China is home to an interesting sharing economy phenomenon: bike-sharing startups. And boy, are they successful.
Backed by the likes of Tencent and Alibaba, the startups are using huge sums of venture investments to finance their expansion around China and across the globe.
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Ofo announced earlier this year that the startup is worth more than $2bn, reaching a cozy unicorn status.
This week, it also said it has raised more than $700m in its latest funding round, the largest amount raised by a bike startup in the country.
The round was led by Alibaba Group, as well as additional investment from its current investors including the ride-sharing firm Didi Chuxing.
Alibaba’s executive vice chairman, Joe Tsai, said:
Ofo is the industry leader and we support its open platform strategy.
The Beijing-based company has over 3m bikes in more than 50 Chinese cities. It isn’t happy with just staying on home soil, in an interview with CNBC, chief executive Dai Wei said it is targeting expansion to 20 countries before the end of 2017.
“We think bicycle is the global language,” said Dai.
It introduced around 20 new bikes to Cambridge in April, as part of its new growth plans in the UK.
In June, Mobike announced it has raised $600m in a financing round led by Tencent Holdings, bringing the total it has raised since last October to $900m.
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Known as Ofo’s biggest competitor, it has operations in around 100 Chinese cities as well as Singapore, recently launched in the UK cities of Manchester and Salford, and has now found a home in Italy, in the cities of Florence and Milan.
Mobike’s chief executive Davis Wang, said it will use the money to push forward on this expansion.
We will accelerate the pace of global expansion and our new target is to be in 200 cities by the end of this year.
The startup only recently celebrated its first birthday, and launching in April 2016, but has achieved major success in China, thanks to its ties to Tencent, which owns the social messaging and payments platform WeChat.
Mobike has integrated features into the ever-popular app, which has helped it grow to 100m users and supporting about 25m rides a day.
Ofo and Mobike are different to bike-sharing initiatives like the Santander Cycles in London in that there are no docking stations.
This is supposedly better for users as it means they can leave the bikes wherever they want when they no longer use them; however this has allowed the bikes to be subject to their fair share of vandalism.
After launching earlier this year, Bluegogo placed 70,000 bikes on the streets in three cities across China. Like Ofo and Mobike, its vehicles are station-less, except in San Francisco.
However, unlike its other two competitors, the company has its own manufacturing plant and partnerships with eight other factories which allow it to produce 10,000 bicycles a day.
This and the $34m it has raised in funding means it won’t be long until Bluegogo manages to catch up with Ofo and Mobike.
The company’s vice president of operations manager, Hufei Yu, told Mashable that the manufacturing cost of each bike is less than $300 and the vehicles bring in a daily revenue of around $1 per bike.
“After the first three months, everything is profit,” said Yu.
What has facilitated this growth?
Aside from the venture capitalists pouring money into the startups, people are using them in China as a replacement for public transport, mainly because they’re so cheap.
A marketing executive, Judy Zhao, told Quartz:
It’s about 20 minutes to ride [from my office to home], so I only need to pay 0.5 yuan (about $0.07). It’s cheaper than public transportation.
According to Quartz, around 30 bike-sharing companies exist in China now.
But, that doesn’t mean that the company is enjoying this mode of transport. An opinion piece in China Money Network by Nina Xiang, complained that there are now too many bike-sharing brands.
“Why can’t businesses in China stop ruining a creative idea? Why must they copy to death and spoil something so innovative?!” wrote Nina.
For a newly created market, user education and habit formation are critical in the sector’s future growth. The existence of far too many seemingly identical products can confuse consumers. These are commodities with no differentiation. With companies focused on competing for market share, they may forget the more important goals: to innovate and to make people’s lives better.
With the levels of funding, however, it doesn’t look like the proliferation of bike startups are going to slow down anytime soon.