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Alibaba backs Ofo in China's bike-sharing fray

E-commerce leaders pick sides, winners as new services emerge

Bicycles typically rent for 1 yuan per half-hour in China's competitive bike-sharing field.

SHANGHAI -- Bike-sharing company Ofo will receive $700 million in funding from a consortium led by Alibaba Group Holding, the latest example of China's e-commerce leaders investing in rapidly growing emerging services providers.

Chinese media report that the consortium includes a fund affiliated with Citic group. Investment ratios have not been disclosed.

Beijing-based Ofo announced the funding Thursday. The company, which has 6.5 million bicycles in over 100 Chinese cities and elsewhere, will use the new capital for expansion to 20 million bikes spread across 200 cities and 20 other countries by the end of 2017.

Bike-sharing will become a universal service worldwide, CEO Dai Wei said.

Last month, rival Mobike raised $600 million in financing led by another Chinese e-commerce powerhouse, Tencent Holdings.

More companies are entering the bike-sharing market. But because each offers virtually the same service, they compete almost exclusively on price. Bicycles typically rent for 1 yuan (15 cents) per 30 minutes, but bike-share companies run incentives offering free rentals. As one Shanghai resident said, "I use these services daily but haven't paid anything for several months."

With the entire industry locked in a battle of attrition, some companies already are withdrawing, including two startups that announced their departures last month. Ofo and Mobike each hope to topple opponents through aggressive campaigns supported by enormous capital procurement, making it very likely that these two will be the last survivors in the Chinese bike-share market.

When a service becomes popular in China, new participants often dive into the market, giving rise to excessive competition. In many cases, Alibaba or Tencent invest in emerging companies that are the first to flourish.

For example, Tencent offers an online fresh foods market through group member, while Alibaba has invested in up-and-coming competitor Hema Xiansheng. The battle lines are similarly drawn in video distribution and catering apps, which let customers order home delivery of meals by smartphone.

By adding new services to their respective platforms, Alibaba and Tencent enhance customer convenience and increase reliance on their services. In turn, the startups get much-needed capital and can anticipate synergies with existing services such as online payment provided by the two big e-commerce companies.

But some observers warn of harm from Alibaba and Tencent ultimately turning new service fields into oligopolies. In the ride-share and taxi-hailing app field, Alibaba and Tencent each invested in a company, but those two businesses merged. The resulting company, Didi Chuxing, purchased the Chinese operations of U.S. rival Uber Technologies in 2016, creating a virtual monopoly. Customer convenience has been sacrificed, as evidenced by fare hikes.

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