating — it also invested in southeast Asia-based GrabTaxi, for example — and the move could signal an effort to help Lyft expand in Japan.
With Rakuten's 101 million users and Lyft's ability to deliver both consumers and goods, Lyft could extend its service to Japan, shuttling both riders and goods to their destinations on demand. Lyft declined to comment.
Another reason Japan is ripe for ride-hailing options: its economic climate, which remains somewhat stagnant, and an aging population.
With the working-age population contracting, there is a push for fewer full-time company employees with extensive benefits and more for part-time or contract employees. While ridesharing isn't legal in Japan yet, this could eventually fulfill the on-demand-like economy that has grown in the U.S.