Weblog with daily updates of the news on a frugal, fair and beautiful China, from the perspective of internet entrepreneur, new media advisor and president of the China Speakers Bureau Fons Tuinstra
Bike-sharing firms like Mobike and Ofo might work out, explains Jeffrey Towson, investment professor at the Peking University. "It is unusual but not crazy," he tells about the pervasive marketing strategy of bike-sharing. Independent assets moving around might just be the new thing.
For users, the cost of a ride is a pittance – about one yuan, or 15 US cents, for an hour – with much cheaper deals available. In a recent promotional campaign to lure riders from its competitors, Mobike offered unlimited rides for three months for only five yuan. Rival Ofo has a similar inventive scheme.
Despite the unattractive economics, Jeffrey Towson, an investment professor at China’s elite Peking University, said bike sharing is “definitely not a fad”.
“The economics of the business are becoming clearer. Rental revenue is still the foundation. Advertising revenue may be part of the picture,” he said. “Some Ofo bikes, for example, have had Minions advertisements on them. And perhaps delivery and e-commerce revenue will come in the future.”
While Towson is bullish on the industry’s business prospects, he is not confident that more than a couple of companies can peacefully coexist.
“If it was in the United States, I think it could end up as giants with many smaller players coexisting. But there seems to be a Chinese phenomenon to eliminate the competition by taking over the entire industry,” he said.
One example in the car hailing business was the fierce rivalry between Didi Dache and Kuaidi Dache. In 2015 they merged to form Didi Chuxing, which absorbed Uber China the following year, becoming the only dominant player in the mainland Chinese market.
“Investors tend to step in to stop a price war because it is their money. It is better to spend the money on growth than fighting each other,” Towson said.
Bloomberg first reported in October that Ofo and Mobike were in merger talks, but neither company would confirm the speculation. In November Zhu Xiaohu, a tech sector venture capitalist and early investor in Ofo, called for such a merger during a forum attended by Mobike co-founder Hu Weiwei.
Despite pressure from investors, there is no sign that the two bike-sharing giants will merge any time soon. Ofo is raising another US$1 billion from investors, including Alibaba, and is expected to put any proposed merger plan with Mobike on hold, according to a number of news outlets, citing market sources. Ofo has declined to comment.
“The merger of Ofo and Mobike is going to be a big topic of discussion in 2018,” Towson said. “But [whether it happens] depends on the availability of capital … and in China there is a lot of capital.”
Emerging startup Shanghai Mobike expanded to Beijing, to the delight of its citizens. But while accounting professor Paul Gillis likes and uses their service, he does not see how this VC-financed operation is going to make any money, yet, he writes at this weblog.
Paul Gillis:
Mobike offers bike rentals, something I can use to avoid Beijing’s heavy traffic. Mobike’s app opens to a map that shows me the nearest bikes to me, usually only hundred meters or so away. I can then reserve the bike, follow the map to find it, scan a QR code on the bike and the bike unlocks itself.
When I am finished with it I park it anywhere I wish, push a switch to lock it, and get charged 1 yuan per half hour – essentially free. I paid a depost of 299 yuan using my Wechat pay account – another amazing app.
Mobike as 10,000 bikes in Shanghai and 3,000 in Beijing and is adding hundreds every day. I have not had a problem finding one in Beijing, although they are scarce during rush hour.
Mobike is VC funded, and the business model makes no sense to me. Each bike costs 3000 RMB – they are quite sturdy and some complain about the weight and lack of adjustability. At that cost it is estimated that it will take 25 months to recover the cost of each bike if each does four trips a day. That creates an interesting accounting problem. It appears the bikes are impaired as soon as Mobike puts them into service, necessitating a writedown, because the expected discounted future cash flows are significantly lower than the cost to build them.
I can’t see Mobike doing a successful IPO. Some suggest it may be acquired by one of the ride sharing apps, but that does not make much sense to me either. I think the business model only becomes viable if they transform the company into a software company and sell services to governments around the world to start their own bike sharing operations.
Many cities have bike sharing, (Beijing has 50,000 bikes in its program) but they usually use fixed locations and payment can be challenging. Mobike could provide a turnkey solution for cities that want green transportation, and that might be a viable business.
