China’s bike-sharing sector reshuffles as smaller players go bankrupt

The winter for bikesharing startups in China has arrived for many companies other than Mobike and ofo.

On November 24, Guangzhou-based Xiaoming Bike reported that it had laid off 99% of its staff. The CEO also resigned, and the company’s actual controller could not be contacted.

Xiaoming Bike was not the only bike-sharing company to suffer this fate. Kuqi Bike, a Beijing-based bike-sharing startup that has for months had trouble refunding users’ deposits, announced on November 20th that Biker, a Chengdu-based rival, will take over its operations and maintenance.

Kuqi is the second bike-sharing startup that has handed over its business to Biker this month. The other one is Bluegogo, which claimed to be the third largest bike-sharing startup in China.

Xiaoming, Kuqi and Bluegogo’s closures deeply contrast with the quick international expansions made by Mobike and Ofo, the top two players in the industry. It is clear that the bike-sharing business has entered a time of serious restructuring.

Photo from Baidu Images.

Rumors about Bluegogo’s closing spread widely in November after the company stopped responding to requests from registered users to refund their deposits. Officials from Bluegogo posted messages on social media saying that they were selling furniture due to the closure of the company’s offices. Furthermore, Bluegogo’s call center became inaccessible.

As of October, in Beijing and Chengdu, the two most important markets for Bluegogo, the blue bikes were hard to find among the colourful shared bikes along the streets. Local media reported in November that, except for a few technicians who continued to work, most people had left the company. At the time, the company owed as much as RMB 200 million (USD 30 million) to more than 70 suppliers.

In an open letter on November 16th, Li Gang, founder of Bluegogo, said the company’s operations would be taken over by Biker under a strategic cooperation agreement the two companies reached. He also said that registered users would be able to ride the blue bikes for free after the transition and that he would try to clear up the arrear wages of unpaid employees as soon as possible.

Li, who was listed on the Forbes Asia 30 Under 30 list, said in the letter: “The bike-sharing market is full of challenges, and my mind is too childish and naive to succeed in the sector.”

In his explanation of the failure, Li said that no matter how many users enjoy riding the blue bikes, Bluegogo was powerless without diversified capital support or strong financial planning capabilities.

In fact, in early 2017 when the bike-sharing market was booming, Bluegogo once enjoyed an excellent reputation due to the outstanding user experience it provided. A key development strategy of Bluegogo was to maximize user experience.

Photo from Baidu Images.

The manufacturing cost of each Bluegogo bike was as high as that of each Mobike. Mobike spent more to make solid but chunky bikes in an effort to decrease the maintenance costs of those bikes after they were released to the market. Bluegogo’s high expenditures were spent on making more comfortable bikes for riders.

Mobike once released a line of low-cost bikes, Mobike Lite, when it was fighting to increase its market share. At the same time, Bluegogo insisted on launching its own advanced line of bikes, Bluegogo Pro, with multiple gears.

The cost of a Bluegogo Pro subscription was higher than RMB 2,000, while the cost of an Ofo Bike membership was lower than RMB 300.

In the long run, Bluegogo’s strategy might have worked. But it was an extremely dangerous course to take when the business was still fighting for financial support, market share, and subsidies.

Bluegogo, which may have offered the best user experience, always fell behind in financing. The company only announced that it had completed a RMB 400 million Series A round in January. It is reported that the blue bikes failed to attract enough investment for a Series B in March.

However, that same month, a crazy financing war between Mobike and Ofo raised more than USD 1.2 billion in investment, mostly from strong investor groups. With massive financing support, the orange and yellow bikes have already been placed along the streets in many countries across Europe and Southeast Asia.

On the other hand, the list of bankrupted bike-sharing startups has gotten longer and longer. It began with small players such as Wukong, 3vBike, Ding Ding Bike, Kala Bike and Kuqi Bike going under.

Now, the medium-sized bike-sharing companies are feeling the heat. In October, Youon merged with Hellobike, which had also classified itself as one of the top three bike-sharing startups in China. This time, it’s Bluegogo that had bad luck.

To survive in this industry that relies heavily on investment, “burning” money seems to be the only way to succeed. Otherwise, small startups that fail to innovate are too fragile to conquer many challenges during the beginning phases.

Therefore, core competency is still indispensable when it comes to bike-sharing startups. For those companies that do not receive significant investment, it is very important to innovate. Through technological advancement, these small companies might be able to compete with Ofo and Mobike, two bike-sharing giants that maintain their large market share by spending huge amounts of money.

(Top photo from Baidu Images.)

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