Despite what you may have heard, bike rental is not dead.
The great Chinese bike sharing bubble popped a long time ago. Like a horde of syphilitic conquistadors, some 80 startups (including two unicorns) charged into the jungle in search of a city of bike-share gold, challenging the dominance of the car and bringing mobs of bikes back to China’s major cities. Few ever emerged, and those that did are mostly known by new names.
They got greedy, fighting price wars and spending user deposits on operations, and it brought them down. Ofo, of the yellow bikes, collapsed in a blaze of lost deposits, with CEO Dai Wei placed on a consumption blacklist that prevented him from traveling by train or buying cars. The next two players, Mobike (in orange) and Bluegogo (blue), exited with sales to tech giants Meituan and Didi Chuxing.
But under the wing of deep-pocketed giants, share biking is very much alive. It’s not the Wild West anymore—the sidewalk-blocking piles of bikes are rare, prices are a little higher, and there are rules about parking—but in a major city there’s almost always a bike available. Could this be—wonders—a sustainable industry?
Bottom line: No one ever found El Dorado, but it looks like bike rental is close to breaking even. The three remaining dominant players—Ant Group-backed Hellobike, ride-hailing service Didi’s Qingju, and lifestyle services giant Meituan’s Meituan Bike—have survived the bust by raising prices and looking for ways to develop sustainable businesses.
- These companies have replaced unbridled hyperscaling with a focus on profit.
- Previously cautious investors appear to have picked up on these signals, and signs are emerging that the bike rental’s capital winter is beginning to thaw.
What went wrong
It was 2016, and bike rental was booming. Startups piled into the market, and by the end of the year, nearly 30 companies had set up shop. Investors followed, and almost overnight, millions of bicycles appeared on sidewalks across China.
At its peak, 80 companies operated around China. In 2018 the industry was worth RMB 17.8 billion ($2.58 billion), up from RMB 1.2 billion in 2016, according to data from Equalocean. But the bubble popped as quickly as it grew.
- Bike rental companies soon found that putting more bikes on the street doesn’t mean more profit—quite the opposite.
- Underpriced rides, price wars, and mounting maintenance costs began to take their toll. Companies burned through investors’ cash, while stiff competition and a saturated market quickly led to consolidation.
Consolidation begins: Mounting regulation and costs started to take a toll, and companies began to drop like flies. Ofo, once the darling of the industry, saw its cash reserves dwindle amid mounting lawsuits and a run on deposits.
- At the end of 2017, once-popular Bluegogo shut down. The company’s operations were quickly snapped up, in part by Didi.
- Others followed suit. Coolqi and Xiaoming Bike struggled to pay back their users’ deposits and disappeared. In the space of five months, six bike rental companies shut down across China.
- At the beginning of 2018, as Mobike reeled from the fallout of increased regulations and the price war, lifestyle services giant Meituan swept in to acquire the company for $2.7 billion.
‘Bike rental 3.0’
Now, just three companies dominate the sector—Hellobike, Didi’s Qingju (or Orange), and Meituan Bike.
Two of the three—Qingju and Meituan Bike—are run by companies with deep pockets. Hellobike is backed by Ant Group, the world’s largest fintech company. Their focus has shifted from hyperscaling to profitability.
New business models, new bikes
- While Mobike and Ofo sought to scale rapidly across the globe, the surviving bike rental trifecta has narrowed in on the Chinese market.
- The days of cash-burning subsidy wars have come to an end and an era of increased prices has begun.
- Hellobike, Meituan, and Didi have all raised their prices. Hellobike is the most expensive at RMB 4.50 an hour, while Meituan Bike and Qingju Bike cost RMB 3 for the length of a ride. Companies charge in either 15-minute or 30-minute intervals. Prices vary across cities in China
- Companies are focusing on user retention rather than growth. They’ve attempted to improve user stickiness by offering discounted longer-term bundles.
- The build quality of the bikes has also improved, a far cry from the Ofo days. Ofo users used to complain that their bikes broke easily and were frequently in poor repair.
Attempts at profit: For the first time in the industry’s history, companies are talking seriously about bike rental turning a profit. Hellobike, China’s biggest bike-rental firm, said in September (in Chinese) last year that it was profitable in 200 cities across China. The company claimed 400 million cumulative registrations as of July.
- Meanwhile, Meituan has managed to narrow its losses but is still unprofitable.
- Amid the Covid-19 pandemic, Meituan saw losses from its bike rental business decrease dramatically year on year amid the pandemic. Second-quarter costs from its bike-rental division fell by RMB 1 billion compared to the same period in 2019, mainly due to a “significant decrease in depreciation of bikes.”
- It is unclear whether Didi, which is unlisted and not required to disclose its financials, has been able to break even in bike rental.
- Nevertheless, talk of profit is a stark contrast to Ofo and Mobike. According to Dongxing Securities, the two companies’ blind pursuit of scale meant they burned through cash faster than they could raise it from investors. Today’s bike rental trifecta is at least trying to avoid this mistake.
- The industry saw a significant spike in China as it locked down to prevent the spread of Covid-19. Hellobike saw its trips double nationwide in the few days after Wuhan, the city at the centre of China’s outbreak, was cut off from the rest of the country. Meanwhile, Didi’s Qingju Bike saw usage increase by 150% between the beginning of February and the beginning of March.
Varying approaches: Platforms have sought novel ways to eke out profits and reduce losses. Hellobike, Meituan, and Qingju charge riders who park bicycles in unpopular places extra to reduce the costs of collecting them. A slew of other fees also exist, including for bikes parked outside designated parking areas.
- Hellobike survived the great cull by taking a different approach to other bike rental platforms, initially focusing on lower-tier cities where public transport systems aren’t as well developed. Now, the company has dominated the markets in these cities and is expanding to challenge Meituan and Didi in China’s first-tier cities.
- In June 2019, Didi created a two-wheel business department, merging its bicycle and e-bike divisions. The move was aimed at increasing efficiency, while improving cooperation with local governments and bicycle suppliers, both key to the company’s ability to operate effectively.
- Didi has taken the opposite geographic approach to Hellobike, with plans to expand to China’s lower-tier cities from a metropolitan base.
Appeasing the powers that be: With increasingly strict rules, navigating government regulations aimed at reducing bikes cluttering city walks has become increasingly important.
- Cities around China have introduced rules to limit the number of bicycles on their streets and also to ensure bikes are parked in specified areas. Shanghai was one of the first cities to do so, and requires companies to be licensed in order to operate a bike rental platform in the city.
- Bike rental companies have turned to technology to enforce these rules. Hellobike’s bicycles and e-bikes have since late June used the Beidou navigation system, China’s equivalent to GPS, in order to monitor where its bikes are located and where users park them.
- Companies have also used other technologies like Bluetooth and RFID for the same purpose.
- Companies are increasingly working with local governments, as opposed to butting heads with them, to create an integrated public transport system. Dubbed “Bike rental 3.0,” new emphasis is being put on these companies working more closely with local governments.
Increased confidence: As surviving companies learn from the mistakes of their predecessors, confidence among investors has shown signs of rebounding. In April, Didi’s Qingju reportedly raised a whopping $1 billion from Lenovo-backed investment firm Legend Capital and an unnamed international venture capital firm.
- During the same month, Hellobike raised $200 million from Shenzhen-listed electric product maker Hangzhou Zhongheng Electric to build charging stations for electric bikes.
- In December 2018, Hellobike raised RMB 4 billion in a round led by Ant Financial.
China’s bike rental saga is a familiar story. A new field opens up, pundits declare it to be the future, dozens of startups start and investors overheat the sector. Pretty soon, the fire runs out of oxygen and burns out. Finally, tech giants step in to create something modest and sustainable from the ashes.