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The bike-sharing sector in China has experienced sharp growth over the past year, and the country’s largest tech companies are now paying close attention.
This week, Alibaba joined the ranks of investors in bike-sharing service Ofo by participating in a Series E funding round that raised $700 million. Previous investors in the company included Alibaba affiliate Ant Financial, as well as China’s leading taxi-hailing platform Didi Chuxing.
Ofo’s grasp on China’s bike-sharing market is getting increasingly tighter, thanks to an infusion of cash. The company closed a previous funding round of $450 million in April, when it vaulted into the ranks of the unicorns with a valuation of more than $1 billion.
Bike-sharing companies like Ofo have largely focused on serving customers in urban areas, allowing them to manage short-term bicycle rentals through smartphones. An Ofo user simply scans a QR code on the bike to process payment, and can leave the GPS-equipped bicycles at any location when they’re finished with their ride.
According to an analysis by Cheetah Lab conducted in late May and early June, Ofo was China’s bike-sharing market leader as measured by reach. Mobike was its closest competitor, with a slew of other companies trailing the top two services by a wide margin.
Mobike has already secured the backing of another one of China’s largest tech companies—Tencent Holdings, owner of WeChat, along with venture capital firm Sequoia Capital. In that sense, the battle between Mobike and Ofo is shaping into a proxy war between Tencent and Alibaba. Investors like Alibaba are likely interested in as much data as they can get on the users of bike-sharing services; Ofo already uses Sesame Credit, the social credit rating system, which allows some customers to use its service without paying a deposit.
Ofo is planning to use its new funds to bankroll a better user experience as well as a lofty global expansion goal, with a target to operate 20 million bicycles in 20 countries by the end of 2017. The company said it already has 6.5 million bikes in five countries, with customers able to use the vehicles in a total of 150 cities.
The bike-sharing sector is following a similar path laid out by the fierce competition seen among rivals in the ride-hailing sector, where firms like Didi and Uber offered services at artificially low prices to gain market share.
An analysis by Quartz published earlier this year concluded that most bike-sharing services were operating with razor-thin profit margins based on the low rates they were charging. That indicates companies are relying on their stores of cash to gain market share.
Those without the necessary reserves of capital are likely to get weeded out. In fact, Wukong Bicycle, a company that offered a smartphone-facilitated, bicycle-sharing service similar to Ofo’s, earned the dubious distinction of becoming the sector’s first casualty after ending operations in June. Wukong Bicycle made the mistake of failing to equip its bicycle fleet with GPS trackers, and quickly found that sticky-fingered users had made off with about 90% of its vehicles.
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