Winter arrives for China’s once-hot bike sharing market as more players go bust
Silicon Valley is learning from China. A recent example: Bike sharing services. In the country where the idea was born, it's been a headache for both users and the business operators.
The term "bike sharing" is somewhat misleading. It's not really about sharing bikes; it's basically just bike rental. But that hasn't stopped operators from being part of one of the biggest tech booms in China over the last year.
Over 40 start-ups jumped into the bike sharing market, took billions of dollars in venture capital money and crammed China’s cities with their bikes... until recently when the bubble burst and some of the smaller players started going bust.
Offices are deserted. Staff were dismissed with months of unpaid salaries. And infuriated users vented on social media over deposits that they can’t seem to get back.
In November, the CEO of the third biggest company Bluegogo wrote an emotional apology, admitting that the company was trouble. He said he couldn't make progress in negotiations to find a buyer because he was "too naive" for the competitive bike-sharing market. At its peak, Bluegogo had 20 million registered users.
Chinese citizens, who have a long tradition of riding bikes, embraced the technology because it solved real problems for urban commuters. In a country where the majority of the population doesn't own a car and public transportation can be crammed during rush hour, the schemes are seen as an easy alternative.
In contrast to traditional Chinese government-funded bike sharing schemes, where bikes have to be parked at designated locations, these "shared" bikes can be dropped off or picked up anywhere. They're equipped with GPS and smart locks so users can locate their nearest bike, unlock them, and pay for a ride, all through on an app. Most of the services charge deposits that vary from about US$15 to US$45, but each ride generally costs only a few US cents.
Plenty of arguments have been made about how hard it is to profit from such an asset-heavy business model. After all, the companies have to buy and maintain the bikes as well as hire extra hands to collect any bikes left in the middle of nowhere.
But that didn't stop start-ups from asking for investors' money, betting they could be the one operator to go the distance.
In the past year, over 40 bike-sharing companies in China have put more than 13 million bikes on the road. About US$2 billion has been put into the market, but so far none of the companies has made a profit.
The two biggest players, Mobike and Ofo, which together own a 95 percent share of China's bike-sharing market, are actively expanding across the US.