It's Time For Didi To Acquire Chinese Bike-Renting Platforms
摘要： For Didi, bike-renting market is of course worthy of its attention. Yet, unmanned driving technology should be attached much more attention. My suggestion is that Didi should even get fully involved, seize the golden opportunity and develop something that will really make history.
In a word, the traditional sharing economy is about transforming the existing right of ownership into the right to use, and then establishing a C2C-based platform for users to exchange their resources online.
This is true for Airbnb, Uber as well as Didi.
However, this rule seems not to apply to Ofo and Mobike, two of the major online bike-renting platforms in China. While Mobike adopts B2C model and all its bikes are developed, manufactured and deployed by itself, 90 per cent of ofo’s bikes are also its own, with only 10 per cent shared by its users. In other word, ofo also gives up customer-end and instead share mostly its own bikes with users.
Therefore, it’s not quite accurate to refer to them as “bike-sharing” platform, theoretically. If they can be called “bike-sharing” platform, then why can’t internet bars and hotels be called “computer-sharing” and “bed-sharing” platform?
Of course, ofo and Mobike could have opted for a purely sharing economy approach. In fact, at the beginning, ofo did attempt to do so, but later find out that it’s impossible to play a big role in the market without its own bikes. So in this market, perhaps turning from sharing economy into renting economy is indeed a more reasonable solution.
After all, there is a common trend for all the sharing economy players to provide resources themselves: Airbnb has begun to build its own houses, Uber also has begun to test unmanned vehicles, while Didi also use its own drivers in the high-end car-rental area. From this aspect, it is possible that the ultimate goal of sharing economy companies is to provide and share its own resources with users, or at least to make it an important part of the cash flow?
This trend applies not only to sharing economy platforms, but all kinds of platforms, such as Ele.com, Meituan Takeaway, Baidu Takeaway, etc. How come?
- Internet companies, in nature, tend to lead to monopoly;
- Internet companies, in nature, need to continue high growth;
- Internet companies, in nature, are destructive, and can enter new markets at the expense of losing money in the short term;
- The current deteriorating market environment brings much more profitability pressure to internet companies.
As a result, all internet companies are attempting to expand their business scope from every aspect and do everything they could to replaces their suppliers upstream and win more users in the customer-end.
For internet giants with adequate resources and talents, what they can do no longer matters. Instead, they need to figure out what should be done, and then do so as quickly as possible, whether by acquiring other companies or setting up a team of their own.
Let’s come back to talk about ofo and Mobike. I’ve explained above that they both adopt the bike-renting, instead of bike-sharing business model. Following, I’m going to discuss the different impact these two kinds of business models have.
The core of sharing economy and leasing economy
The core of sharing economy is internet effect. To establish a feasible two-side exchange platform, Airbnb has to effectively match the need of tenants and house owners, while Uber has to effectively match drivers with passengers. However, good internet effect comes from good product design, great marketing strategy, as well as viral growth and high maintenance rate.
The core of renting economy, however, is scale effect. This type of companies usually adopt the B2C, instead of C2C model, so they have to take care of the supply end all by themselves. To get noticed in the enormous bike-renting market, however, they have to provide at least over 10,000 bikes on the market. This type of companies compete for nothing but scale effect, while scale effect relies a lot on capital, cash flow and capital efficiency.
Thus, since ofo and Mobike both adopt B2C model, their competition will be mostly about the ability to win over investors and raise financing.
Whether they admit it or not, ofo and Mobike’s competition might also be a good thing for them to some degree, since their competition grasps more attention for them. Likewise, Didi wouldn’t succeed today without the competition with Kuaidi.
Convenience and low-end disruption
When we look back, Didi actually has little impact on the Chinese commuting market, especially when it is moving towards a monopoly.
Before Didi emerged, most people actually have no problem with hailing a car on the road. No matter how convenient it becomes to hail cars through Didi, people who can’t afford to hail cars before still won’t do so.
Why people always talk about internet’s ability to improve efficiency? Well, by improving efficiency per unit of time, internet improves the total value and in return bring down the cost per unit of time and win a larger user base.
For example, a driver picks up 100 orders every day, earns 30 RMB per order, then he could earn 3,000 RMB every day. With the help of Didi, however, the driver can pick up 150 orders every day. If the driver still earns 30 RMB per order, then he can earn 4,500 RMB every day. Yet, Didi comes in at this point and offers a deal to the driver: now that you can pick 150 orders every day, can you earn 25 RMB per order. In total, you would still earn 3,750 RMB, 750 RMB more than before. Most drivers would accept the deal.
This is how internet platforms help drivers lower the price per order for passengers, while expanding its own user base. As to the above case, passengers who can stand 25 RMB to 30 RMB per order would begin to hail cars. Following, as more users began to hail cars, drivers will pick more than 150 orders every day, and then be willing to further lower the price (Of course, there is a maximum since the time drivers can pick up passengers is limited). In other words, the lower the price, the more widespread Didi is, and the more money Didi can help drivers make.
In the past, Didi attracted users mostly by giving out subsidies. Now that it has already gained monopoly over the market, it has already had plans to give up giving more subsidies. That’s why many Didi users begin to feel that it’s not as inexpensive as it was before.
If resources are effectively distributed, then why can’s Didi further lower the order price for users? Is it that Didi still fails to create enough values? Is it just that the values Didi creates means nothing due to the inflation? Or it’s just that Didi collects the benefit into its own pocket.
Anyhow, users who start using ride-hailing platforms due to low price begin to give up using them since the price has gone up. This group of people will use public transportation most times, and hail taxi or cars sometimes. In addition, users who can’t stand the traffic or drivers who aren’t familiar with the road anymore will also gradually quit using online ride-hailing platforms.
It is against this background that ofo and Mobike emerged.
If you’ve ever read the book “The Innovator's Dilemma”, you would find that ofo and Mobike are typical examples of low-end disruption. When a large number of users actually don’t need more advanced and high-end products and services, they would love to quit using them when a cheaper and more low-end alternative appears. For high-end platforms, these users are also not their target, so there’s no need for them to compete with low-end alternatives.
In Chinese commuting market, Didi can provide great service and is just like a high-end platform. However, many people don’t need Didi’s cars to go to their destination all the time. All they need is a vehicle that is convenient and quick enough for them to the destination. Mobike and ofo emerged exactly to meet such need. As a matter of fact, ofo and Mobike, together with public transportation system in any cities, are enough to meet most people’s need for daily commuting.
However, there’s something fatal about low-end disruption. While low-end platforms will gradually evolve and win over high-end users, high-end platforms will gradually lose users at the bottom of their user base. After round of competition, high-end platforms might end up finding that they’ve become a truly high-end platform that only serve a minority of users. At that point, they will be not far away from their ultimate failure
Compared to convenience, people need lower price better. Only when the price is already low enough, they would care more about convenience.
One of the core reasons why Mobike and ofo rise is that they reform the parking pile. At this point, price is not the most importance thing, while convenience matters more to users.
While ofo adopts low-end bike (whose cost is a little over 200 RMB each), Mobike develops the bike itself (whose cost is said to be over over 2000 RMB). In the long run, ofo’s model might work more effectively than Mobike’s. For users, convenience matters more than anything else, so they would prefer to rent bikes nearby. If ofo and Mobike’s bikes at the same distance, then users might consider renting Mobike’s better bikes. Yet, in the bike-renting market, convenience is more important.
Moreover, although Mobike’s bikes have lots of fancy functions: they are not easy to break down, they don’t need blowing up, they can charge automatically and are thiefproof. However, these functions mean much more to investors than users. After all, users care more if it is easier to find bikes.
Many people have been complaining about ofo bikes’ lock. However, for a rapidly-developing company, it could only focus on core problems and leave minor details to time and money. Generally speaking, these minor details won’t influence their development too much.
Expansion and control
Still, bike-renting platforms need to be able to distribute resources effectively. Since supply is always lower than demand, market approaches become very important. When Uber started providing service, it created a very brilliant dynamic price mechanism called Surge Pricing. If my memory serves right, Didi introduced similar mechanism long after Uber.
To put it simply, dynamic price mechanism controls price based on demand and supply: when supply is higher than demand, the price will go down; when supply is lower than demand, the price will go up. Through this mechanism, users might find it very cheap to user Uber not in peak hour, while drivers will also be stimulated to pick orders in peak hours to make more money.
This is also true for the bike-renting market.
Currently, ofo still limits its service to college campuses. In the foreseeable future, it wi certainly begin to provide service in other scenarios. Mobike, however, dreams even bigger and aims to provide services in more cities across China. In comparison, ofo’s performance will certainly look better, but Mobike might have more influence on the market.
From another aspect, ofo limits itself too much and voluntarily cooks its goose, while Mobike is too anxious and often wasts too much resources unnecessarily. Mobike needs to understand that maybe growth can be achieved orderly, and that setting up its bikes one area after another might be more effective than setting up over 10,000 bikes in another city once.
The best way for ofo and Mobike to expand might be to divide cities into various areas. More specifically, ofo should divide a city into several areas, so that all these areas look just like college campuses, while Mobike should try to separate a city into different areas, provide service one area after another and then dominate the market in the entire city.
The only problem with such strategy is that they might not be able to monitor user flow well. However, with dynamic price mechanism based on electronic fencing and big data technologies, they can actually solve the problem quite well. In fact, the company that adopts the right expansion path and better solve the problems will ultimately stand out.
Imagine if bike-renting platforms charge users with extra money if they ride towards the opposite direction, will they be less inclined to do so and thus become some sort of maintainers of bikes. Of course, it’s not easy to determine user behavior, but it’s, after all, worthy of trying and exploring different possibilities.
Since the core of renting economy is scale effect, renting economy platforms will be in dire need of capital. For ofo, it need to continue to tell its own story, do a good job in terms of public relations, so that it can better compete with Mobike in more cities across China. Otherwise, it would come to a standstill. More risks go hand in hand with more returns. Since it has decided to adopt the B2C model, it has to make to the fullest the scale effect.
For Mobike, however, it might be time to roll out low-end bike-renting service. Whether from the aspect of economical benefit per unit, or user convenience, it’s makes more sense. Moreover, the lower per bike costs, the more bikes Mobike will be able to provide on the market, which, as a result, will help Mobie achieve scale effect more easily.
For Didi, bike-renting market is of course worthy of its attention. Yet, unmanned driving technology should be attached much more attention. My suggestion is that Didi should even get fully involved, seize the golden opportunity and develop something that will really make history. In this sense, it’s wise to choose to invest in ofo instead of develop a platform of its own. Now that Didi and its investors already controlled ofo, it should begin to invest in Mobike and merge them together when time is ripe.
Markets related to clothing, food, house and transportation have always been fraught with opportunities. Innovation in the transportation and commuting market will be one of the major themes in the next five to ten years or even longer time.
It has been 100 years since the first automobile was built in 1886.
It has been only 50 years since the first subway line was built in 1969.
Today, however, Uber has already been testing its unmanned vehicle in Pittsburg. Unmanned driving technology might become mature far more quickly than we have expected.
I predict that our lives will become entirely different in terms of commuting and transportation in two decades.
At that time, our cities will become quite different, in a good way. I feel so excited and happy to be able to witness and record such tremendous change.
[The article is published and edited with authorization from the author @Qu Kai please note source and hyperlink when reproduce.]
Translated by Levin Feng (Senior Translator at PAGE TO PAGE), working for TMTpost.