For almost two years bike sharing has been a big thing in Chinese cities. Everywhere in the big cities you can rent a bike for prices as low as 7 euro cents (½ RMB) per half an hour. The concept of bike sharing in China already has been around for a long time, but app based sharing is relatively new. You download an app, register with your ID if using for the first time, scan the QR—code on the bike and within seconds the bike unlocks. Afterwards you can ride a bike like this through the streets of over 35 Chinese cities. Mobike (with 70,000+ bikes in Beijing), Ofo (40,000+ in Beijing) and BlueGogo (10,000+ in Beijing) are the companies currently dominating this previously untapped market; everywhere you go you can see their bicycles. But is it really be profitable making 7 cents per trip, when looking at the actual price of a bike?
The big three (Mobike, Ofo and BlueGogo) have different business models and ways to earn money. Mobike makes use of a scoring system. You start with 100 points; the moment you take care of your bike correctly you get an extra point. If you put your bike at the wrong place you get deducted points. The moment you get under 80 points lending price of the bike will go from 0.07 to 14 euro for half an hour. If you report a misplaced or malfunctioning bikes, credits will be awarded. An unforeseen problem is that bikes can be reported as malfunctioning and then flagged for repair. This makes the bicycle temporarily unavailable, while still being on the street. The long wait time for repairs results in many bikes being taken out of rotation, while still being a burden on the street.
Ofo on the other hand does not yet have such a user behaviour control system, but it could be a matter of time, since a lot of bikes are taken to people’s home or damaged in a way that other cannot use them anymore. Another problem for Ofo is the simple number lock in place. Users scan a bike once and use the code sent to open the lock. The drawback of this system is that users can remember the code and re-use the same bike for free. You see many bikes with scratched serial numbers and QR codes, so the bike is only used by the one user who remembers the code. Ofo introduced a new bike where such problems are prevented, but the old ones still struggle.
BlueGogo joined the market the latest of all, but is now catching up quickly. BlueGogo offers, just like Mobike and Ofo, on cheap services, wide availability and aims for a comfortable trip with their bikes.
At this moment, there are more than 15 companies active in the bike sharing market with each of them trying to become the top dog. This often results in van’s dropping off hundreds of bikes close to metro stations, as these are locations where a lot of commuters need bikes. Production levels around 5.000 (Ofo), 10.000 (BlueGogo) and 25.000 (Mobike) per day and growing will probably not be the end of the story. Mobikes, which are estimated to cost around €420.-/piece are claimed to be used 8 times a day. Ofo bikes, estimated to cost €50.-, are claimed to be used 6 times a day. BlueGogo claims their bicycles costs less than €280.- to produce and revenues around €1,10 per day.
Maintenance and usage
What also needs to be taken into consideration, is the required maintenance and customer usage. As a Dutch person, love needs to be given to your bike from time to time in the form of maintenance to keep it your beloved steed happy. When there is no ownership, a lot of people will take less care of their bike. The companies tackle this by hiring employees who take away bikes that are marked as damaged. The big three are now developing bikes that need less maintenance. Or in the case of Mobike, that even claim a 4-year period where no maintenance is needed. There is a growing amount of frustration about broken bikes, so good care of the bikes is important.
Part of the business model is that deposit is asked by the users. Let’s again take Mobike as an example. They charge users a deposit of RMB 299, which is directly linked to your passport or Chinese ID. With millions of users, the sudden capital acquired from the deposit of all users can be used for new or maybe other investments?
China and its population often will solve its public problems the moment they are fed up with something. More and more cities, especially in tier-1 cities like Shanghai, Shenzhen and Guangzhou are reporting that the nuisance is getting to a level where the public is had enough of it. The speed at which bikes are produced, and the concentration of places cyclists leave bikes behind are starting to create situations where commuters are inconvenienced. Local governments are now taking measurements. The municipality of Beijing, for example, started a few weeks ago restricting users on where they can put their bikes. In some streets you are not allowed to park your bike, in other places you should put your bike in an assigned area. This last mentioned measurement will be difficult to enforce, due to the amount of bikes in a city. An example of bike sharing in China where seems to be is out of control is the picture below of a park in Shenzhen.
The combination of public frustrations and interventions of the government makes it likely increasing measurements will be taken soon. Will this result in a big removal of bikes, strict rules and regulations, a maximum number of bikes per capita or will the competitors outcompete each other?
The new bike sharing is a phenomenon all over China and is expanding to Singapore, San Francisco and a planned 100+ cities by the end of the year. The industry is now in its early stages with more international companies also entering the market. Will the bike sharing market continue to grow, will the same thing happen as with Uber that governments step in or is it just a bubble that will burst at one point?
By Jeroen Gubbels – Intern at 1421