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Bicycles for anybody, anywhere

The global quest of China`s bikesharing industry

· mobility

{{{Gian Marco Brizzolara}}}

Since 2017, station-less bike sharing services like Ofo and Mobike, both Chinese companies, mushroomed in many American and European cities. The bicycle sharing industry has attracted billions of dollars in funding over the last two years. In order to find out more about the industry, I recently visited Mobike’s headquarters in Beijing.

Station-less bike sharing originated in China and is more widespread here than in any other country in the world, so there is no better country to look at to foresee the future of this industry. In late 2017, China had 220 million registered bike-sharing users (29% of Chinese internet users). There were 33 million shared bicycles deployed in China, translating into one of the highest ratios of shared bicycles globally. In Shanghai and Beijing, the ratios are even higher with 1 bicycle for every 15 residents and 1 bicycle for every 11 residents respectively. At the beginning, primarily first-tier cities (e.g. Beijing, Shanghai, Guangzhou) were targeted, but today, 72% of China’s bike sharing users are from second- and lower-tier cities (e.g. Tianjin, Nanjing, Hangzhou).

The two global market leaders, Mobike and Ofo, both launched in 2015 and are headquartered in Beijing, but pursue very different strategies. In regards to locking technologies, Mobike significantly invested in a smart locking system that allows users to unlock their bicycles via smartphones whereas Ofo bicycles used a simple lock where users manually enter a code. On the bicycle itself, Mobike spent significantly more money on its bicycles to increase their average life, with $450 per bicycle compared to $50 Ofo spent for each bicycle at the time of launching. The new generation Mobike has significantly improved, the costs of each bike is now $150 yet it is still questionable whether the life of the bicycles outweighs the higher costs.

Mobike was primarily funded by the Chinese company Tencent (the holding company of WeChat) beforre being acquired by Meituan Dianping, a Chinese on-demand delivery platform, for $2.8Bn in April 2018. Ofo is primarily funded by an alliance around China’s leading e-commerce company Alibaba, which invested a total of $2.2bn. A third player that emerged is Hellobike, which is focusing on second- and third-tier domestically. As of 2018, the company is valued at $1.47bn and has secured $321m of funding by Alibaba’s investment arm Ant Financial. According to the South China Post on the 19th of October 2018, Ofo has proposed a merger between both companies.

As Chinese bike sharing companies grow, they expand internationally. By mid-2018, Mobike operated in 15 foreign countries and Ofo has established operations in 20 countries outside of China. Markets in South America and Southern Europe have been found to be particularly promising, whereas North America was disappointing for both sharing companies, with Ofo significantly scaling back its operations in the United States. Based on the experience of both firms, the GDP of a country does not correlate with the success of a foreign venture, but to a larger extent a mixture of other factors including local support by governments, a densely populated geographic area, lack of other means of transportation and a culture which prevents people from destroying bicycles. In regards to the United States, public support was limited in certain cities such as Washington DC which set a low maximum number of shared bicycles that operators could install so that operations would not have the scale to ever become profitable. Additionally, the destruction of bicycles was significantly higher in the United State than in other countries, requiring overly high capital expenditures.

Despite the significant increase in bike sharing globally, the future remains uncertain as Bike sharing is an inherently unprofitable industry. Dozens of companies filed bankruptcy (e.g. Bluegogo which burned $119 million USD) and both Mobike and Ofo currently lose hundreds of millions of USD per year. There are three imperatives which will likely decide the future of bike sharing companies: technical innovations (decreasing the cost per usage of a bicycle and a focus on attractive markets and mergers & acquisitions (achieving scale).

Bike sharing is a nascent and extremely dynamic industry. Even though the industry faces challenges, I predict bike sharing to be eminent in many metropolitan areas throughout the globe. Additionally, I think Chinese companies will remain as the leaders of the industry because of their unrivalled experience and scale which are difficult to imitate quickly.

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