Mobike in Driver’s Seat as Shared Bikes Head Into Make-or-Break Year
Why settle for 100 million customers when you could have 1 billion? That question lies at the heart of this week’s Tech Talk, which focuses on the shared bike industry that has gone from investor darling to dog-of-the-day in the short space of just three years. In the process the sector has also gobbled up more than $1 billion in investor cash, most of which is now sitting idle in the form of thousands upon thousands of loaner bikes gathering dust and rust on streets across China.
The earlier boom and now bust is the latest chapter in what I’m dubbing as a new kind of “China Syndrome.” Fans of the 1979 hit movie of the same name will be disappointed to know that nuclear reactors, Jane Fonda and Jack Lemmon have nothing to do with this newer “China Syndrome.” Instead, this 21st century edition is firmly centered on one concept: Greed.
Those bitten with the bug seem to lose all previous business sense, and instead pump millions or even billions of dollars into emerging industries that often have no proven business model. The big attraction is always the potential of emerging as new sector leader in a massive market with up to 1.4 billion customers, a figure many may find intoxicating.
All that said, the shared bike phenomenon seems like a good place for my first Tech Talk after the Lunar New Year because much of this industry is likely to reach the end of its road over the next 12 months. That will mark the end of a period that produced a bumper crop of colorful players and brands that has been winnowed to the current final four: Mobike, Ofo, Hellobike and Bluegogo.
I’ll look into my crystal ball shortly and predict how the Year of the Pig is likely to progress, including who will be left standing when 2019 closes. But before that we need to look back at the road traveled so far. That includes a closer look at Ofo, one of the earliest players that looks set to become the sector’s first major casualty and also the one that suffered most from the newer form of China Syndrome. More on that shortly.
But first let’s step back and explain the industry for those outside China who may not understand the theoretical business model behind this phenomenon. Such services differ from traditional municipal bike sharing services in a number of ways, most powered by mobile technology.
Unlike the older services, the new generation is all dockless, allowing users to get bikes wherever they can find them on the street, and simply park them anywhere they want when they are done. They then pay a small fee, usually around 1 yuan ($0.16) per hour, based on usage time. Company-specific mobile apps allow users to locate nearby bikes using GPS technology, obtain codes to unlock the bikes, and then automatically record when a ride is finished using GPS once more.
Armed with all that know-how, Ofo and Mobike were first out of the gate around the same time in mid-2016, the former with its trademark yellow bikes and the latter with its higher-tech gray-and-orange models. I was teaching at a university in Shanghai when Ofo first hit the streets, and quite liked its early business model.
That company was founded by Dai Wei, a recent graduate of the prestigious Peking University, who targeted his initial product at college campuses. The idea was to flood such campuses with cheap bikes that cost-conscious students could use for pennies per ride to travel distances that were time consuming to walk but much quicker to bike, often one or two kilometers.
But after his initial launch, the young Dai, a sudden favorite of China Syndrome investors, quickly decided that the thousands of university students across China weren’t enough and was convinced to chase the entire country’s 1.4 billion people. That kind of thinking spawned the rapid appearance of millions of bicycles on city streets throughout China, leading to huge clutter, along with theft and damage that quickly followed, leading growing numbers to question the business model’s viability.
But that didn’t stop venture capitalists, who collectively piled more than $1 billion on the sector, mostly on Ofo and Mobike. Zip forward to the present, when Mobike has been acquired by online-to-offline services specialist Meituan-Dianping. Bluegogo, always a distant No. 3, got thrown a lifeline about a year ago when it was purchased by Didi, China’s equivalent of Uber.
Hellobike, a relative non-player that somehow managed to survive the chaos, got its own lifeline in December when it received a large investment from a group including Alibaba affiliate Ant Financial, leaving many scratching their heads since the industry was already dying. Then there’s Ofo, which has admitted it’s on life-support and is having to fend off thousands of angry users trying to reclaim their modest deposits.
I polled a few of my tech-following contacts on how the year ahead would shape out, and the only real consensus was that Ofo is likely to crash and burn sometime this year — something many have predicted for months. All were also quite candid in pointing out how this industry lacks a viable business model, which again is also something people have also been saying for most of the last year. Not exactly the boldest predictions.
So I’ll be the bold one by predicting there will only be a single player standing by the end of this year. Didi is facing its own existential problems at the moment, which means it’s unlikely to keep pouring in the millions of dollars needed to support its money-losing Bluegogo.
Alibaba and Ant Financial are quite used to supporting dubious ventures with their excessive piles of cash, and are almost certain to pull the plug on an already-inconsequential Hellobike without a second thought. That will leave the field to Mobike, though the unit could be significantly downsized under an ongoing overhaul that will see it soon get re-branded under the Meituan name of its current owner.
Doug Young has lived in Greater China for two decades, including a 10-year stint at Reuters, where he led China corporate news coverage. Send your questions or comments to DougYoung@caixin.com
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