Bike sharing in China began after five members of Peking University’s cycling club had an idea based on their busy student lives; what if bike sharing could become dockless? While many western countries had bike sharing methods, such as Citibike in the U.S. and ‘Boris bikes’ in the UK, users often complained that the designated drop off areas were too far apart. therefore rendered the service inconvenient for users. The company that was born out of this cycle club meeting was ofo, which offered their services to the top universities in Beijing, before quickly expanding to city-wide bike sharing models with funding from Peking University alumni.
Rise of Bike Sharing in China
By 2017, many other bike sharing companies in China rose to prominence as well. Ofo, Mobike, and Bluegogo were at the forefront of this innovative venture, and were testing the limits of the share economy. Many of these companies attracted investments from top global and domestic firms and were beginning to make plans for international expansion. With the success of the industry and the hope for future expansion, Xinhua News labeled dockless bike sharing as one of the four great innovations of China in 2017.
There was an almost euphoric optimism that share bikes inspired. The dream of dock less bikes that allowed users to travel in an environmentally friendly and affordable way inspired dozens of copycat startups throughout China and support from early users. Furthermore, as China’s government officials looked to reduce carbon emissions in their largest cities, they were eager to provide a regulation free environment for the share bike companies like Ofo and Mobike to experiment in.
Early critics suggested that the clutter of bikes throughout city sidewalks and parks would increase and raised questions about the business models. However, the companies ensured that they had plans to counteract both potential pitfalls. To clear the clutter, each business hired contractors to move share bikes to high traffic areas overnight. To answer concerns about financing, companies told investors that their true product would be user data and not bike rides alone. However, what these companies did not anticipate was the high cost of maintenance on the cheaply made bikes and the series of data laws soon to be released that would restrict their cashflow options regarding data sales.
Fall of Bike Sharing in China
Bluegogo was the first victim of the breakdown of the share bike industry in China. It’s failure in late 2017 acted as a warning light of vicissitudes yet to come in the dock less share bike industry of China. It was first reported that Bluegogo had a small cashflow problem and that workers were being laid off at their main headquarters. When news broke of the layoffs and further reporting revealed that the company was struggling to pay their office space rental fees, many consumers quickly requested that their deposits be refunded. By November 2017, news agencies reported that the CEO of Bluegogo had gone AWOL and that after the bankruptcy of the company no users would have their deposits returned.
This move enraged consumers across China, all of whom had been guaranteed that their deposits of 100 to 300 RMB would not be touched by the companies, but would simply be used as a guarantee to ensure that customers use the share bikes correctly and return them after use. In February 2017, Hu Yufei, Vice-CEO of Bluegogo, was quoted as admitting his company did use part of the users’ deposits as part of the company’s operational budgeting. These admissions have led to general distrust of start-ups in China accounting practices and ignited criticisms over the lack of customer protection laws in China which rippled into industries outside of share bikes as well.
Current State of Bike Sharing in China
Ofo and Mobike were not immune to the cashflow problems that plagued Bluegogo. Ofo announced that they were having a cashflow problem soon after Bluegogo’s very public exit from the industry. These comments, along with multiple reports that the company was considering declaring bankruptcy, led to a similar consumer frenzy of deposit refund requests. As Ofo struggled to attract investments and partnerships, they also had to grapple with online backlash from customers. Many feared that, like Bluegogo, Ofo was about to disappear and leave users without their deposits. However, Ofo received investment from Didi Chuxing, a ride-hailing company, that could keep them afloat. Although they still exist in the share bike space, they have halted their expansion efforts and pulled back from several international markets.
Mobike found an unlikely partner in Meituan-Dianping, an e-commerce company providing local food delivery services, consumer products, and retail services. Meituan-Dianping bought Mobike in 2018 and recently changed the name to “Meituan bikes.” Furthermore, Mobikes app has been phased out in preference of a program accessed through the Meituan app. This move to acquire a share in the share bike industry indicates that Meituan wants to diversify its portfolio and provide more than online, ecommerce, and delivery services. Meituan wants to transition from being the host app for other companies services to a service provider themselves.
The future of the share bikes industry is still uncertain but the acquisition of the share bikes by prominent internet companies indicates that the dream of dock less bike sharing is still very much alive in China. While the startups centered around bike sharing, once called unicorns, never realized profitability, the business models can be honed and altered by their new parent companies to test whether dock less share bikes have a future in China or not.
