Burgeoning business faces questions about profitability, incoming regulation

By Chen Qingqing Source:Global Times Published: 2017/3/27 17:18:39

Bike-sharing hits rough patch

Scan, unlock and ride - such is the simplicity of online bicycle-sharing services in China, which have grown more and more popular in major cities such as Beijing, Shanghai and Guangzhou. The companies allow almost anyone to ride a bicycle for rates of 1 yuan ($0.16) an hour or even less. With the help of investment from eager venture capital firms, these bike-sharing start-ups have put tens of millions of bikes onto city streets. However, their success has also drawn scrutiny, with many questioning if their business model is viable, especially with authorities expected to soon draft regulations for the business.

Mobike, Bluegogo and Ofo bikes block the sidewalk on Qingnian Lu in Chaoyang district in Beijing on March 19. Photo: Chen Qingqing/GT

A white-collar worker surnamed Long first tried the bike-sharing app Mobike in November 2016 because of the tough weather.

On his way to dinner with friends, the 30-year-old man didn't want to walk the mile or so to the restaurant in Beijing's frigid winter.

"It was cold, so I didn't want to walk there. Also, it was too expensive to take a cab," he told the Global Times on Sunday.

Long became a regular user of Mobike, and went on to try out several of its rivals, such as Ofo and Bluegogo. ¬

The bike-sharing business has exploded in China over the last few months.  The yellow bikes of Ofo, blue bikes of Bluegogo and orange bikes of Mobike have flooded the streets of China's major cities such as Beijing, Shanghai and Guangzhou, capital of South China's Guangdong Province.

Some have called it the "rainbow competition" because of the distinct color of each company's bicycles. Their emergence has also made riding bikes cool again.

"It's like the old days when almost everyone rode bicycles," a 52-year-old woman surnamed Chen told the Global Times on Friday.

The bike-sharing companies have paid for that success by burning through mountains of cash to secure market share. However, none has managed to turn a profit as of yet, said a person close to the companies who preferred not to be named.

"It is a tough battle for these companies, which face a series of questions including how to manage deposits and how to deal with authorities," he told the Global Times on Wednesday.

Deposit doubts

On Sunday, both the Xinhua News Agency and the People's Daily published articles questioning how the companies manage the deposits they collect from users. Together, two of the biggest bike-sharing companies, Mobike and Ofo, have collected an estimated of 3 billion yuan from their users, according to the People's Daily.

"When we launched our bike-sharing platform at Peking University in September 2015, there were no deposits," Dai Wei, CEO of Ofo, said in a talk on Sunday at the Boao Forum for Asia in South China's Hainan Province. "We started to charge people a deposit of 99 yuan ($14.38) when we entered cities."

"[The deposits] are not an indispensable part of our business model… and all users' deposits remain untouched," he said, noting that he expected the People's Bank of China or the Ministry of Transport to issue regulations governing the deposits.

Some of the companies have been exploring ways to avoid taking user deposits. On March 16, Ofo announced a partnership with Zhima Credit, an arm of Alibaba Group Holding, which allows it to waive the deposits for users with good credit ratings.

A week later, rival Bluegogo announced it would also team up with Zhima Credit and would forego taking deposits from users with credit scores above 700.

"We are not counting on deposits for profits, particularly when this amount might need to be refunded to users at any time," Hu Yufei, Bluegogo's vice president, told the Global Times on Wednesday in Beijing.

At the end of February, Mobike said that it would have China Merchants Bank oversee all of the deposits from its users.

Business model

Along with questions about the deposits, bike-sharing companies also face questions about the sustainability of their business models, including issues such as how they manage supply and demand for their bicycles and their capacity for generating profits.

To get people's attention, Mobike initially placed its bikes around locations with a lot of foot traffic, such as central business districts and malls, said Xia Yiping, the company's co-founder.

By tracking user demand on the Mobike app, the company figured out the most efficient places to put its bikes, Xia said.

"Adding too many [bikes] will result in waste and lower efficiency, so it is necessary to make the calculations with the help of big data," he told the Global Times on Friday.

In recent months, it has become more and more obvious that bike-sharing firms are burning through their investment funds to gain market share - a trend that will likely continue for the next few months, said Wang Chenxi, an industry analyst from Beijing-based consulting firm Analysys International.

"It's still too early to say who will be the winner, but merger and acquisition deals might be possible among major players," she told the Global Times on Wednesday.

Although some companies have recently been running "free ride" promotions, users are unlikely to look for the bikes of specific companies just because they aren't charging, Xia noted.

"It's not like the competition between car-sharing platforms such Didi and Uber, because people are less sensitive to the price of bikes that cost 0.5 yuan or 1 yuan per ride," he said, adding convenience will be the priority.

Although the bike-sharing companies have all yet to report any profits, they have the backing of well-known venture capital firms and have raised more than 6 billion yuan, according to a report by Beijing-based consultancy ­iResearch on March 22. Investors include Tencent Holdings, Sequoia Capital and Temasek.

Regulations on the way

The burgeoning of the bicycle-sharing business model has also raised concerns about parking. In Beijing, for example, as more and more users park bicycles on streets and sidewalks, sometimes blocking pedestrians and even public transport, the municipal government is considering guidelines to regulate the business.

The guidelines include clarification of the responsibilities of local governments, enterprises and riders, regulations for parking, as well as expanding the space available for bike parking, the Xinhua News Agency reported on Sunday, citing sources inside the Beijing Municipal Commission of Transport.
"The sharing economy requires efforts from three parties - the government, the company and the users," Xia said.

He noted that there is still a lot of work to be done to educate people who steal or break the bicycles. In addition, the lack of space for bicycle parking in cities poses a challenge to the development of this business.

Online bike sharing is a new thing in China, Ofo's Dai noted.

"It's like raising a child. You should not limit all his activities, but when he does something wrong, you have to be patient and tell him why, then help him get back on the right track," he said.

Huang Ge contributed to the story.


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