March 12, 2017

Bike Sharing: A New Battle Begins in China?

The competition of Uber and Didi Chuxing, which were the leading Transportation Network Companies in China, just came to an end. But another battle, now between bike sharing companies, has begun recently in the country’s biggest transportation markets.

The bike sharing market research report found that through the end of 2016, there were 18.86 million users of bike sharing in China. It predicted that in 2017, the number will grow to about 50 million. Now there are about 30 bike-sharing companies in China, the largest two of which are ofo bike sharing and Mobike. The report showed that ofo held 51.2% market share, and Mobike held 40.1%. Even though bike sharing is no longer a new concept, these Chinese startup companies have made the bike sharing system more efficient. Most bike sharing systems require their users to park the bikes in designated docks, but these bike sharing startups allow people park anywhere in the city, and users can find the nearest bikes by using their cell phone apps.

The two startups became very popular in China. ofo bikes can be found in 33 cities in China and Mobike covers 23 cities. This means most of main cities in China are covered by bike sharing services. This is very similar to the beginning of the ride-sourcing war of Uber and Didi Chuxing: after most places have been covered, the small companies will die and battle begins between the giants.

Ofo was founded in late 2014. It is very popular on college campuses in Beijing such as Tsinghua University and Peking University. On March 1, the company announced that it received a round totaling $450 million investment from DST (Digital Sky Technology), Xiaomi, which is one of the most famous technology companies in China, and Didi Chuxing. Ofo also announced that they now have over 20 million registered users and over 1 million bikes in about 40 cities in China, US, UK and Singapore. All the users need to find a bike and enter a code number from the bike in the app, and then the app will return the code to unlock the bike.

Another company, Mobike was founded in late 2015 by a former Uber employee. It first started in Shanghai and it also received about $300 million investment from Tencent and Xiecheng, which are both the internet giant companies in China, and Temasek.

 

The prices of ofo and Mobike are very cheap. The price for student users are about $0.07 per hour for ofo and $0.14 per hour for normal users. If the time is less than 1 hour, ofo will charge 1 hour’s fee. The price of Mobike is $0.01 per 10 minutes for Mobike.

Unlike Uber and Didi car sharing, bike sharing could not share time and bike together with other people. Therefore, the companies need to provide enough bikes to ensure all the demand can be satisfied, which leads some problems. For example, in order to compete with about 30 other companies, one company may provide many bikes in an area, which is much higher than the demand, and the bikes can occupy large amounts of public space. In addition, because the demand changes based on the time of day, and during non-peak hours, a great number of bikes are left unused and cause problems.

In addition, because the bikes are free floating and serve mostly for commuting, bikes may concentrate near  office buildings or subway stations. This leads low utilization of those bikes. Therefore, the cost of rebalancing and maintenance of bikes can be very high, especially when the number of bikes is higher than the demand in an area.

Another problem for this bike-sharing pattern is that some people turned the shared bikes into their private bikes. In order to ensure they always have a bike to ride, some users add an additional lock to the bike so that this bike could only be used by themselves. From my perspective, the company could track their bikes: if one bike were used only by one user for a long time, they could consider suspending the user’s account.

Furthermore, the biggest problem for those bike-sharing companies is that it is very hard to gain profit at this stage. Because the prices of the shared bikes are very low, but the maintenance cost of bikes is high, all the bike-sharing companies are relying on investors’ money. The investment is what determines whether the company can survive or not. Therefore, the direction of this new pattern of bike sharing is still not clear. On the other hand, Lyft in US is on track to turn a profit, but it still needs to spend more money on adding drivers and riders.