Regulation Looms In Booming, Competitive Bike-Sharing Space

In July Crunchbase News explored the booming dockless bike-sharing industry. We found that ofo and Mobike were its leading players, with a third competitor, Bluegogo, trailing far behind the pack.

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With hefty goals for the end of the year, and a rumored billion dollar deal in the works, ofo, Mobike and their competitors leaped into quarter four with high hopes.

But the numbers and events of the last three months show that dockless bike-sharing industry players and their backers might be in need of a reality check.

The Numbers

According to Crunchbase data, the beginning of 2017 brought a huge jump in the number of known funding rounds in the dockless bike-sharing space.

The number of known funds raised increased significantly from 2016 to the early months of 2017, jumping from around $174 million to $735 million. The second quarter included a notable $600 million Series E funding round led by Tencent for Mobike. Quarter three saw a huge 700 million dollar Series E funding round for Mobike’s main Alibaba-backed competitor, ofo. (Mobike did not provide comment by the time of publication.)

This fundraising momentum did not carry into the fourth quarter for ofo and Mobike. The space did not see the rumored $1 billion dollar fundraising round led by Japan’s Softbank Group, nor did Didi Chuxing join in this effort.

The fourth quarter saw a slight decrease in total known funding amounts from the previous year. It consisted of a Series B funding round in December for the U.S.-based dockless company, Limebike, and a private equity round of an undisclosed amount for Mobike. The majority of the known almost $553 million raised in the quarter, however, came from two Series D funding events for Hellobike.

Ant Financial-backed Youon Bike acquired Hellobike in October 2017. Youon Bike is a Jiangsu-based bike sharing platform, but unlike its newly acquired subsidiary its users picked up and parked their bikes at docking stations. In early December Alibaba-subsidiary, Ant Financial, led a funding round that brought in $350 million for Hellobike. Later in the month, Shanghai-based Fosun Group led a round that raised nearly $153 million to round out the year for the company.

These massive funding rounds point to the willingness for Chinese investors, like Alibaba and Tencent, to direct money into this space to increase market control. Tencent-backed Mobike and Alibaba-backed ofo already constitute a reported 95 percent of the Chinese dockless bike-sharing market. As recent events point out, surviving in the competition against Mobike and ofo without a deep-pocketed group as support has proven to be a big challenge for smaller dockless startups entering the space in China.

What Happened To Bluegogo?

In July, we discussed Bluegogo’s struggle to attract big investors. Following our report, the company continued to face problems with fundraising in the third quarter and ended up ceasing operations in November while other small dockless bike-sharing startups, like Mingbike, followed suit.

Because of the nature of both the dockless sharing platform and competition, companies in the space require extensive capital to function and, especially, keep up with industry heavyweights. Unlike traditional ridesharing platforms, like Uber or Didi Chuxing, for example, riders do not make use of their own or other individuals’ machines. Instead, the company must bear the costs of manufacturing and servicing bikes themselves. In an industry where expansion combined with low costs for participation is the primary means of gaining users, and dominating the market the only goal, endless monetary support is key.

So what happened when companies like Bluegogo and Mingbike came into the fold and adopted the same strategy (minus a bag full of money)? They crashed.

As it turns out, as the company’s leaders realized that they had set out with a, frankly, poorly thought out business plan, they scrambled to bring in more funds to cover costs, laying off workers in the process. When customers started asking for their deposits back, that’s when people started disappearing. According to the China Money Network, the founder of Bluegogo, Li Gang, fled to an “unspecified country” after facing liquidity problems and complaints from users.

Despite this failure, there are rumors of hope for Bluegogo. The rideshare company, Didi Chuxing, is reportedly looking to acquire Bluegogo this year, which would effectively bring it back into the fold and possibly give ofo and Mobike a run for their money. (Bluegogo and Didi did not provide comment by the time of publication.)

Even so, mounting regulatory concerns in China could hinder this competitive effort and the growth of the dockless bike-sharing market altogether.

Regulation To Halt Growth?

When Uber and Didi started offering their ride-sharing platforms in China, they immediately faced legal hurdles to operation and tension with local governments. Their platforms disrupted the local taxi service industries which prompted taxi drivers to mobilize and strike.

During their establishment in China, however, dockless bike sharing platforms did not face a similar backlash. Instead, the platforms offered the potential to assist in providing more environmentally friendly and convenient services to civilians who required only short distance rides home or to public transportation stations. However, piles upon piles of bicycle graveyards have since appeared in urban areas, giving rise to complaints of congestion and misuse. The annoyances of the dockless bike-sharing platform have started to outweigh its benefits for the Chinese government.

According to Xinhuanet, the national-level Ministry of Transportation issued general guidelines and suggestions for bicycle sharing companies to curb problems for congestion, misuse of deposit funds, and unsafe use of bicycles. These suggestions include an age limit of 12 for users, electric parking fences, and restrictions on deposit collection. Later in August, the People’s Daily, the Chinese Communist Party-sponsored media, released an article berating the bike sharing industry and instructing companies to heed the demands and needs of its users.

Local Chinese governments have already begun instituting tighter regulations. The Shanghai transportation bureau has called for bike sharing companies to halt the addition of new bikes into the city, as well as the relocation and collection of bikes that were misused or improperly parked. Similar demands have emerged in Nanjing and Guangzhou and in other cities, where governments have also called for real-name user registration as well as further integration with the local transportation authorities.

Ofo has begun to address these concerns by increasing the number of bicycle relocation service trucks in circulation, as well as instituting a blacklist for customers who misuse or carelessly park bicycles. A spokesperson for the company stated that it “supports smart regulations that protect public safety and promote innovation and consumer choice, while not being overly onerous for this new and quickly growing industry.” However, the caps on bicycles by local governments and other regulations point to a potential for a shift in focus away from unending expansion. As ofo and Mobike expand globally, the lessons learned could inform their strategy for entering the U.S. market.

Looking At China, U.S. Governments Are Wary Of Consequences

U.S.-based bikeshare companies Spin and Limebike are taking on the China-based ofo and Mobike domestically, but regulations will likely not allow the uninhibited explosion of bicycles on city streets like in China.

Spin reportedly canceled their opening in Queens after receiving a cease and desist letter prior to the event. Similarly, Limebike is beginning to see issues in Dallas, after citizens have started to complain about bikes strewn carelessly on sidewalks and in other public areas. Ofo already faced backlash at the University of California at San Diego in April, after the university kicked the company off campus following an unapproved trial run that resulted in haphazardly parked bikes and campus confusion. Spin replied to a Crunchbase News inquiry confirming that after the ofo situation at UCSD “Spin is now operating an officially sanctioned stationless bikeshare program on the campus.” (Limebike did not provide comment by the time of publication.)

If expansion is not the name of the market grabbing game in the U.S., we may see companies increasingly partnering with local governments and influencers to take over this part of the western sphere. Huge investments and uninhibited spending might not be the winning ticket for ofo and Mobike. We may begin to see other factors like design and comfort play more of a factor in the sphere. Furthermore, players like Limebike and Spin might have a competitive home-field advantage that smaller players in China did not.

Update: After publication, ofo got back to us saying that the company is “always working to enhance the customer experience and offer the best possible service,” and that it intends to collaborate with local governments and focus on rapid expansion in the U.S. this year and expects profitability to grow.

Top Image Credit: Li-Anne Dias.