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China’s bike-sharing service Ofo moved into the pantheon of tech unicorns this week after it announced it had raised $450 million in its latest funding round, at a valuation of more than $1 billion. The new investment round was led by venture capital firm DST Global, headquartered in Moscow, and included China’s largest ride-hailing service, Didi Chuxing.
Ofo currently operates in almost 40 cities in China, Singapore, the UK and the US, and claims to have nearly 20 million users. The company, which was founded in April 2014, also said its service has been used for more than 300 million rides since its launch. According to BigData Research, Ofo controlled 51.2% of China’s bike-sharing market in 2016, with competitor Mobike claiming a 40.1% share.
Ofo’s announcement was another sign of the growing prominence of bike-sharing services in China. Services like Ofo allow users to book rentals via a mobile app showing the location of nearby bikes, which are embedded with GPS chips. Unlike bike-sharing services in other markets, most Chinese platforms rely on self-locking bikes that do not require a centralized dock. Rental deposits and fees are all handled via in-app payments.
The sector now has a number of players in China, but two giants are fighting for supremacy in the country: Beijing-based Ofo and Shanghai-headquartered Mobike. Mobike drew $215 million of its own in fresh capital in a series D round in January, and then pulled in an additional $85 million from investors including electronics manufacturer Foxconn and Singapore’s national wealth-holding company Temasek. Mobike offers service in 21 cities in China, and claims to have more than 10 million unique users.
The battle between Ofo and Mobike has understandably drawn comparisons to the war waged between Didi Chuxing and Uber in the ride-hailing sector, a contest that was ultimately won by Didi. Similar to the ride-hailing business model, Ofo, Mobike and their smaller competitors heavily subsidized their services to grow user bases and gain market share.
Quartz reported that all of this competition has resulted in very low prices for users, with 30 minutes of bike rental time costing between RMB0.5 (7 cents ) and RMB1 (14 cents). That likely means profit margins for these companies are either slim or nonexistent. But bike-sharing services are taking a long view, hoping that data gathered on users can be monetized at some point in the future.
Bike-sharing platforms face a wholly different challenge than ride-hailing services in that they must invest significant capital in their vehicle fleets. Mobike, for one, has taken steps toward heading off that problem. In late January, the company reported it planned to double its annual production capacity for new bikes to 10 million, through a partnership with investor Foxconn.
But bike-sharing services also face a host of other significant problems. The business models used by companies in China can be hacked, leading to bikes that are stolen, vandalized or abandoned. It’s problems like this that companies such as Ofo will have to overcome if they plan on expanding to markets outside China.
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