Six Months In, Bike-Sharing Is Raising Money Faster Than the Taxi-App War Did. How Will That Change the Way You Get Around?

Nine rounds of financing, 30 investors, hundreds of millions of dollars — all in the two months since Mobike entered Beijing.

At noon on October 15, in an industrial park near Wuxi East Railway Station, workers stood smoking in twos and threes outside a factory building marked with Mobike's round logo, using up their lunch break.

It was a Saturday. Other factories nearby were running too, but Mobike's was the busiest of them. Inside, plenty of workers were still assembling bicycles.

Downstairs from the assembly workshop, four 9.6-meter trucks with high side rails waited to be loaded, each able to take about 150 bikes. Wrapped in cushioning paper, the bikes showed their orange-red hubs and silver frames clearly even from dozens of meters away.

This bike can be tiring to ride. Its solid tires push its weight to nearly 25 kilograms, and it costs about 3,000 yuan to make.

In Beijing, Shanghai, Guangzhou and Shenzhen, users can find a nearby bike with a phone app, then scan the QR code on the frame to open the smart lock. When they are done, they park it at the roadside and close the lock, which ends the billing.

Mobike's factory has been open six or seven months, and handles the last assembly steps. Staff on site said more than a thousand bikes leave every day for Beijing, Shanghai and Guangzhou.

Since last Sunday, bikes rolling out of this factory may have one more destination: Shenzhen. Mobike has just announced that it has begun operating there, the fourth city it has entered. In all of them, people can rent these dockless shared bikes for 1 yuan per half hour.

Trucks like these come and go several times a day. "At least a thousand or so (shipped out) a day," a worker in the park told QDaily.

At that rate the factory can build at least 300,000 bikes a year. Three hundred thousand sounds like a lot, but lately even that has not been enough.

After Raising Money, the Little Yellow Bikes Turn Up on the Streets of Beijing and Shanghai

Starting on October 10, trucks loaded with more than a hundred yellow-painted ofo bikes each began showing up in Xierqi, Shangdi and other parts of Beijing where internet companies cluster. At the software parks and subway exits there, crews lifted the bikes off the trucks, lined up dozens of them in a row, then drove to the next drop-off point and did it again.

The scene looked no different from the arrival of Mobike's orange bikes in Beijing two months earlier.

As with Mobike, users unlock the bike in front of them through a phone app. The difference is that one scan does not open it. The process is clumsier: you find a bike, type its number into the app, get a password, and the ride and the billing begin. When you finish, you have to reset the password by hand, or anyone can ride the bike away.

These bikes also have no GPS. The app can only guess whether there are bikes nearby from the last place a user opened it. But as long as there are enough bikes outside subway stations and office buildings, that may not matter much.

ofo was founded by several Peking University graduate students. It began with cycling tours, then switched to renting bikes by the hour inside university campuses.

Last September, ofo's shared bikes went into trial operation on the Peking University campus. In the months after that, students and staff typed the number of the little yellow bike in front of them into the ofo app to get the password for its mechanical lock; billing started once the password opened it, at 0.1 yuan per 10 minutes.

To hold down labor and operating costs, ofo used to post staff at every campus gate to keep students and teachers from riding the little yellow bikes off campus: once a bike was parked outside, it was hard to get back.

After Mobike entered Beijing this August, ofo announced three new funding rounds in two months. Its operating model changed just as sharply over those two months. When it announced a Series B round from Matrix Partners China in early September, ofo said its goals for the end of the year were 1 million orders a day and a presence on 300 campuses. Days later it announced an investment from Didi, saying the two would work together on "urban shared mobility."

On the night it announced its Series C round — October 10 — ofo started putting bikes out in Beijing's Shangdi, Zhongguancun and Xierqi and in Shanghai's Wujiaochang, formally moving from campuses to cities. Bikes that staff once kept from leaving school grounds now stand on the streets outside.

Those staff members now work the subway stations, intersections and other places where the little yellow bikes are massed, handing out flyers and showing passersby how to rent a bike through the app.

The competition is direct. In the areas where ofo made its first drops in Shanghai and Beijing, you can see a clutch of ofo or Mobike bikes every few steps — and these are also the places where Mobike concentrated its own bikes earlier.

The choice of those first areas shows the intent behind them. Shangdi in Beijing is home to Didi, which recently made a strategic investment of tens of millions of dollars in ofo, and it is also one of the densest clusters of internet companies in the city; Mobike put a large number of bikes there after entering Beijing. Wujiaochang in Shanghai is where Mobike's Shanghai headquarters sits.

For a company built around campuses, moving into cities is no small challenge. Road conditions and riding needs in a city are far more complex than on a university campus. Bicycles break easily, and both the product and the operations are much harder.

Bikes of uneven quality and heavy labor costs were problems ofo never solved on campus and simply carried into the city with it.

After raising large sums from GSR Ventures, Matrix Partners China, Weilie Capital, Didi, Xiaomi, CITIC PE and others, ofo dropped its earlier campus tactic of fixing up abandoned "zombie bikes." It placed big orders with a bicycle factory in Tianjin instead, and shipped bikes painted a uniform yellow to Beijing and Shanghai for the streets.

ofo looks like it was pushed from the campus into the urban battlefield before it was ready.

On the day Didi announced its tens-of-millions-of-dollars strategic investment in ofo, Zhu Xiaohu, an investor in both Didi and ofo, wrote on his WeChat Moments that the fight would be over within 90 days. On the other side, Panda Capital, an investor in Mobike, answered loudly through its official account: "If ofo really can pass Mobike within 90 days, Panda will ride naked through Guomao."

Whether it ends in 90 days, no one knows. One thing is certain: within those 90 days at least half a dozen new bike-sharing services will launch, and every one of them has raised money.

Six Months After Mobike's Launch, Bike-Sharing Has Raised Dozens of Times More Than Didi Did in Its First Six Months

Urban bike sharing is not a new business, and the operating model has always been much the same: people rent bikes at fixed docking stations with a transit card or a bank card, return them to a station when they are finished, and pay by the length of the ride.

Beijing alone has 50,000 bikes you can rent with a subway card. Systems that let you rent a bike with a phone app, or even by scanning a code in WeChat, are already running in cities such as Wuhan and Hangzhou.

How did these public bikes get onto the streets? The bikes and the service are bought in bulk by governments or public institutions. A municipal or district government puts out a tender; the winning operator buys thousands or even tens of thousands of bikes for the area, paints them alike, picks the sites and builds the parking stations, then handles maintenance and operations for the next several years.

Some of these operators, such as Beijing Lvchang and Hangzhou Jintong, are already quoted on the New Third Board, and Changzhou Yongan, which runs public bike programs in more than 200 cities, is already listed on the A-share market.

As with any government tender, the companies that used to run public bike services were really serving the government, not ordinary consumers.

Jintong Technology has been in business for nine years. Since 2008 it has helped hundreds of cities, Taiyuan, Wuhan and Liuzhou among them, build local bike systems. Its financial report shows revenue of 174 million yuan in the first half of this year, at a profit margin of 5.6%. This was not a market venture capital would chase.

In August, Mobike took off after entering Beijing, and two months later it had become the most used travel app after Didi and Trip.com Group, pulling a wave of money into the market.

We took the six months after the launch of Didi Taxi and the six months after the launch of Mobike and compared how densely each industry raised money: four years on, bike sharing absorbed dozens of times more capital in the same stretch of time than the taxi industry did.

Besides Xiaoming Bike and Youbai Bike in the chart above, QDaily has learned that at least three more new companies in this field are about to announce funding. Most come out of traditional urban public bike operations, and while capital's attention is on the sector, they are preparing to burn some money on the business of renting bikes by phone.

Mobike was the first bike project to catch capital's eye, and ofo's quick fundraising made the fire spread faster.

"Once Mobike and ofo showed up, investors thought about it differently," Shi Guowei, CEO of Xingwoxing, told QDaily. "At that point we felt we had to pull it out on its own."

Xingwoxing started as a startup selling technical systems for public bikes. This September it formally spun its operations business out into a separate company, Qiqi Chuxing, and went into shared bikes.

"Before, we sold systems, and we had to make money on them. Now we think burning money is fine too — we can let our partners join the game," Shi Guowei said of his change of mind.

Shi Guowei calls the model of companies like Mobike and ofo a closed iOS, each with its own bikes and its own operating system, and calls Qiqi Chuxing an open Android.

"Most smartphone makers cannot possibly write their own operating system, but on top of Android they can put one together quickly and take on iOS." His plan: if a small company in some region has bikes and local connections and wants to build a small Mobike there, Qiqi Chuxing can hand it the platform and the smart locks. "If it wants into this business, it can be up and running fast."

While it gets going, Qiqi Chuxing plans to start with demonstration operations in a few regions, and may end up as a company that sells technology systems after all.

An analyst at an investment fund, who asked not to be named, told QDaily that from August his firm began meeting projects in the field. One team it met had also started out selling technical systems for public bikes and had recently decided to build its own bikes; Mobike's success has turned more investors toward the sector.

On August 15, Zhang Jin set up a separate company, CCbike, to get into shared bikes. For years before that, his company had sold systems for urban public bike programs, and its main customers were the district governments that issued the tenders. Winning a tender meant buying and deploying thousands of bikes for a district or a city, with the operations and maintenance for the next three to five years going to the same operator.

"We already thought of a model like Mobike's last year. Capital wasn't as hot as it is now — we went through several rounds of talks, and (investors) weren't very keen," Zhang Jin said, recalling a shared-bike market that last year had none of today's heat. "Now they've come back to me. The financing may be announced in November."

Jin Chaohui, co-founder of Zhaimi, ran into the same thing six months ago. When ofo was pushing itself on campuses this April, people inside Zhaimi wanted to build a Zhaimi version of a campus bike. "In the situation at the time, a bike business didn't have much to do with our main business. We talked it over, the investors suggested we not do it, so we didn't." Jin Chaohui has now pulled a team out of Zhaimi and founded Xiaoming Bike, which has raised more than 100 million yuan; its first batch of bikes goes out in October.

Qiqi Chuxing and CCbike are both shared-bike projects run by traditional urban public bike operators. The Youbai Bike team, by contrast, comes out of Dianping and Zhonglu Co. (Shanghai Forever), which operates Shanghai's public bike system.

Youbai will start by retrofitting the 80,000 Forever bikes already on the streets of central Shanghai, so people can borrow and return them through a phone app instead of applying for a separate card. It will also build its own dockless bikes later, at a cost of about 1,000 yuan each, but it will finish its first 80,000-bike deployment by converting the existing docking stations.

Yidaibu, based in Beijing's Haidian district, has announced no funding but has also put out a first batch of pilot bikes. Backed by the Haidian district government, it collects worn-out bikes from residential compounds and rebuilds them as smart bikes with built-in Bluetooth locks — like Mobike's, they open when you scan a code with your phone.

Once They Had Money, Most Companies Stopped Worrying So Much About Cost

In two months, more than 30 investors joined the shared-bike market, putting in hundreds of millions of dollars between them.

That is when the startups' methods changed too.

Public bikes sit outdoors 24 hours a day, 365 days a year, and nobody treats them kindly. When Mobike's design team started work on its bike more than a year ago, durability came first. To bring maintenance costs down, the bike even gave up some of the riding experience.

The saddle height cannot be adjusted freely, so anyone taller than 1.75 meters cannot straighten a leg while pedaling, and the bike weighs nearly twice as much as an ordinary bicycle.

The orange-red Mobikes you can ride on the street today still cost about 3,000 yuan each, and the complaint users make most often is still that they ride badly. All of it follows from one requirement set at the design stage: four years on the road with no human maintenance.

CCbike, which has run traditional public bike systems, says that even docked bike-sharing systems with low usage used to lose 5% to 8% of their bikes a year.

At the current rate of six hours of use a day and a 5% loss rate, Mobike can earn back the cost of a bike in 13 months — not counting transport, logistics or app development.

But as the competition sharpens, Mobike has begun putting out more bikes so that users can always find one. Mobike CEO Wang Xiaofeng said in a recent interview that Shanghai would have 100,000 bikes by the end of the year. Making it easier for a user to find a free bike at any moment means more bikes standing idle, which can only push the use rate of each bike down.

The moment when the money comes back, and the profit starts, moves further away.

ofo was also very thrifty when it began. At every campus gate it hired staff to stop students riding bikes off campus: the odd-numbered bikes that were allowed off campus could only be borrowed with accounts that had paid a higher deposit, and every day staff went out to gather up the bikes piling up outside and bring them home.

Once the money came in, the same bikes went into cities in bulk. The ofo bikes now on the road cost 200 to 300 yuan, but they wear out far faster. With no effective anti-theft system and no GPS, their use rate is naturally lower. So recovering the cost takes longer, and the maintenance and operating spending needed goes up.

Other newcomers think along the same lines. Xiaoming Bike said in an interview that it planned to put 100,000 bikes into Shanghai at once. Youbai's first batch hooked up to its system also starts at 80,000.

"Capital certainly wants to hit a city's ceiling as fast as possible, so nobody else can get in," Zhang Jin said. But his worry comes from capital too: "There's a bad side to capital being this hot. A lot of the bad things inside a company become invisible."

No one has worked out how to make a profit yet. The price war, though, has already started.

Mobike charges 1 yuan per half hour; ofo charges 1 yuan an hour, half Mobike's price, and hands out a red envelope at the end of each trip. Pay with the red envelope and the ride is close to free.

Companies whose bikes are not on the road yet also want to use free rides to pull users in. Xiaoming Bike says its prices will match Mobike's, and that it may give away a set number of free rides at the start.

Mobike has also loosened its own maintenance-free rule.

It has just updated its app, and beside the old orange bikes the map now shows markers for a "lite" model. Photos of the lite bike leaked earlier. True to the name, the blue Mobike is simpler — closer to a traditional bicycle, with tires and a chain that look much like an ordinary bike's. Its cost falls to about 1,000 yuan, but it is bound to break more easily than the orange-red version.

Beyond ride comfort and manufacturing cost, the lite model is also cheaper to ride than the orange-red one. Mobike's cost-and-revenue arithmetic just got more complicated.

Whatever happens, life as a user has already changed.

Urban public bikes, which almost nobody used because getting a card was such a chore, are being made easier to use. Even local bike systems with no startup involved have in some cases adopted phone-app unlocking.

The new startups are also trying to improve on the dockless model. Mobike has recently begun working with subdistrict offices on recommended parking spots, while CCbike will use docking racks with a smaller footprint to place docked shared bikes around cities, cutting the cost of maintenance and of finding a bike; where crowds are thinner and there are no racks, a bike can also be left at the roadside and locked with a smart lock.

Right now, at the software park in Beijing's Shangdi, ofo staff in matching uniforms still haul the little yellow bikes out of the park on tricycles and line them up on the street outside: the park has not set aside enough space for bike parking, and property management has rounded up shared bikes that users rode in, which blocks the bikes from circulating.

Some companies are also starting to think about how to move bikes around by hand at peak hours once large numbers are on the street, to meet demand in one area or another. The labor that takes is considerable.

The more bikes there are on the road, the more such problems there will be. Whoever solves them faster and better may be the one to come out of this war of capital alive.

Whether the companies in it can make money is another matter. Even the eventual winner will find that the revenue this industry can generate today cannot quickly repay an investment of hundreds of millions of dollars.

So once you own the market, how exactly do you make money? The companies involved give only two answers: "haven't worked that out," or sell ads once there are enough users. But selling ads inside a tool people pay to use will not be easy.

"If everyone starts burning money aggressively, building a real business becomes extremely hard." Uber is valued at 68 billion US dollars and still cannot go public; Bill Gurley, its early backer and a well-known Silicon Valley investor, blames the biggest problem facing startups on there being too much money in the market.

The companies in the middle of it often see it differently. On Wednesday afternoon last week, a shared-bike founder, talking to QDaily between meetings with investors, said: "The biggest problem is our rivals' money. We're not short of anything else. The only gap is that the funding gap is a bit wide."

Graphics: Wu Lingwei

(Reporters Gong Fangyi, Xu Tao and Zhang Zhiwei also contributed to this article.)