An Overview Of The Chinese Online Bike-Sharing Market

摘要: What's the basic situation of the Chinese online bike-sharing market? What's the mainstream business model of major Chinese online bike-sharing platforms? What’s the government’s attitudes toward them? What challenges might they face in the near future?

(Chinese Version)

Recently, ofo announced that it had raised RMB 450 million in D round of financing led by Macrolink Group. However, Macrolink announced that it invested over $300 million (instead of $ 450 million) in its WeChat Official Account announcement, leading many analysts to doubt if ofo was being exaggerating. Afterwards, ofo responded that this round of financing involved both equity and bond financing and the total investment volume was indeed $450 million.

Despite ofo’s clarification, we don’t know exactly the truth. In this article, I’d like to go beyond the surface and explore if online bike-sharing can create another capital bubble as big as online ride-sharing.

Will online bike-sharing platforms also face severe government control after years of hard fights? Will online bike-sharing platforms, even with a capitalization of over 100 billion RMB, really benefit capital investors in turn after spending billions of RMB on the market?

The future is bright, but the road is tortuous

As population and automobiles continue to rise, as traffic is getting increasingly heavy in Chinese cities, as potential capacity of automobile has been fully explored by the previous online ride-sharing battle, online bike-sharing has become the new favorite in the Chinese tech world.

In major cities, bikes in yellow, orange, blue, white and green, can be seen almost everywhere on the street. It seems that these bikes emerged all of a sudden, adding a new beautiful scenery to Chinese cities. Some media even made jokes, calling for entrepreneurs to enter the market as soon as possible; otherwise, there won’t be much color left. However, a new type of yellow and blue bikes entered the battle just recently. What a slap in the face!

Now that both the capital market and the public welcome online bike-sharing, is it really a promising business? Well, it depends. After all, online bike-sharing platforms can never get away with huge operating cost and uncertain government policy.

Although Chinese online bike-sharing platforms are entering one after another new city every other day, I believe their competition are still at the primary stage. Gradually, they will have to face more practical problems and focus more attention on improving user experience and enhancing management mechanism.

Although an online bike-sharing platform can boast that it has entered over 40 cities, what matters more is its penetration rate in major districts in every city. Although its market capitalization is rising, its influence on ordinary people’s everyday life might not be as significant.

Screenshots of some Chinese online bike-sharing APPs

Screenshot of some Chinese online bike-sharing APPs

On the surface, it seems that shared bikes can be used on various scenarios. In fact, however, they are highly fragmented. Since users will open the APP only when they need to rent a bike and close the APP once they’ve finished the trip, it’s difficult to add more services in the process and retain users.

Although an online bike-sharing platform can expand rapidly at the first stage through sharing economy model and achieve breathtaking growth rate as to the number of registered users, it is foreseeable that as more players enter the battle, this market will soon become saturated. Due to limited high-quality market, the Chinese online bike-sharing market might soon reach the bottleneck. At that time, the core goal for any online bike-sharing platform will be to increase using frequency and time as much as possible.

Most importantly, new players will have to think clearly, especially as to how to effectively increase using time, before entering this market.

Rapid growth & uncertain profit outlook

Some conspiracy theorists might say that online bike-sharing platforms can earn a fortune simply through deposit (Note: users have to pay a deposit of 299 yuan and 99 yuan before they can rent bikes via Mobike and ofo, respectively). Since users will always need to rent bikes, their deposit will always be kept to online bike-sharing platforms.

According to iResearch, Mobike’s WAU in the first week of 2017 reached 5.849 million. Since each user has to pay 299 yuan as deposit, Mobike will have accumulated around 1.76 billion RMB simply through deposit. Moreover, it is expected that this figure will continue to rise rapidly.

However, although online bike-sharing platforms may be able to use the deposit for other purposes at the primary stage, they will have to set up a special account, so that the deposit shall be used exclusively for its designated purpose. As the market gets increasingly mature, they will have to do so whether to be responsible for users or in consideration of possible government regulations.

On February 28th, Mobike signed an agreement with China Merchants Bank (CMB), so that the latter will take full charge of the escrow account and make sure the deposit is managed in accordance with government laws and regulations. Recently, Bluegogo also announced that users’ deposit will be kept on mobile payment platforms and shall not be used for other purposes. It is expected that other platforms will follow suit in the near future.

Now that online bike-sharing platforms can’t make profit through deposit, how can they become profitable as fiercer market unfolds? Although Hu Weiwei, CEO of Mobike, stated in an article that she would take Mobike as charitable project if she failed, running a startup is absolutely different from managing a charity organization. After all, she has to pay back investors’ billions of investment.

To make profit, online bike-sharing platforms might have to focus on rent fee users pay for each trip. After they’ve attracted a steady user base, they might be able to increase rent fee, just as Didi did. Although they might give lots of subsidies to users right not, they have to earn back all the money in the end. The only difference is that users might not be as sensitive to the increase of bike renting fee (for example, from 1 to 2 yuan) compared to that on Didi.

Suppose an online bike-sharing platform, with a DUV of 20 million, increase its basic rent fare from 1 to 2 yuan, its daily, monthly and annual transaction volume will reach RMB 40 million, RMB 1.2 billion and RMB 14.6 billion, respectively.

From this aspect, it might be a really lucrative business. If we take into consideration full screen ads fee, recommendation fee for business owners, etc., its annual income might reach at least RMB 15 billion, ideally. Although if we take into consideration the huge operation cost, including bike maintenance, bikes’ service life and labor cost, there might not be much net profit left. After all, offline operation cost has always been an unbearable burden for such internet plus mode-based startups.

Government control may become the biggest challenge

Government’s uncertain attitude has always been a headache for Chinese entrepreneurs. Didi is a recent warning. Although the Chinese online bike-sharing market is burgeoning right now and the government’s attitude seems to be positive, nobody knows how the market will develop in the future and if government will interfere in in case of accidents.

In a recent interview, China’s Transport Minister Li Xiaopeng was positive about online bike-sharing, believing that “it represents innovation in urban low-speed transportation system and achieves internet plus transportation model.”

“Since it is highly effective in meeting the public’ needs for last-kilometer transportation, it is warmly welcome by the public. In fact, many people are willing to give it a try this new means of transportation. Therefore, I believe we should encourage and support online bike-sharing,” said Li.

In other words, the Chinese government is positive about online bike-sharing, at least for now. However, as the market continues to expand, chaos is inevitable.

As a matter of fact, the Chinese online bike-sharing market is development in a barbaric manner. Based on incomplete statistics, over 200,000 shared bikes have already been launched in Beijing. Based on Mobike’s public data and Shanghai Bike Industry Association’s prediction, over 500,000 shared bikes will be launched in Shanghai by the first half of 2017. In fact, many online bike-sharing platforms claimed at the beginning of 2017 that they would launch 1 million in total shared bikes on the market in 2017.

Barbaric development begets accidents. For example, too many shared bikes parked randomly on the street might severely affect traffic order. Conflicts might occur after bike accidents. Conflicts of interest might also occur between online bike-sharing platforms and existing offline bike-renting platforms. Users might complain if basic rent fee is raised. It is likely that the government’s attitude towards online bike-sharing may change one day and government control will ensue.

Since online bike-sharing platforms, to some degree, are taking on government’s responsibility. It is likely that the government may invest in, or give subsidy to service providers. It is also likely that poor operation performance of these platforms may undermine local government’s performance ratings, forcing the government to interfere in.

Henceforth, it is unlikely that the Chinese online bike-sharing market will accommodate too many players at the same time. It is more likely that only a couple of players will survive and stand out at last.

Conclusion

Still, nobody knows if the principle “many a little makes a mickle” or “every new business ends up being purchased by BAT” applies here to the Chinese online bike-sharing market. What we do know is that the market has already been rather too hot, and a bubble has already started to grow. However, it is for you readers to tell if it is a flexible or an explosive one.

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[The article is published and edited with authorization from the author @Bowenqiangzhi, please note source and hyperlink when reproduce.]

Translated by Levin Feng (Senior Translator at PAGE TO PAGE), working for TMTpost.

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