Bike-sharing has taken off in China far faster than in any other market where it's been offered. The unexpected popularity of the services has attracted lots of investment capital and media coverage. However, it is also raising questions about profitability, wide-spread bike vandalism and theft, and growing government regulation. Hype, scrutiny and liquidity have overwhelmed a nice, convenient and surprisingly popular service.
Why did bike-sharing take off so rapidly in China versus other countries, especially when bikes could already be purchased here for as little as $7? Chinese services like Mobike and Ofo are entering markets overseas like Singapore, London and Silicon Valley, but will they catch on more than previous attempts there? Could these services all be a fad?
Venture capitalists and entrepreneurs tend to think in terms of problems to be solved. Usually if new technologies or business models are rapidly adopted, it is because they address a long-standing problem, remove an inconvenience or "pain point", or offer a cheaper alternative to an existing service or product. In each case, the demand is already there and adoption can take place fairly quickly. So one possible explanation for the rapid adoption of bicycle-sharing in China is that it is solving a real problem.
It is worth noting that there is no actual new technology involved in bicycle sharing. It is a business that was enabled by the widespread adoption of smartphones and mobile payments in China alongside the falling cost of GPS devices. The real innovation was the creation of a new business model that enabled bicycles to be rented on-demand by phone and then left anywhere, without the fuss of docking stations. This has proved to be a particularly convenient way for getting around large college campuses, in the case of Ofo, and within dense cities like Shanghai for Mobike. The services have also turned out to be useful for getting home from the subway, among other situations.
However, is this solving a real problem? Much of the bike-sharing hype has cited transportation problems such as the often standstill traffic of Beijing and the crowded subways of Shanghai. As urbanization continues, another 300 million Chinese will be living in cities within the next 8-10 years so sharing could be part of a solution to this big macro problem, but I simply don't see bike-sharing having a significant impact on Chinese urbanization or transportation.
Another problem that bike-sharing addresses is what to do with your bike if you ride it somewhere. If you take your own bike out of your apartment to ride, you will need to eventually park and lock it and later take it back home. Bike-sharing can obviate these issues and enable more convenient and frequent riding. That is a convincing argument, but does this explain why bike-sharing is so much more popular in China than in other similarly crowded countries?
Impulse rentals?
Perhaps bike-sharing is more about enabling impulse spending, as with vending machines. Vending machines usually don't solve a particular problem. If you want a Coke, you can generally walk into a store to get one. But vending machines enable you to make impulse purchases with small change if you pass by one. Similarly, a Chinese commuter who gets off the subway and sees a Mobike may impulsively decide to spend 1 yuan to save walking three blocks home. Why not?
This is a reasonably convincing explanation for bike-sharing's popularity in China. But city bike programs have been around for almost 20 years and there have been over 600 launched worldwide. There were fixed-station city bike programs in Shanghai and Beijing for many years prior to the recent explosion of bicycle-sharing. So why the recent surge?
In the past year, Chinese have started to do everything on their phones. This is what has really been changing recently. They are paying bills with Tencent Wallet from Tencent Holdings. They are paying at stores with Alipay, the service affiliated with Alibaba Group Holding. They are sending friends hongbao, gifts of small amounts of cash traditionally made using red envelopes.
Chinese consumers have adopted mobile services like virtually no other population has over the past few years. In particular, they have adopted mobile payments in staggering numbers. The average American pays with credit cards, debit cards and other non-cash payments an average of 20-30 times a month. The average Chinese consumer now pays using a mobile phone over 50 times a month.
So maybe the Chinese bike-sharing boom is more about smartphones than bicycles. I would say this story is 60% about popular smartphone apps, 20% about enabling impulse purchasing and 20% about solving an actual problem.
This means there is a significant risk that bike-sharing may be largely a fad, with users soon moving on to the next hot mobile app. That does not mean bike-sharing demand will drop to zero, but maybe the growth investors are counting on will not occur. Or maybe demand will drop back to what follows from just impulse purchasing and a few specific problem situations, like transport around college campuses and central business districts.
I think this is the biggest worry. Chinese consumers are notoriously fickle and winners and brands rise and fall in this market quickly. If the bike-sharing boom mostly reflects these characteristics of Chinese consumer behavior, then leading operators like Mobike and Ofo may stand little chance of repeating their success overseas, disappointing investors hoping for the next Didi Chuxing.
Jeffrey Towson is a professor of investment at Peking University's Guanghua School of Management, keynote speaker and co-author of "The One Hour China Book."
