Ofo and Mobike, the two bike-sharing giants that dominate the Chinese market. are both struggling to acquire additional funds to keep themselves afloat. This is partly because investors are becoming savvy and rational. Rather than endlessly enabling Ofo and Mobike to fight each other in a do-or-die contest, they have decided to take a step back and view the market through strategic lenses.
Till recently, Ofo benefited from its strong partnership with Didi, the firm that eclipsed Uber to become the dominant force in the Chinese ride-sharing market. However, after Ofo refused a merger proposal from its many investors, including Didi, its strategic partnership with Didi began to collapse.
Having its own bike-sharing brand, Didi vetoed an earlier investment plan from Alibaba to Ofo. This led to one of many conflicts between the Didi and Ofo executive teams. Many media agencies reported huge arguments between Ofo’s Chief Executive Officer Fu Qiang and Ofo’s founder Dai Wei. After ousting from Ofo’s office, Fu Qiang, together with two other senior executives, officially went on a vacation.
Now that Didi has acquired Bluegogo, a smaller bike-sharing brand, for around $10million, the Didi-Ofo romance can be officially pronounced over. Bluegogo own quest for additional funding suffered a serious setback in June of last year due to a totally avoidable PR fiasco. On June 4th, the anniversary of the Tian’Anmen Massacre, Bluegogo’s mobile application pictured its bikes as tanks! The result: a huge backlash from the authorities and a sudden disappearance of potential investors due to higher uncertainty and risk. Bluegogo gave up hopes of finding funding in November 2017 and found a new lease of life when Didi Chuxing acquired it in January 2018.
Meanwhile, Mobike seems to have found a healthier route to additional funding. According to Chinese media agency Caixin, Mobike received a $1billion investment in late January. Despite this laudable milestone, Mobike insisted on cancelling its annual Gala and year-end staff bonuses. That behavior reveals the state of the bike-sharing market.
In winter, most commuters find it too cold to bike. And this winter is showing Ofo and Mobike a bleak and cold landscape.
How exactly is bike-sharing making money?
Ofo spent $600 million in two months. This includes the cost of promotional events, advertising and marketing events, bike repairs and bike replacements.
Both Ofo and Mobike charge 1RMB (roughly 15 cents) per hour for using their bikes. Can revenue generated from such a low rental rate ever offset the cost of operation? Well, this wasn’t an important question till recently. All that mattered was to deliver the knockout punch to the other giant. It was alright to bleed so long as the other giant bled more.
“They do not operate to make a profit. They operate to acquire additional investments, to drag their competitor down. That is not a real business model,” rued one investor who has become pessimistic over time.
Meanwhile, bike-sharing firms are adding a huge number of bikes to pedestrian sidewalks, thereby creating traffic problems in many cities. This erodes public goodwill and social capital. And it doesn’t help that negative speculations arise regularly. For instance, Ofo executive teams were accused of purchasing luxurious items for their own recreational needs. Ofo dismissed this as a rumor, but by then, the brand had been dented a little more.
One possible salvation for this offbeat market was to bring about a merger between Ofo and Mobike – leading to a virtual monopoly and less cut-throat rental prices. Investors tried to make this happen. However, the founder of Ofo Dai Wei and Mobike’s Board of Director Li Bin voted against the merger plan. The negotiations collapsed and the ugly stalemate continues till date.
More than the money, honey
Given the current unviable business model, bike-sharing firms need a lot of financial capital to make ends meet.
It costs roughly $50 to make a bike. Thus, making 10 million bikes needs a mere $500 million, which isn’t a huge amount for firms such as Alibaba and Didi Chuxing. Perhaps this market belongs to those with deep pockets and a track-record for corporate excellence.
Just as Didi has acquired Bluegogo, Alibaba has acquired two smaller bike-sharing firms earlier in 2017. Perhaps it made sense for them to take control of their own destinies in the bike-sharing market. They can now be their own Gods instead of being somebody else’s distress angels.
One thing is certain: Didi and Alibaba will re-define the bike-sharing landscape. As these giants of giants enter the fray in various cities across China, Ofo and Mobike have their task cut out.