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The Background

Name any Chinese bike-sharing company that you know of and chances are that ofo and Mobike are among your top choices. There is however, another bike-sharing company worth talking about.

Founded as early as November of last year, Bluegogo is a Tianjin-based bike-sharing firm and has quickly become the third largest company of its kind in China, following, of course, ofo and Mobike.

Similar to its competitors, the dockless bike-sharing brand is equipped with a GPS tracker and users book the bikes through the Bluegogo app.

Because the bikes are station-less, they are scattered random spots throughout the city. In the first half of 2017 alone, Bluegogo already has 70,000 bikes in three Chinese cities: 35,000 in Shenzhen, 25,000 bikes in Guangzhou, and 10,000 in Chengdu.

Source: Mashable

Bluegogo has drawn several investors to fund its business and was valued at $140 million after pocketing a Series A round of $21 million in November last year and $58 million earlier this year.

With two large funds raised within a single year, the company seemed to be performing well in China that it began looking into overseas expansion to leverage the hype surrounding the share economy. What could possibly go wrong?

The Challenge

Like other share-economy startups, think Uber, ofo, etc., Bluegogo needed to find a way to become profitable.

One way to prove its worth to investors is its ability to expand.

“Bluegogo, being a latecomer to the bike-share game, needs to be aggressive” – Mashable

Bluegogo has not only been aggressive in expansion at home but also reaching as far as the US. The Chinese company chose San Francisco, the second most bike-friendly city in the States as its first venture into North America.

In January this year, the company was the first smartphone-enabled bike-sharing platform to launch some 20,000 dockless bikes in San Francisco, USA.

However, Bluegogo’s American Dream was not smooth sailing. Instead of a warm welcome by SF city dwellers accustomed to miles of bike lanes and high quality cycling facilities, Bluegogo faced angry lawmakers.

The company having achieved rapid success in China, implemented the same strategy in the US by placing dockless bikes everywhere on the streets of San Francisco. The problem was that the city ended up with large, messy and unsightly piles of bikes.

Leftover bikes from bike-sharing firms such as Bluegogo pile up in China. Source: Mashable

San Francisco has historically been known for its welcome mat, but in recent years we’ve let ourselves become a doormat. It’s time to put the public’s interests first, even if that means disrupting the disruptors,” said Aaron Peskin, Supervisor of the San Francisco Board.

Peskin even called the bikes a “public nuisance,” and vowed to destroy or even sell the bikes if they clogged up city streets.

In Bluegogo’s defense,

There was a problem in communicating,” said Ilya Movshovich, BlueGoGo‘s North America VP of Operations. “The people we reached out to initially were not the people we needed to get to. We didn’t quickly enough communicate with the appropriate heads.”

Until even now, San Francisco has yet to approve Bluegogo’s presence and even imposed a new law to increase the penalty for Chinese bike-sharing companies planning to litter its city.

If expansion wasn’t success, monetization would have to come from deposits provided by Bluegogo’s claimed 20 million cumulative users. If only 10 million users paid a $14.96 deposit, it would mean the company has collected around $149 million in deposits, in addition to the $0.08 per half hour charge to ride.

So why was the company owing roughly $30 million in total outstanding payables to vendors, unpaid rent and overdue salaries?

Bluegogo’s empty Beijing office. Source: China Money Network

It also owed users $15 million worth of deposits as of November 2017.

To make things even worse, Bluegogo’s CEO Li Gang went missing early November 2017 and was later discovered to have fled the country. What was this once promising company going to do?

Li Gang, Bluegogo’s CEO. Source: Linkedin

The Strategy

In attempt to explain the disastrous situation, Li released an open apology letter. As cliché as it sounded, he blamed the company’s state on lack of financial support, claiming that Bluegogo was ‘on thin ice in the face of two well-funded players’, pointing fingers at ofo and Mobike backed by Tencent and Ant Financial, respectively.

The bike-sharing market is full of challenges, and my mind is too childish and naive to succeed in the sector.” – Li Gang

But there could be some light at the end of the tunnel. Li took the opportunity to announce a partnership with another small bike-sharing startup called Biker, who would be in charge of operating Bluegogo as usual under its management.  

The Future

The merger of small startups like Bluegogo and Biker is considered to be a typical one for competitive and costly markets. Li admitted that he will use the revenue generated from the partnership with Biker to pay off its debt.

Bike-sharing is an asset-heavy industry. As investors become increasingly cautious and reasonable about their bet, a timely merger or acquisition may be the only chance for second-tier players to survive,” – said Shi Rui, Analyst with consulting firm iResearch

Despite a promising partnership with Biker, there has been no word from the company itself to confirm the partnership.

The fall of Bluegogo has spurred the question, has the bike-share economy bubble finally burst?

There have already been three Chinese bike-sharing startups – Xiaoming Bike, Mingbike, and Coolqi – collapsing within a span of one year; the latter actually teaming up with Biker.

Even ofo and Mobike investors are said to be in talks for a possible merger to survive in China’s bike-sharing market, which was estimated to be worth $1.5 billion this year. Is the future of bike-sharing M&A and endless funds?

Without support from a wide range of investors and good financial planning capabilities, even the best bike product is powerless,” wrote Li Gang.

We beg to differ. A company that relies on solely on funding in the long run needs to rethink its business model. Good luck Bluegogo/Biker/Coolqi.

Is it possible to share everything?

Umbrellas? Molisan, E Umbrella, OTO
Basketballs? Zhulegeqiu
Power banks? Meituan-Dianping, Xiaodian, Jiedian
Concrete? Duola
Bicycles? Ofo, Mobike

Above are a few examples of China’s recent headline startups that seem to believe so. They’re banking on a collaborative economy in order to build sustainable businesses.

“Ridesharing, apartment/home lending, peer-to-peer lending, reselling, coworking, talent-sharing, etc. The sharing economy or collaborative economy, is taking off in all sorts of niches.”Forbes

Cars and homes made sense, not at first, but Uber and Airbnb have clearly been very successful platforms that connect users to existing resources. But these are success stories siloed in developed markets, not Southeast Asia or China.  

The basis for these models seem to be the same: consumers are willing to pay to ‘borrow’ services/products for a period of time and eventually, there is profit to be made in the distant future and companies can collect valuable user data.

Critics may be skeptical that any of these power bank or umbrella sharing startups can be successful but there has been no lack of capital backing, currently around $25 billion in total.

The sharing economy also reached a staggering 4 trillion yuan last year (USD $502 billion).

ecommerceIQ

Chinese basketball sharing startup Zhulegeqiu.

Chinese basketball sharing startup Zhulegeqiu was recently injected with a $1.4 million venture investment from Modern Capital, a Shanghai-based venture capital firm, in May. But raising capital is not a strong indicator for a good business model.

Have we not learned from the fall of “Uber for X” business model fad?

Let’s say we forget about profitability or the fact that these startups incur high costs by owning the inventory – what other factors are required to make a sharing startup tick? And is the industry conscious of the longevity of these startups suddenly popping up in China and Southeast Asia?

Trust ‘em or clean up the mess  

A share economy relies heavily on a trust system. If someone is borrowing a bicycle for a rate of 5 THB (USD $0.15) per hour, what is the likelihood a USD $300 bicycle will be returned in perfect condition or be left in a convenient location for the next rider?

Zhuang Ji, director of a social media ‘bike hunter’ group in China recently inspected 983 Ofo bikes in six cities (Beijing, Shanghai, Guangzhou, Shenzhen, Wuhan and Chengdu) and discovered the following:

  • 19 percent were damaged
  • 15 percent were unlocked
  • 12 percent had been stolen for private use
  • 2 percent were being ridden by children under the age of 12

Dump of broken bicycles from multiple share economy bike businesses in China.On the other hand, Umbrella sharing startup, E Umbrella, in China suffered a loss of almost all 300,000 of its umbrellas across 11 cities.

ecommerceIQ

Dump of broken bicycles from multiple share economy bike businesses in China.

Let’s do the math:

Loss → Cost of umbrellas: 300,000 x USD $8.82 (cost per umbrella) = USD $2,626,000

Gain → Customer deposit: 300,000 x USD $2.90 (customer deposit) = USD $870,000
Gain→ Raised capital: USD $ 1,470,000  

Total: minus USD $286,000

The loss isn’t too shocking when the business model relies on what Vox calls, “unpredictable weather and forgetful people”.

But founder Zhao Shuping is certain to succeed and plans to introduce 30 million more umbrellas across China by end of year. And like most of the other ‘share companies’, E Umbrella says advertising will be the main driver of revenue after announcing a partnership with ride-hailing app Didi Chuxing.

ecommerceIQ

Umbrellas waiting for users to ‘borrow’ in China.

Southeast Asia’s not ready.

Chinese bike-sharing giant Ofo recently entered Thailand by introducing its bikes to Bangkok university campuses. A brave move after competitor oBike was deemed a scam by the Bangkok Metropolitan Administration (BMA) soon after its launch and never took off.  

An analyst told Forbes that China’s economic downturn – roughly a slowdown from 7% to 6% real GDP – is making people less willing to purchase goods, creating opportunities for the sharing market.

The opposite can be said for the region, where the Philippines and Vietnam are propelling the region’s 5% average real GDP growth and Myanmar alone is expected to grow by more than 7% in 2017 and 2018.  

“After all these years, China is finally embracing its communist roots,” said Andy Tian, an entrepreneur and co-founder of Asia Innovations Group in Beijing. “That’s the essence of communism: communal sharing.”

“But there’s no question that it’s a bubble,” he added. “It may have roots in something valuable, but can you really share everything?”

China’s booming sharing economy is said to be attributed to a “surplus of money and shortage of good ideas” so it’s probably best not to follow in their footsteps.

Here’s what you should know today.

1. Financial comparison site Moneysmart raises $10m series B to grow into new markets

Singapore-based financial products and services comparison site Moneysmart has raised US$10 million for its series B round.

The round is led by Japanese web group Kakaku, which operates a number of consumer websites in sectors like shopping, travel, lifestyle, and real estate.

Moneysmart helps users compare 17 different personal finance products including credit cards, insurance, and loans. Site visitors can also read about various financial topics on the accompanying blog, maintained by full-time staff.

The startup competes with fellow Singaporean company GoBear, which also offers insurance, credit card, and loan comparison, and is present in six markets in Southeast Asia. Kakaku, a prominent Japanese online brand, sees Moneysmart as an opportunity to tap into consumer markets in Southeast Asia. “Our missions are very similar – help with people’s decision-making,” says Genta Sugihara, senior executive officer for Kakaku’s corporate development division.

Read the rest of the story here.

 

2. For retailers, Amazon is a true frenemy

“They buy from us, but they want to sell advertising to us as well,” said one brand marketer. “When you talk to them, you don’t know what their interest is.”

Amazon could be poised, according to Forrester analyst Collin Colburn, who published research on this in January, to take over search — a market Google almost wholly controls.

As consumer behavior shifts to be more specific, people will start searching on Amazon for specific needs. Amazon has created product display ads and other types of search products already.

At the same time, if brands want to be Amazon for the purpose of using only its marketing (which buyers and brands both say is good), then they also have to be on its marketplace. “Amazon is two-way relationship,” said one marketer.

Read the rest of the story here.

 

3. Recommended Reading: Why Bike-Sharing (Ofo, MoBike) Is Nothing Like Didi and Uber (i.e., Ride-Sharing)

Basically, bike-sharing is nothing like Didi, Grab, Ola, Uber, AirBnb and the others. Its economics are far more like an on-demand rental business or a vending machine business (at this point. It could evolve).

But much of the current excitement seems to be because people think this business is like Didi. It’s just not. It’s a different thing.

Bike sharing is basically a traditional, vertically integrated b2c rental service. It is a traditional merchant business. Being bigger helps somewhat but it is still fairly easy for a new entrant to enter. All you would need is about 30,000 bicycles. That would cost about $2.5M. So this is a cheap and fairly easy business to enter, which will probably limit long-term profitability.

However, in the short-term companies like Ofo and Mobike should do really well. They are offering an innovative new service and are first-movers in a wide-open and massive market.

Read the rest of the story here.