Bike-sharing: Is it Uber lite or just a passing fad?

Attendees at this year’s World Internet Conference in Wuzhen discussed the potential of the emerging bike-sharing market in China. The market leader Mobike’s CEO Wang Xiaofeng spoke on how the bike-sharing app can change the landscape of the sharing economy. Last week, a new player in bike-sharing, the Beijing based startup SpeedX, announced that it just closed USD 21.6 million financing for its Bluegogo bikes. Apparently, new bike-sharing companies in China are having no trouble finding investors. Yet, even with the flow of money there is yet to be any real conclusive data that shows how these companies will profit.

Can Mobike turn a profit?

China’s bike-sharing pioneer Mobike secured USD 100 million from a handful of investors, including Tencent, in September. It aims to spend a large portion of its funding on bike design to avoid costly maintenance in the future. Their bikes have remote locking, electric generation and GPS; their cost is roughly USD 435 per bike. Mobike charges USD .07 per half hour of use. If a bike is used on average four times a day, Mobike needs 4 years to recover the bike cost. This raises the question: how long will each bike’s lifespan be? Mobike has made it easier for users in that they don’t have to lock up at docking stations. They are allowed to park them at their final destination in a location such that other Mobike users can then find the bike.

My friend Claire is a white-collar worker in downtown Beijing. Her daily commute included walking 20 minutes to and from the subway, until she discovered Mobike. Even with Mobike, her problems continued. “It’s not the problem of Mobike itself,” she said. “Actually, it’s the people who are using it. You know what, people hide the bike in their office, and they even carry it to the elevator!”

This situation is one that Mobike users face every day. Bicycles locked in apartments, hidden in the bushes, chained to the railings, and one case of a bike thrown into the river in Shanghai. These complaints have flooded social media. Mobike should take proactive steps to solve this issue. How can they improve user experience and avoid loss? One option is that they could change the renting rules, or employ more frontline workers to control the placement of bicycles.

Ofo claims that it has turned a profit

Mobike’s direct rival, ofo, announced USD 130 million in funding from investors, including China’s No.1 ride hailing app, Didi Chuxing. Ofo’s bikes cost a tenth of what it costs to produce one Mobike. “Unlike many others who thought that bike sharing is an area in which it is hard to make a profit, ofo has made it in over half of our markets, with plenty of cash flow,” Dai Wei, ofo CEO said. “We don’t even use the investors’ money.”

Ofo’s strategy has been to concentrate its efforts on university campuses. This allows for a higher concentration of bikes in set locations, which leads to increased usage.

Assuming the same frequency of use as our Mobike example, ofo bikes only take five months to cover the cost of their bike. With the increased speed comes increased risk: Ofo bicycles are cheaply made and more likely to be damaged. If ofo can plan for each bike to be in circulation for a year, they can show profit on the balance sheet. It’s just a matter of the longevity of each bike. If user numbers keep rising they should continue to receive more investment, enabling them to launch in new cities.

But then again, what if user growth becomes sluggish? What are ofo’s actual ongoing costs to keep one of its bikes on the road for a year?

Other avenues for profit: ads & big data

Bike sharing companies could find a way to add advertisements to their apps. Once the initial flurry of competition dies down, the market will become saturated with these bikes. The novelty of these bikes will fade as well. These companies can entertain the idea of adding mobile advertising to their platform.

A comparison with other bike shares worldwide

Currently there is no bike share system in the world that makes a profit. In China, Hangzhou bikeshare has the most bikes in any system. It’s a government-run program that has been in place for over eight years, kept going with millions of dollars of government subsidy. It has over 3,000 bike docking stations, with 80,000 bikes in its system. Last year the Hangzhou system had their best year financially, only losing five million RMB. The New York City bike-sharing program is sponsored by CITIBank, and loses millions of dollars each year. YouBike in Taipei was given free bikes from Giant along with government subsidies, and they are still unable to turn a profit.

(Top photo from Flickr)

Billy Wei

Billy Wei is our columnist. She has rich experiences in both media and marketing industry, building projects related to consumer insight, digital marketing and business strategies in Nielsen and WPP. She co-founded a green kitchen brand for eco-friendly kitchen solutions before. She holds a BA in MIS and MBA at the National School of Development of Peking University.

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