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The bike sharing Chinese Revolution

Visiting Milan last weekend I notices the strong usage, of both tourist and local, of the bike sharing service provided by Mobile and OFO, both Chinese Companies.

Compared to the traditional city bike sharing system (Boris Bike in London and Orange ATM Bike in Milan), with Mobile and OFO you can pick and leave a bike at your convenience. You do not need a deck station anymore.

Following the download of the App, a cyclist can unlock the bike with the smartphone and at the end of the journey just lock the bike again with the smartphone.

In China the bike sharing companies are the new darlings of the Venture Capital industry.

Just in 2017 Mobile raised $600m in new founding for expansion outside China, while OFO raised over $450m in their Series D round. Both companies are valued over $3bn.

In China the companies are loved by both commuters and local municipalities, being able to provide a green and healthy transport alternative.

From a financial point of view I believe that the model is poor:

- very capital intensive (each bike cost over $200);

- low barriers to entry;

- very competitive market with high customer acquisition costs;

- low revenues per user ($20 cents per hour);

- lack of any competitive advantage.

I think that for some of the investors in Mobile and OFO, including Alibaba and Tencent, the attraction lay in the ability to know where a customer is, mapping his/her journey to school/work/home.

There is also a potential "the winner take it all" scenario, where the Chinese players would be able to become a strong international brand, delivering bike sharing service in 100-200 cities around the world in the next 12 month.

Still if Uber business model, involving much more technology and barriers to entry, was copied in short term in both its home market and internationally, I do not see how those companies could successfully face with future local competition.

The only winner I believe would be the customer, able to pick and leave a bicycle anywhere in the city.

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