Bike-Sharing in 2017: Industry Starts to Transform from Crazy to Rational

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Business that target the sharing economy – especially shared bikes – have been the darlings of investors since 2015. Bike-sharing came to public attention in September 2016, and it has grown increasingly popular in the months since. The market entered a shakeup in June 2017, and it has completed the transition from rapid expansion to steady growth.What happened to the bikes industry in the 2017 and how will it develop?

Ranks: Changeable

The number of shared bike users hit 209 million in 2017 – a market worth some 10.28 billion yuan, according to the iMedia Research. By 2018, the number of users will reach 298 million, and the market size will be 17.82 billion yuan. By 2019, the number of users will reach 376 million, with a market size of 23.68 billion yuan.

Source:iMedia Research

Both user scale and market size keep growing. The rankings of bikes enterprises is changing as well. In the App Store, the top six providers are Mobike, Ofo, Hellobike, Mango Bike, Yong’an and Xiangqi. Among them, Xiangqi and Mango share electric vehicles.

From the number of active users in 2017, Ofo accounted for 26.9 percent and 59.9 percent in first-tier cities and major cities respectively. Mobike accounted for 29.2 percent and 56.2 percent in the first-tier cities and major cities respectively. The two giants accounted for nearly 90 percent of all users in the first-tier cities. In addition, as of September 15, 13 cities in China have prohibited the introduction of new shared bikes. Beijing, Shanghai, Guangzhou, Shenzhou and other populous first- and second-tier cities are among them.

As a consequence, growth in shared bikes enterprises depends on deployment in third- or fourth-tier cities. Ofo has laid claim to many fourth-tier cities, with service available in some 200 cities in China.

The strategic shift has been favored by investors. On December 4, Hellobike completed $350 million of D1 round financing. Its investors were Ant Financial, Weltmeister, Chengwei Capital and For Star. That Hellobike can get large financing in this reshuffle stage has proved that its practice of focusing on third- and fourth-tier cities is forward-looking with strong market prospects.

Financing: Song of Ice and Fire

Financing information shows the money favors giants. Mobike has accumulated about $1.2 billion in financing; Ofo has raised about $1.45 billion; Hellobike has received $350 million of D1 round financing.

On the other hand, some bikes companies have collapsed. When the capital market cools, it’s hard for second- and third-tier players to threaten Mobike and Ofo. It’s also hard for them to attract investment. As the operating cost is too high, the innovation is insufficient, and profit model is unclear, startups that run out of money are doomed to collapse.

Trend: Rotating Hot Issues

For now, despite the unpleasant situation in the shared motorcycle market, Xiangqi and Mango dominate that segment of the App Store. Both companies are still rising.

According to data from Mango, its daily travel per city exceeds more than 100,000. It seems obvious that Mango is popular with end users. In addition, Xiangqi achieved the break-even point in Shanghai in July. It appears motorcycle sharing may be profitable even as bike sharing businesses make up for their huge losses with massive financing.

Mobike and Ofo are developing an electric motorcycle business to cash in on this segment.

Mobike has launched electric motorcycle service in Shaoxing, Zhejiang Province, targeting users who need to travel distances of 3km to 10km. Ofo revealed its own electric vehicle prototype at the end of June.

The two giants have undoubtedly driven the electric motorcycle market. According to the survey, the market has a demand for sharable electric bikes. Mobike, Ofo and other enterprises have strong technical and operating abilities. Once policy allows, their electric motorcycles will soon be available on the road.

Layout: Expanding from Beijing, Shanghai, Guangzhou

With industry growth and expansion, now in first-tier and second-tier cities, the shared bike market is saturated. But third- and fourth-tier cities still have large market potential. Operating ability and brand image will have an impact on industry structure. The competition in the industry is far from over.

According to the China Academy of Information and Communications Technology, a number of shared bike companies have completed their rollout in first- and second-tier cities and are beginning to turn to third- or fourth-tier cities at a slower speed.

In addition, the overseas market offers high growth potential. Take Ofo as an example, which has entered the United States, Thailand, Spain, Australia and more than 250 cities in 20 countries.

Development: From Expansion to Stability

The Report on Sharing Bike Industry Development Index found that bike-sharing has exploded in China since October 2016. The shared bikes permeability index, which reflects the popularity of bike sharing in China, grows nearly eight times per year. The index grew especially fast from March to June 2017, and slowed gradually after July.

The report also found that China’s shared bike development index in the first three quarters of 2017 reached 207, 351 and 374 respectively. The higher the index, the better the development. The index growth rate in first three quarters was 107 percent, 70 percent and 7 percent quarter-on-quarter. It shows the explosive growth has ended and the industry as a whole has gone into steady growth.

Source: China Xintong Hospital

The analysis points out the slowdown in the third quarter was mainly due to the deceleration of both supply and demand. However, venture capital is still optimistic about the industry, and the rapid increase in total investment and financing has kept the index growing rapidly.

Conclusion

Statistics show that China’s sharing economy had 170 billion yuan of financing in 2016. Up to 600 million consumers have participated in the sharing economy. It is forecast the industry’s market capacity will be equivalent to 10 percent of China’s GDP in 2020. It is also predicted that China’s sharing economy will grow by 40 percent in the next few years.

An industry insider said there is still opportunity in the sharing economy. But the fever has cooled as platforms break down, investment eases and capital becomes more rational.

Liu Chunyan, an associate professor at the Law School of Tongji University, said the sharing economy in the future should be both developed and standardized. The industry recommends, in terms of policy, that local governments should implement open and inclusive management, reasonable planning by means of market regulation, and the establishment of an enterprise exit mechanism to safeguard user rights.

For enterprises, they should strengthen data mining and utilization, accurately match the supply and demand, improve the bike utilization rate and cooperate with the government to manage bike parking. In addition, enterprises should build their persona. Based on this, enterprises should explore new profit models, promote revenue growth and realize corporate profits.

Finally, in terms of investment, the sharing industry still has market potential and great value for investment. But investors must avoid the investment war to prevent a bubble.

This article by Sihan originally appeared in CNR and was translated by Pandaily.
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