Staying in business for two years is not usually cause for a big celebration, but in China’s ruthlessly competitive bike sharing industry surviving even for that relatively short period of time is a major achievement.
So when Shanghai-based Hellobike, known for its signature blue and white coloured bikes, threw a two year anniversary party at the city’s W Hotel on the Bund, it seemed entirely appropriate given that the start-up has clawed its way to number three spot behind Beijing-based Mobike and Ofo, which were founded three and four years ago respectively.
A relative late comer to the crowded market, it has survived a shake out that saw rivals such as Xiaoming Bike and Kuqi Bike file for bankruptcy.
Ofo and Mobike ranked first and second in May with 11.3 million and 9.3 million monthly active users respectively, followed by Hellobike with its 3.7 million users over the same period, according to the market researcher Trustdata.
“It was hard when we chose to enter the bike sharing market,” Yang Lei, Hellobike’s 29-year-old chief executive, told a gathering of employees, investors, business partners and media at the company’s second anniversary event. “An investor asked me if I would do it over again if I got the chance. My answer is definitely not,” he added.
By the time Hellobike was established Ofo and Mobike had already raised their C rounds of financing, and a slew of newcomers had just joined the fray in what was then a hot market, with registered users increasing more than six fold in 2017, according to iiMedia Research. The result: millions of bicycles of different colours piled up on streets across the country.
Chinese venture capitalists capitalised on the frenzy, investing more than US$4bil (RM16.5bil) in bike sharing last year, roughly 10% of all venture capital disbursed in China that year, according to Cheetah Research.
“In the beginning, we met as many investors in China as we could, but no one wanted to invest in us,” Yang said. “They said our competitors had just asked for US$300mil (RM1.2bil), so what can we do with just US$15mil (RM62mil)?”, referring to the amount Hellobike was seeking.
Hellobike merged with Shanghai-listed Youon Bike in 2017 and received an investment from Alibaba Group and an its affiliate Ant Financial, the latter now owning 36% of the bike sharer.
While the big players were focused on the country’s first-tier cities and some second-tier ones, Yang saw an untapped opportunity in third-tier cities and went for it.
“First-tier cities surely have a need (for sharing bikes), but it was already a highly competitive market in those when Hellobike started,” said GGV Capital managing partner Fu Jixun in a company blog post.
“Each bike might get less than three orders per day in the tier-one cities, however you can get an average of three, four or five rides per day in the smaller cities where no one else competes,” said Fu, whose fund was an early investor in Hellobike.
Hellobike currently operates in 300 cities across China with more than 20 million rides booked every day, according to Yang.
According to Trustdata reporting for the first five months of the year, 95% of Hellobike users are from second or third tier cities and only 5% live in the first tier cities of Beijing, Shanghai, Guangzhou and Shenzhen. In contrast, 32% and 30% of Mobike and Ofo users respectively are from first tier cities.
Local government’s in the four big cities have banned companies from introducing any more new bikes to reduce the disruption caused by illegally parked two wheelers, a move that has made it nearly impossible for Hellobike to expand into first tier cities even if it wanted to.
Yang also confirmed that Hellobike has no plans to expand overseas in the near future – unlike Ofo and Mobike which aggressively moved into foreign markets last year, including South-East Asia, Japan, the US and Europe. However, with the slowdown in the market at home both have recently pulled back from cities in the US, UK, France and Australia.
The number of bike-sharing users in the country is forecast to grow 14.6% in 2018, a steep drop from the 630% growth last year, according to iiMedia.
Slower growth has further intensified competition – Mobike, Ofo and Hellobike haven’t turned a profit, which in turn created a harsh criticism from the market.
“Bike-sharing competition is all about capital. Whoever has enough capital can survive and whoever survives in the end might be able to turn a profit,” said Xue Yu, analyst at research firm IDC. “There hasn’t been a perfect business model in the industry yet. Venture capitalists who made a timely exit might be the biggest winners.”
Despite the challenges facing the sector, Hellobike’s Yang said it is still “a good business” because there is a need in the market. “Many people are sceptical about (bike sharing) but that doesn’t matter because we have our own understanding of the industry,” he said.
Hellobike is now focused on building its brand into a broader transport platform, including the introduction of motorised e-bikes installed in over 100 cities. The e-bikes, equipped with a small battery powered motor, cost two yuan for each ride, double that of the pedal powered versions.
This month the company plans to aggregate ride hailing services including Dida and state-owned Shouqi, as well as Alibaba Group’s AutoNavi mapping software, into its app, Yang said.
Whether the remaining bike-sharing operators can stay independent is an open question because the industry continues to burn cash, requiring constant capital injections. Mobike was acquired in April by Chinese on-demand services provider Meituan Dianping for US$2.7bil (RM11.1bil), while ride-hailing giant Didi Chuxing is in talks to take over Ofo, people familiar with the situation told the Post earlier.
Hellobike is mulling plans to structure its operations into a variable interest entity, the corporate vehicle favoured by Chinese firms listing in the US or Hong Kong, meaning it could be seeking a public offering overseas. – South China Morning Post