A Look at China’s Bike-sharing Phenomenon

Started in 2015 by pioneers, OFO and Mobike aimed at solving the last mile transportation problem through non-docking shared bikes, bike-sharing companies large and small, have sprung up in China and have ventured into overseas markets as well. We take a look into the current landscape, business models and the future of bike sharing companies in China.

Current Landscape
Due to high operating costs, fierce competition and lack of funding, many of the smaller players have gone out of business and the two largest players Ofo and Mobike currently control 90% of the market. According to China Consumer Association, in March 2018, 34 bike-sharing companies out of the 70+ bike sharing companies in China have closed down. Some of the well-known ones which have closed down since the second half of last year are Wukong, 3Vbike, Xiaoming, Dinding, Kuqi and Bluegogo amongst others.

The landscape of the bike-sharing market is changing rapidly. Less than a year ago, although Ofo and Mobike dominated the market, there was still some room for the smaller tier 2 players. During the second half of 2017, things start changing rapidly
1) 3 of the top 10 shared bikes in terms of MAU have gone out of business – Bluegogo, Kuqi and Xiaoming
2) Yongan Hang and Haluo merged.

This leaves the market to two large players, Ali-backed Ofo and Tencent-backed Mobike, and a smaller player Haluo backed by Ant Financial, an Ali company. Different from other smaller players, Haluo not only has financial backing from Yongan Hang and Ali, it also targets a niche in third and fourth tier markets where Ofo and Mobike have not tapped into.
However, Didi’s recent move in Jan 2018 to revive and take over operations from Bluegogo and start its own Qingju bike is complicating the current landscape. Despite Didi’s investment in Ofo, we see that it is actively trying to build its own shared bikes into its one-stop transportation platform.

Source: Trustdata

Business Model
Founded by young college graduates, Ofo’s business philosophies are different from that of Mobike. Initially when Ofo started on university campuses, users could convert their own bike to a Ofo bike and in turn use any Ofo bike for free.
Ofo’s business model is more asset light and is more focused on manufacturing usable bikes and penetrate to more users through rapid expansion. Mobike’s business model is more asset heavy and is more focused on making bikes that are sturdy and comfortable and building user stickiness. Ofo’s bikes are almost 4 times cheaper than its arch-rival Mobike. However, we are seeing that Ofo is also upgrading its bikes and adding features like smart locks to improve tracking of bikes.
As more smaller players are driven out of the market, the industry is moving from a stage of rapid expansion to more rational growth. Bike-sharing companies have stopped giving out subsidies and free rides.

Future of Bike-sharing Companies
Bike-sharing companies, both big and small, have received great interest from investors despite a tight capital for new investments in the internet field in China since 2016. Both Ofo and Mobike have each raised billions of dollars through 8 rounds of funding. Nonetheless, bike-sharing companies have yet to turn profitable and still rely heavily on investor funding. Lack of funding is cited as the main reason for bike sharing companies closing their businesses.

Revenues from bike rides are seen as the most important means of monetization, but the fees charged are not enough to cover the costs of running the operation. Big data generated from bike rides is also viewed as a valuable asset for bike-sharing companies, since peripheral products such as recommendations for local services can be built around it and it could also serve as a major destination to direct traffic to different businesses. However, it seems unlikely that there will be any clear ways of monetization from big data in the near future.

The pace of growth has slowed for the bike-sharing industry and is moving towards a healthier development, where we will continue to see more government regulations in place to regulate issues like usage of refund deposits, proper placing of shared bikes, disposal of unused bikes etc. However, the sustainability of these bike-sharing companies without relying on external funding remains in question.

Source: Public Data