China’s shared bikes are ready to merge into the car lane. A slew of two-wheeled ventures have exhausted investor cash and municipal patience. Left standing will be market leaders Mobike and Ofo, both valued at over $1 billion. Instead of uniting in 2018, though, they will tie up with the likes of taxi app Didi Chuxing.
These custom-built rides solve a common urban problem: the trudge from a train or bus stop to a final destination. By building GPS transmitters into frames, entrepreneurs freed them from fixed docking stations. Instead, the apps locate a bike and unlock it with a mobile payment. It can be abandoned anywhere for the next user. They are now ubiquitous in Chinese cities.
A flood of cheap capital swamped the industry, however. At one point, there were around 40 companies competing to be this next big internet-of-things thing. Local officials, annoyed by bicycles clogging walkways, cracked down. The biggest companies started hogging funding rounds. A die-off duly began. Bluegogo, with over 15 million customers, shut down in late November, and others have folded since.
Some earlier-stage investors in Mobike and Ofo have pushed for a merger to create a market giant. That would be diplomatically tricky. Mobike is backed by Tencent, while Alibaba, which is battling Tencent over mobile payments, is invested in Ofo by way of its Ant Financial affiliate. Operational integration also would require retrofitting millions of bikes.
Nor is it necessary. As competitors fall away, the pressure to eat into profitability with subsidies will ease. There are also untapped revenue sources to exploit, like in-app and on-bike advertising, plus reselling user travel information to retailers and the like. Both companies are already expanding into higher-margin markets overseas.
Integrating with complementary apps makes more sense. Doing so would help them find new users and retain existing ones, while deepening data collection on their behaviour. Look for Didi, which is also funded by Ant, to start by acquiring Ofo. Mobike is already exploring a ride-sharing partnership, as is Shanghai-listed Youon Technology. They might also link up with home-sharing apps like Tujia, the domestic version of Airbnb. China’s sharing economy is better off shared.