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Sharing-economy blooms in China, while first bike-sharing startup closes shop

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【Summary】Bike-sharing company Wukong Bikes in China has recently filed for bankruptcy, due to 90% of its 1200 bikes being either lost or stolen.

Original Claire    Jun 23, 2017 5:37 PM PT
Sharing-economy blooms in China, while first bike-sharing startup closes shop

With the success of bike-sharing companies such as MoBike and Ofo in China, more and more sharing-economy business models sprout in startups and win venture capitalists' favor. Sharing phone chargers, sharing umbrellas, sharing basketball...you name it. The sharing economy's market potential has been noticed by Chinese investors.

However, a much smaller player of bike-sharing in China, Wukong Bikes, has recently filed for bankruptcy, due to 90% of its 1200 bikes being either lost or stolen. The reason behind lies in the fact that the bikes they dispatched in the city did not have GPS tracking devices.

According to BBC, Wukong Bikes did not consider GPS as "necessary" before its money "had run out." Meanwhile, Lei Houyi, the founder of Wukong Bikes told media that the quality of the bikes is another factor. Compared with its larger competitors, Wukong's bikes were of inferior quality, thus could easily get damaged by users.

The company caught up with the trend of bike-sharing in the past two years, and launched its operation five months ago in Chongqing City, a southwestern metropolis of China. Unlike other dominant competitors who have raised rounds of funding from tech giants and investors, Wukong has to stop due to its lack of financing. So far, the small company has lost 3 million RMB, and could not retrieve 90% of its stolen bikes.

Two Worlds

On the other hand, an insider source revealed that MoBike will acquire another Chinese bike-sharing company UniBike soon. As a dominant competitor in China's bike-sharing market, the unicorn has just collected $600 million of new funding, led by tech giant Tencent, and plans to expand worldwide.

Once the acquisition is completed, UniBike will reportedly launch 5 million bikes in Chinese cities, especially in the area where OfO bikes are densely located. In July alone, there will be 300,000 more bikes dispatched in Beijing.

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Meanwhile, Ofo has closed its largest round of funding with $450 million in March, 2017. One month later, Ant Financial under Jack Ma's Alibaba invested in the rising startup with an undisclosed amount. The bike-sharing company has launched its service at small scale in Cambridge, UK, and could be planning to expand to more cities.

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According to Chinese media Sohu, by June 2017, there are 17 different bike-sharing companies in China, with the total amount of financial backing exceeding 2.5 billion RMB. Any startup tagged with "sharing" concept has become a target of VCs and other investors lately.

The difference of bike locks

To rent a MoBike, a user simply needs to press a button on app, scan the QR code on the bike and then ride it. When arriving at destination, one has to lock the bike and park it wherever is convenient.

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For Ofo, it uses an old-fashioned mechanical lock, which is what Wukong Bike used. A user needs to scan the bike plate, receive a four-digit password via smartphone, and then input the code into the lock to open.

"We wanted to enter the market with speed, therefore adopted the mechanical locks without GPS tracking to save development cost. However, the rate of bike damaged or lost by using mechanical locks is unexpectedly high. If we were able to use smart locks in the beginning, things might be different." Founder of Wukong Bike Lei Houyi told media.

Currently in the market, Ofo is the only major bike-sharing company that still uses mechanical locks. Although dominating a significant market share as the pioneering company in bike-sharing, it faces the similar problems as Wukong Bike in terms of locks without GPS tracking.

What next?

"The next step would be: small companies die out." Zhu Xiaohu, Managing Partner of Jinshajiang Venture Capital Fund said when interviewed with media. He is the major backer of Ofo, and pointed out that so far, Ofo and MoBike are not likely to merge in the future, such as Didi and Kuaidi (two leading ride-hailing startups in China who merged in 2016). However, small fish in the big pond will not likely compete with early players who have taken dominance such as MoBike and Ofo.

For these major players, the next step, as they are doing right now, might be expanding outside of China, in other parts of the world. Singapore and the UK have already been chosen as target locations, more are coming down the road.


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