Ofo- Stationless Bike Sharing

When I head back to China last summer, there are dockless bike everywhere. As the name suggests, they are bikes without docking stations which can be parked aside of streets. Dockless bikes can be located and unlocked with a smartphone app. The price is also very attractive, one can ride a bike with 0.5 yuan /30min after paying 299 yuan for security deposit. Security deposit can be waived with a high credit score. With promotions, one can almost ride a bike for free.

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The idea is favored by a large group of people because stationless bikes bring a lot of convenience to our life, solving the problem of “the last mile”. Just a side side note,  “the last mile” or “last kilometer” is a phrase that is widely used in tech industries. The term refers to the final leg of networks that deliver services to retail end-users, typically the speed bottleneck whose bandwidth limits the service to be delivered to customers. In this case, just think of a situation where you want to get to a place that will take you too long to walk and too expensive to get Uber. Dockless bikes also bring a “green” lifestyle, since riding bicycles is considered environment-friendly.

A good business idea like this is easy to scale, but is also easy to be copied. A new market was quickly formed for Dockless bikes, consisting numerous competitors, among which Ofo and Mobike are companies with top 2 market share.

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History

Ofo is founded in 2014 by five members of the Peking University cycling club. It was first a project that focused on bicycle tourism before deciding switching to bicycle sharing. Ofo was launched in June 2015 in Beijing. It started in college campuses, and then acquired 20,000 users and 2,000 bicycles by October

In 2016, ofo strived to expand aggressively to other cities in China, announcing a fleet of 85,000 bicycles by the end of the year. In September 2016, the company successfully raised $130 million in investment funding from tech companies Xiaomi and Didi Chuxing so that the company was able to expand overseas. A Series D was then followed in February 2017 whose leading investors are Didi Chuxing and Russian investor Digital Sky Technologies with amount of $450 million for ofo. The company was valued at $1 billion at that time. In 2017, Ofo launches in a series of cities including Singapore, Cambridge in United Kingdom, Seattle in United States and Sydney in Australia. With aggressive expansion and promising potential, ofo received $700 million of additional funding in a round led by Alibaba, Hony Capital and Citic. As of 2017, it manages to operate more than 10 million yellow-colored bicycles in 250 cities and 20 countries, being valued at $3 billion and has more than 62.7 million monthly active users.

WechatIMG48(Last fall, ofo also had beta-testing in Worcester, but I somehow witnessed one ofo bicycle in downtown crossing. Very exciting!)

Hurdles

While Ofo is getting aggressive expansion, it is facing severe hurdles at the same time. On the one hand, there are more and more restrictions from government regulation. The competition with China’s bike-sharing boom is fierce. Competitors like Mobike, Bluegogo are intensively getting more market share. Yet the technology in stationless bikes is not rocket science, so customers do not have high switching cost. That means it is a competition of burning cash after all, leading to the massive number of bicycle laying around the street, blocking walkways for passengers. The government came to interfere when  the seriousness of walkway blocking to a certain extent. Some cities declared that no more stationless bikes are allowed. On Aug.18, the municipal transportation bureau of Shanghai released a notice demanding that new bikes are refrained from the city. According to the data, Shanghai has 1.5 million sharing bikes on streets – roughly one stationless bike for every 16 residents. Bike sharing companies were accused for aggressively relocating pikes, letting them parked and scattered carelessly across the city. The act was following up directives in other smaller cities including Nanjing, Guangzhou and Zhengzhou. Bike banning is intended to let companies calm down and strategically make rational expansion. It has to be a saturate number for stationless bikes in a city.

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On the other hand, the bike sharing business also caused dispute from “Uber” model business. Didi, the company that acquired Uber China has a lot of drivers got furious due to the fact that sharing bikes like Ofo is taking away their business. Some of them made irrational decisions such as throwing bikes into rivers, destroying bikes by taking them into parts. Moreover, some customers with little social responsibilities tried to take bikes for their own, such as breaking smart locks, hiding bicycles in their own places. Therefore bike sharing companies are experiencing great risks in theft and property damages, resulting in huge expense.

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What’s next?

A spokesperson from Didi, Ofo’s leading investor stated that the company is actively “carrying out relevant work in accordance with government requirements.” Another prominent player, said it “fully respects the regulations the government has introduced” and has always been “in full consultation with the local governments and the public.” At the same time, the company is more focused on the product itself. It recently released version 3.0 that makes bicycle easier to ride. There are some twists in the product such as making special versions for women, and releasing limited edition bicycles by partnering with a certain movie promotion. Furthermore, ofo will continue expand overseas, trying to gain more market share worldwide.

My insights

Overall my user experience of ofo is smooth. It is slightly different from the regular bike since the tire is hard comparing to regular tires with air pumping into them. Therefore it is not good for long distance riding. I can understand the company is making every effort taking as many market shares as they can, while taking up passenger way is a serious no. I think the company is still having a long way to go with expansion overseas. For example, helmets are required in some states in U.S. In Seattle, there are big slopes which makes rider extremely hard. People in U.S still tend to have more tendency to drive after all. Cultural difference and geographical difference will be problems to consider.  

As for its business models, I think government regulations will cause financial drains to bike sharing companies like ofo. While ofo is relying on revenues generated from rides for now, it needs to adjust its business model to make it clear according to the regulation from government.

 

https://qz.com/1058438/chinese-cities-saying-enough-already-to-chaos-generated-by-bike-sharing-services-like-ofo-and-mobike/

https://www.forbes.com/sites/ywang/2018/01/26/after-bike-sharing-explodes-in-china-local-authorities-now-move-to-clamp-down/

https://technode.com/2017/11/30/mobike-ofo-merger/

http://www.thatsmags.com/tianjin/post/21403/ofo-releases-pikachu-bikes-in-china

 

 

 

6 comments

  1. Such a great idea but with disastrous consequences. In Adelaide the council runs the only service but it is free – so no competition

  2. Nice one, and just provide some different perspective on the subject, MY EXPERIENCE WITH OFO HASN’T BEEN SMOOTH AT ALL. 5 to 7 out of 10 times, my Ofo bike isn’t functioning: can’t unlock the bike, can’t adjust the seat height, chain loose, etc. Why am I still using it? Because it’s just a great idea, not just a business idea to share bikes. But Ofo, Mobike, and many other companies that want to jump on the hype-train need to slow down their expansions a little, in my opinion. For all the problems and issues mentioned above, I blame the overly aggressive expansion strategy, “throwing bikes everywhere they can” for ruining such a great idea. I really wish those companies could give a deeper thoughts on their business model, ecosystem, regulatory system to really provide a great platform and service. Not just, “here is a great idea, let’s monetize the crap out of it.”

      1. Exactly, there is a problem in its business model

  3. I think you detailed the development status of a very useful service well! In the case of bike sharing and monetization, I think such sharing companies could benefit from ad revenue within their app. A rider could be pushed a notification about nearby shops and restaurants after he/she arrives at a destination. These establishments would obviously be paying for brand placement within the sharing app. Other means of monetization could include the use of bikes as mobile billboards, with brands and businesses placed on conspicuous areas of the bike so that these brands would be easily seen when a rider is on the move. These are only some examples that I believe would be both profitable for the sharing company and unintrusive for riders.

    The most pressing problem that I find difficult to resolve is the volume of bikes on the road. Since Asia is a very heavily-populated continent, there will always be a need for a large number of bikes on the road in order to service everyone. The best option may be to ensure that there are a number of bikes in circulation that ensures the sharing company can charge a higher price for their use. Since this theory follows the standard laws of supply and demand, those who require a bike may be more willing to pay more for its use.

    In addition, many governments in Asia are cracking down on the number of vehicles on the road at any one time. This could also mean a reduction in the number of taxis and ride-sharing vehicles as well. With the reduction in vehicles and bikes available, it may be that people will become more willing to pay more for the opportunity to use a bike. In addition, shared bikes could be fitted with GPS transponders to track their location and use. Should anyone be found in violation of riding regulations (hiding bikes away, riding for too long, etc.) then that person could have their account suspended. By slightly changing the rules for bike sharing already in place, services that cater to bikers may yet have a chance at ensuring their long-term viability.

  4. Huh. I confess that I never thought of this, but it seems to make alot of sense as a business model. I guess the concern might be that a bunch would end up clustered in a spot where people like to ride a bike to, but not away from.

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