Why Chinese bike-share companies are backpedalling in India

Within a year of entering the country, Ofo has shut operations and Mobike is barely surviving

Just over a year ago, Bengaluru-based car rental startup ZoomCar announced that it was launching Pedl, a bike-sharing service. The company explained at length how Pedl was an extension of its car rental service. The company was going to start with Bengaluru and going to expand across the country. 

Soon after that reports emerged that Chinese bike-sharing unicorn Ofo was preparing to make its entry into the country. By January, the company had launched the service. It was hiring aggressively and buying cycles across cities. Barely a few months on, news broke that another Chinese bike-sharing unicorn, Mobike, was coming to India. 

This was the first time that Chinese mobility companies had made an entry into India. They promised a sea change. Both, Ofo and Mobike, relentlessly lobbied the government to include bike-sharing startups in smart city plans, draw out bike lanes and let private companies run bike-sharing services. The state of micro-mobility was going to change.  

Fast forward to the end of 2018, Ofo has left the country and Mobike is on life support. It is trying desperately to stay alive with operations in just one Indian city: Pune. It cycled out of Bhubaneshwar, the city hosting the hockey world cup, and gave up on its one big chance to show off its bikes to the government and people. People close to Mobike say the company is on a different tack. It wants to break even in every city it enters before expanding further. But that’s an entirely different tune compared to what it said when it first landed in India.

So what went wrong in India? To explain that we need to go back to the origin country of the two startups: China. In 2017, bike -sharing was the flavour of the investment cycle. In China, there were four major companies fighting to snatch the top spot from the other. Executives of each company claim that they were on the verge of winning. The four companies were Ofo, Mobike, Bluegogo and Hello Bikes. Hello Bikes focused primarily on Tier 2 and 3 cities in China, and at that time wasn’t a threat. 

Ofo was backed by Alibaba and Tencent was the majority investor in Mobike. Bluegogo had raised $90 million from a variety of comparatively small investors. It was a race to the bottom. The companies would charge a few cents for a 20 to 30-minute ride, across 1-3km. The bikes could be dropped off at either parking stations or left by the side of the road at designated bike drop off spots. Sounds fairly simple. But none of these companies were any closer to making money. After the initial rush, investors interests started to vane. In December 2017, Bluegogo bit the dust. It shut operations. Reports in international publications stated that the salaries of Bluegogo employees were unpaid and the CEO had fled China. 

Of the three remaining companies, two expanded aggressively across Asia and the US. In the US, they saw an uptick. There were already similar concepts and there were many takers but that was not the case in Asia, with the exception of Singapore. 

With Bluegogo in bankruptcy, there was room for another company in the bike-sharing ecosystem. Someone with deep pockets. And this someone was ride-hailing behemoth Didi Chuxing. As Didi launched in January, Ofo came to India. Didi Chuxing had earlier in its life cycle invested in Ofo. So Ofo now had its own investor becoming a rival in its home market. “This was a difficult time to be an Ofo employee,” says a former Ofo executive who asked not to be named. Alibaba, however, infused cash into the company. But then Ofo suddenly saw the funding tap turn off.

It started losing its grip on the market. “Something strange happened, Alibaba’s Ant Financial pushed further cash into HelloBikes,” adds the employee. For Ofo, it was the strangest time. HelloBike is now considered the number 3 player in the market and has raised money from investors such as Fosun Group and Ant Financial. It also saw Didi Chuxing talking about a round of capital.  

While this was happening in China, Ofo started to learn about the Indian market. And even though bike-sharing as a concept was novel and interesting, it started to see new challenges that it didn’t foresee. Ofo bikes were being stolen despite being equipped with a GPS system. Each bike costs, including the GPS, between Rs 10,000 and Rs 25,000. Each ride costs between Rs 5 and 10 for 30 minutes. The ticket sizes are small, the margins are smaller and to make money was extremely difficult. Add to that the fact that riding an Ofo or a Mobike was a novelty which wore off eventually. 

This pattern could have been broken. “All it needed was more investment,” says Rajashri Rakesh Sahai, former country head for Ofo India and now a micro mobility consultant for startups in the Netherlands. But there was none coming. 

Ofo saw an initial spurt of adoption and then it dwindled. Apart from that the weather in India did not lend itself to cycling. Cycling as a means of transportation became seasonal. It could only be ridden in three or four months in the year. The rest of the months were either too wet or too hot. The high pollution level and road accidents were a further deterrent.

Ofo withdrew from India in August 2018, leaving the field clear for Mobike. By then, however, Mobike’s investor Tencent was in talks to sell the company to Meituan Dianping, a goods delivery firm which is also backed by Tencent. 

The sale eventually did happen. And now Meituan has decided to walk away from bike-sharing. It means Mobike’s plans for India have been put on ice. Ofo had an offer from a Didi Chuxing and Ant Financial collective for a buyout which valued the company at over $2 billion. The deal, however, did not go through. Now, a Reuters report states that SoftBank is about to invest close to a billion dollars in HelloBikes or as it is now known: Hello Chuxing. 

“It is a slightly arduous way of getting to a monopoly but that’s what we have in China bike-sharing right now,” says an investor with knowledge of the Chinese market. There is a possibility that Hello Chuxing in one form or another may come to India. But for now, the Chinese are gone.