This episode of TechBuzz China is our second of two focused on bike-sharing in China.
In it, co-hosts Ying-Ying Lu and Rui Ma tell the story of the rest of China’s bike-sharing industry beyond Ofo, focusing on major players Mobike and Hellobike. They cover Mobike’s founders, fundraisings, current reach, and distinctive approach to its bike-sharing business, as well as fast-growing latecomer Hellobike’s entrance to the scene. Guest speaker Karl Ulrich, the Vice Dean of Entrepreneurship and Innovation at the Wharton School, weighs in for the second week in a row, giving macro-level predictions about the global impact of new solutions for personal transportation.
With 29 percent of all internet users in China now making use of bike-sharing services, what is the real impact of these services on metrics such as number of trips taken via subway, bus, and car? How have investors Alibaba and Tencent-backed Meituan staked strategic positions in this race, and how do their positions affect the battle outcomes? Who is Mobike founder Hu Weiwei, and which of the two contrasting versions of Mobike’s origin story is real? How has Hellobike’s focus on second and third tier cities, as well as dogged pursuit of expense management, affected its growth and staying power?
Listen to the newest episode of TechBuzz China and delve into one of the biggest trends in China internet in recent years. Decide for yourself: to what extent has bike-sharing has affected China tech, the lives of everyday Chinese citizens, and the future of personal transportation worldwide?
As always, you can find these stories and more at pandaily.com. Let us know what you think of the show by leaving us an iTunes review, like our Facebook page, and don’t forget to tweet at us at @techbuzzchina to win some swag!
We are TechBuzz China by Pandaily, powered by the Sinica Podcast Network.
We are a new weekly podcast focused on giving you a peek into what’s buzzing within the tech community in China. We uncover and contextualize unique insights, perspectives and takeaways on headline tech news that don’t always make it into English language coverage. TechBuzz China is a part of Pandaily.com, a new English language site that tells you “everything about China’s innovation.”
(Y: Ying-Ying Lu; R: Rui Ma; K: Karl Ulrich)
[0:01] R: Welcome to our second episode on bikesharing in China. This follows our prior episode on ofo, so make sure you check that out.
Y: Although you don’t have to listen to them in order. But it’s a lot easier to understand if you do.
R: Also technically, because ofo really did launch first, and the main characters of today’s show, Mobikeand Hellobike, started later. Hellobike actually way later.
Y: Ready, set, on your wheels, go!
[2:05] Y: Presumably by now, many of our listeners have heard about bike sharing in China, if not actually gotten to try a ride yourselves. And if you haven’t, again, you should listen to our episode last week, Episode #15, if you can. As a refresher, Rui, could you give us some stats about the industry for those just tuning in?
R: Sure. There’s a lot of data but luckily for us, back in March, the China Academy of Information and Communications Technology, together with Mobike, published the China Bikesharing Industry Development Report for 2018, and it is filled with stats. But here are some of the most interesting numbers. As of the end of 2017, there were over 220 million users of bikesharing services, representing 29% of all internet users in China.
Y: Now 2016 is the first full year of bike sharing operations in China. There were a cumulative 2mm bikes deployed into 33 cities. By the end of 2017, however, that number had grown nearly 12 times to 23mm bikes and the number of cities had also grown by more than 6 times to 200.
[3:19] R: Let’s give our listeners some sense of perspective here. Google says China has about 1.4Bn people, of which roughly 60% are urban, or about 838mm. I’m going to go ahead and assume here that bikesharing was implemented in urban areas. At 23mm bikes, that means there’s one bike for every 36 residents. What do you think, does that sound reasonable?
Y: It depends on how you look at it. The most bike-loving place in the world, the Netherlands, has 1.3bikes per capita. Most other countries are not nearly so high though. In China, by the way, according to the World Bank, 37.2% of the population uses bicycles. But, those are not shared bikes. A study by the Institute for Transportation and Development Policy that looked at global, mostly docked bike sharing schemes found that the ideal ratio is between 1 and 3 bikes per 100 residents.
[4:22] R: Well we know that in Shanghai, the current ratio is more like 1 in 15, and in Beijing, where there are 1.9mm bikes for 22 million residents, that number is closer to 1 bike for every 11 people. In fact, back in early 2017 Tencent itself was estimating that China only needs about 17.5mm bikes for sharing, total. You see now why the government is starting to talk about 减量, or decreasing the quantity. But back to this report. It seems that bikesharing, in China at least, isn’t doing much to replace existing public transportation. Prior to bikesharing, 31.2% of trips were taken on the subway or bus systems. After bikesharing, it’s 30.7%.
Y: Yeah, bike sharing has had a greater effect on car trips, which declined from 29.8% to 26.6%. And while trips made on bikes have roughly doubled in frequency from 1 in 20 to 1 in 10 trips after the introduction of bikesharing, it seems from the data that a good amount of that was probably replacing some other mode of transportation besides cars, such as walking, which isn’t displayed in this chart.
R: Nope. If I were Mobike, I wouldn’t highlight that either. No carbon emissions to be eliminated by replacing walking, right?
[5:43] Y: Indeed. And they wouldn’t have received that Champions of the Earth award from the United Nations Environment Program last year. Are we too cynical?
R: Nah. We are being discerning. There is always a story behind the numbers. And today, we are going to tell you the story of the rest of the bike sharing industry, beginning with Mobike. Mobike was founded in January, 2015. There are two versions of the founding story that have been popularized on the Chinese interwebs. The first one is that Hu Weiwei, a reporter, was traveling in Hangzhou in 2014 and noticed how difficult it was to rent a bike. You needed all to get a membership card, pay a deposit, which might be different if you were just a visitor and not a resident. She had experienced the same in Europe and so decided, why not have a much easier bike sharing system? Pulled together some friends from the transportation industry and viola, Mobike, which was a combination of Mobile, and Bike, was born!
[6:59] Y: The other version of the story is that Ms. Hu was introducing a friend who wanted to do a designer smartbike startup to one of the most successful investors in the auto and autotech sector, 李斌 Li Bin, the man behind Bitauto and Nio. Li Bin wasn’t interested in the smartbike. He wanted to see a smartphone enabled bike rental system that you could park anywhere on the street. He tried to convince this entrepreneur, Ms. Hu’s friend, to do it. But the friend wasn’t interested. So Li turned to Hu Weiwei and said, why don’t you do it.
R: Well, it’s either that he asked her, or that she was so taken up by the idea after hearing it that she went to him and said she wanted to do it. Kevin probably knows the real story but he won’t tell us. Either way, after ten years of being a reporter, Hu Weiwei was becoming a startup CEO. Li Bin provided the angel investment.
[7:55] Y: By the way, if you are thinking it’s weird that an investor would find or convince an entrepreneur to realize their vision? Not weird at all. That happens in China all the time. Here in Silicon Valley investors often provide input, but don’t usually incubate or come up with the idea itself. While I wouldn’t say this constitutes the majority of cases in China, it makes up a substantial minority. So if you’re thinking the second version sounds silly, think again.
R: I could definitely believe the second version. But what’s messed up is that people take that version, get fixated on the storyline that it wasn’t her own original idea, and then criticize her for it, when this story has played out in plenty of other companies. I definitely smell some sexism. And it doesn’t help that she’s relatively inexperienced as a founder, and also because she comes off as easygoing and idealistic in nature.
[8:54] Y: Yeah, didn’t they give her a super hard time about having once said that even if Mobike fails, she would be happy because the bikes are on the street, and that’s kind of a public service already? What’s wrong with that anyways? No one gives ofo’s Dai Wei a hard time about making ridiculous statements like: we will be like Google one day. In case he’s forgotten, Google is banned in China.
R: I think what she said is way more reasonable. But what can you do. Lots of people attribute Mobike’s success to Li Bin and the other male co-founders and advisors. Some even call Hu Weiwei a 花瓶, or a flower vase, there just to look pretty.
[9:35] Y: I refuse to believe that. She’s not stupid. As a reporter, she worked for some of the best organizations in the field, including at GeekPark with Pandaily CEO Kevin. And if she were incompetent, the Mobike board had plenty of time to fire her. Founder equity is expensive! Plus, Kevin says she’s great. If anything, I think one of her strengths is that she was so nice (and savvy) — willing to give up equity and title to get the best talent for Mobike.
R: I agree. But some people see that as a weakness. But now we should introduce the other co-founder, 夏一平, Xia Yiping, the CTO. Xia is born in 1981, and Hu in 1982. Closer to my age! If you listened to our episode on ofo, you’ll know that that entire team is class of 2013, a full decade younger. Xia had experience as a product and technical manager at the IoT departments of major car companies like Ford and Rolls Royce. His bio says he holds 20 patents. Again, contrast this with the newly graduated ofo team, who had precisely zero years of working experience between them.
[10:44] Y: We’re not saying that’s bad, just that the two teams are extremely different, and it shows up immediately in their product. Remember ofo didn’t even stumble upon the idea of bikesharing until spring or summer of 2015? Well, Mobike was founded earlier than that in January, right in their backyard, literally a little more than 5km away. But ofo was launched by the fall of 2015, whereas Mobike didn’t officially launch until Earth Day, April 22, 2016. Why was that?
R: The story is that Li Bin had done the math on dockless bikesharing and had determined that it would only work if the bike was high quality enough that it could run for four years without repairs. We are talking about bikes that are expected to be ridden heavily on a daily basis! Four years? That’s a tall order. It could only mean one thing. The entire bike would have to be redesigned.
Y: Which we will talk about later. But what about the operations? While Hu Weiwei presumably led all nonproduct decisions, by December 2015, though, all the business decisions were being made by Davis Wang, 王晓峰, who quit as Shanghai GM of Uber to join Mobike. He’s usually listed as a co-founder, but he really joined almost a year after the company was founded, as CEO and with what was reported to be a 20% stake.
[12:11] R: And now the Mobike founding team was complete. Davis graduated college in 1997 and so was even older than Hu Weiwei and Xia Yiping. He had worked in Google China and Tencent before Uber. He was the experienced manager the team needed. Again, in sharp contrast to the new grads at ofo.
Y: So the point is, Mobike wasn’t idle during those 16 months from January 2015 to April 2016. It added a kickass co-founder, and it was reimagining the bicycle. One major change was that Mobike bikes had solid rubber tires instead of inflatable ones. It also made the frame out of aerospace aluminum. I’m not actually making that up, it’s what you think it is, a very strong aluminum alloy. Mobike claimed that the cost for each bike was 3000 RMB, or more than $450.
[13:03] R: A lot of customers were not impressed. Although these bikes were indeed very sturdy, they also weighed 25 kilos, or 55 lbs. That’s 44% more than a typical men’s bike, which weighs about 38 lbs. But, enough people paid the 299 RMB or $45 or so deposit to be able to ride these bikes for 1 RMB or $0.15 every half hour. Originally, the team was hoping to charge 2 RMB, but not enough pilot customers were swayed.
Y: Don’t forget that it wasn’t just the bike was heavy. Mobike also spent real money figuring out a smart locking system that involved a true dynamic scan-and-unlock system unlike ofo’s static locks. This actually later became the subject of a public debate between GSR’s Allen Zhu, ofo investor, and Pony Ma, Tencent founder. Tencent would eventually invest in Mobike. They argued viciously about the technology behind the two locking systems.
[14:08] R: Honestly, it’s not a contest. Mobike locks were actually smart and didn’t require any manual intervention. Literally, just scan, and the bike will connect to the server and unlock itself. There was also true GPS capability. Ofo’s, for a long time, was really just a simple lock that required you to input the code yourself. But that’s the least we can expect right? There was a 10x differential in the price of the bikes.
Y: And here’s where I’m really curious and would like to ask our listeners, which strategy would you have chosen? Of course, each team was constrained by their various abilities, but if you had a choice? Which route would you have gone? Move fast and break things like ofo? Or take one’s time like Mobike?
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[15:53] R: Like the last episode, we are not going to take you through the craze of fundraising that happened after Mobike burst onto the scene. After that initial angel investment, Mobike went on to raise $928MM from investors like Tencent, Hillhouse, Temasek, Foxconn … all super big names in tech, before being sold to Meituan-Dianping on April 4, 2018 for $2.7Bn, 65% in cash, and 35% in Meituan stock.
Y: That’s less than two years after it launched its very first bikes onto the streets of Shanghai on April 22, 2016. And less than 3.5 years from when Hu Weiwei and Xia Yiping first incorporated the company in January 2015.
R: It was a contested sale. Most people thought ofo and Mobike, who were head to head, would merge. That’s how Didi came about, Meituan-Dianping, and others like 58. Mergers of the #1 and #2 players in the industry. But it all changed when ofo got those hundreds of millions from Alibaba in late 2017 and early 2018. When that happened that Alibaba joined to their board, that opportunity for merger seemed to die.
[17:16] Y: Alibaba and Tencent are fighting numerous battles on every possible front already, and no way were they going to sit on the same board and share control of such an important new business line as bikesharing. Meituan, too, had a compelling reason to buy Mobike. It knew where people wanted to go — now it just had to offer them a way to get there. For a detailed breakdown of Meituan, by the way, check out Episode 10.
R: Honestly, even though no one could figure out how to make money in bikesharing, no one wanted to let it go. Even Didi, who was the biggest shareholder in ofo at the time, supposedly made an offer to invest $600MM in Mobike at a $3.7Bn valuation. I don’t think that was ever going to get approved by the board, but it really shows you how much Didi and ofo really didn’t get along.
[18:06] Y: But two out of the three founders were still hoping for the chance to stay as an independent company. When it came time to vote, Hu Weiwei voted for the acquisition, whereas Xia Yiping and Wang Xiaofeng did not. Unsurprisingly, Wang left three weeks after the merger was announced. Hu replaced him as CEO, and Xia continues on as CTO.
R: Today, Mobike has more than 7mm bikes on the road in 9 countries and 180 cities, and boast 30mm rides a day. In good weather, I’m assuming. Its bikes are no longer 55 lbs and haven’t been for a long time. They released the lightest bike in the industry at 34 lbs in September 2017. They’re not quite as cheap as ofo’s, but are estimated to be around 1000 RMB or $150, much more reasonable. They introduced monthly subscriptions, which you can get for 20 RMB, or less than $3, cheaper than a coffee. You’d think the drama has ended because it’s now part of the Meituan empire, but even as its old foe ofo struggles, it’s no sleep for the wicked as some new players are entering the game.
[19:24] Y: Didi, of course, has revived bluegogo and installed its own brand, Green Orange, as we talked about last episode. But a bigger threat could be Hellobike, a latecomer to the ecosystem that didn’t even launch its first bike until late 2016. The team mostly hails from Alibaba, although the CEO, 杨磊 (Yang Lei), is a 29 year old serial entrepreneur with no big company experience to note that I’ve seen.
R: Having 2 out of the 4 founders coming from Ali probably made it easier to fundraise from Alibaba. Which it did. To date, it has supposedly raised $1.5Bn from GGV, Fosun, and of course Alibaba’s Ant Financial. All this, in about 20 months. That’s like raising $75mm a month, more than $2mm a day!
[20:15] Y: That’s a lot of money. But Hellobike claims that it fundraised so aggressively in order to waive deposits for users with Sesame credit above 650 points. It piloted the program and experienced 40% growth, which gave it confidence to launch the initiative nationwide in March of this year. If you remember from our last episodes, there were constant reports that the bike sharing companies were misusing deposits.
R: But beyond deposits, the real differentiation of Hellobike was that unlike ofo and Mobike, who started in first tier cities like Beijing and Shanghai, they mostly target second and third tier cities like Hangzhou, Xiamen, Chengdu, etc. This reminds me of 农村包围城市, or using the villages to encircle the cities, a slogan first pioneered by Mao that led him to victory during the early days of Communism but also popularized by Jack Ma as the main strategy of Alibaba, who has always been very focused on rural users.
[21:20] Y: Our friend Josh Horwitz over at Quartz wrote a good article about that strategy recently as it pertains to Toutiao and Kuaishou too. No offense to the Hellobike team, but this is a well-known playbook and they are hardly the first to use it. I’d also like to point out that as we mentioned earlier, Beijing and Shanghai are so oversupplied with bikes why would you want to go there? But maybe this is a “last mover advantage.”
R: Hellobike also claims to be the best in expense management, with the following math — 800 RMB or about 120 USD per bike lasting 4 or 5 years, meaning that its depreciation is just 60 cents RMB. If it really can do operating expenses of 30 RMB cents per bike as they claim, then they do truly only need 1 ride, 1 yuan, to break even.
[22:15] Y: That’s not cashflow breakeven, but it’s not bad. Just to compare though, ofo also announced in June they went from operational expenses of 1.5 yuan per bike per day in 2017 to just 20 cents now. Although what these guys are counting as opex … who knows.
R: We’ll see. Hellobike has been on a PR blitz lately, saying that it’s now in 200 cities and that in the two months since going deposit-free for users with good credit, its users have increased by 70%. But even if that’s true, its MAU at the end of March was just 2.5MM, a little more than one-fifth of ofo or Mobike, so it’s quite far behind.
Y: But it’s true that it’s growing fairly fast, adding almost as many users as the other two big players, and still having more than half of its users below tier 2 cities.
[23:09] R: Are those vanity metrics though? I mean, it’s not going to be immune to the upcoming government mandated reductions. Hangzhou, one of their flagship cities, just announced two weeks ago that it was going to reduce shared bikes to 300K, down from the 690K it has now. And while it has the help of Alibaba, Mobike has Wechat. It shows up as default function in Wechat and was also early to adopt miniprograms.
Y: Yeah. Hellobike also claims that one of its revenue streams going forward will be precise location-based advertising. I don’t get that though … that’s literally one of the main reasons behind Meituan’s purchase of Mobike, and Meituan already has all those vendor relationships. As for removing deposits? We’ll see how well that strategy works when Mobike announced that it was going to deposit-free as of July 5th. And Mobike has also announced electric bikes.
[24:01] R: If we sound like we can’t make up our mind to be optimistic or pessimistic about Hellobike or the industry in general, that’s because sometimes it does feel like we can’t. So we again asked Karl Ulrich, Vice Dean of Entrepreneurship and Innovation at Wharton Business School, for his thoughts. Karl, if you remember from our last episode, is a big expert on bikes in particular. What do you think of the industry now, Karl?
[24:18] K: Eighteen years ago I created one of the first electric scooters on the market, and I was one of the angel investors in one of the successful US bikeshare companies JUMP, which has been around for more than five years. What is striking to me is just how long it takes for companies and customers to find the elusive product-market fit. We are witnessing real-time exploration by dozens of companies in hundreds of locations to learn what are the most compelling user needs, which solutions best meet those needs, and what business models can sustain them. What’s so interesting about transportation is that the solutions are so visible on the street, it makes for a fascinating example of how a new category of products and services develops.
[25:07] Y: Tell us about it! The elusive product-market fit has left many people losing out big in this space. We were especially struck by the story of 丁伟 Ding Wei whose bikesharing company probably contributed to bankrupting his family. But OK, Karl, you’re optimistic. Is it going to be just bikes, or is it going to be a mix, as we are starting to see with the introduction of electric bikes in China and scooters here in the US?
[25:33] K: I predict that several distinct types of solutions for personal transportation will emerge globally. There will be stand-on scooters for very short distances, conventional bikes for longer distances in flat cities, electric bikes for even longer distances and in hilly locations, and then car services like Didi or Uber for multiple passengers, poor weather, or distances of greater than a few kilometers. All of this should make cities much more livable and have positive land use and productivity benefits.
[26:18] R: Karl is right, we can be short term bears on bikesharing, but longer term in China, it’s probably going to survive just fine. And I’m not sure this is a battle between ofo, Mobike and Hellobike as much as it is between Meituan and Alibaba.
Y: Yeah, Alibaba now has two horses in the race with substantial stakes in both ofo and Hellobike. Doubling down! Alibaba thinks this is an important direction and just really doesn’t want to lose out, it seems like.
R: That and it most especially doesn’t want to lose to Tencent. Don’t forget, Meituan is backed by Tencent, so at the end of the day, it still reduces down to the same war — Tencent versus Alibaba. Pony versus Jack.
Y: Ma versus Ma.
R: I know! No matter what, a Ma wins. I love it.
Y: Which Ma, I mean horse, are you betting on? Let us know! Tweet at us for free swag!
[27:14] Y: We’d like to give a shoutout to our partners at SupChina. In addition to our podcast here with Pandaily, they publish the excellent Sinica podcast, a weekly discussion of current affairs on China with journalists, writers, academics, policy makers, and business people.
R: So while we only focus on tech, they really give you the entire overview.
In addition, if you liked what our guest Professor Karl Ulrich had to say today, highly recommend you subscribe to his podcast called Launch Pad, from Penn Wharton Entrepreneurship, available everywhere you can find podcasts.
TechBuzz China by Pandaily is powered by the Sinica Podcast Network. Pandaily.com is a new English language site that tells you “everything about China’s innovation.” Follow us on twitter, at @thepandaily,@techbuzzchina, @ruima and @ginyginy. Thanks to our producers Carol Yin and Kaiser Kuo, and our intern Ska Du.