ofo: is bike-sharing really part of the sharing economy?

Ofo was founded in 2014 and is the first station-free bike sharing platform in the world. It is operated through a smartphone application, connecting users and bike manufacturers. Since founding, Ofo has grown exponentially both in terms of its customer base and the number of cities it services. Its distinctive bold yellow bikes were first rolled out on Peking University campus. The business successfully expanded to over 200 universities and 150 cities with over 800,000 bikes across 5 countries, obtaining more than 6.5 million registered users in 2017, exceeding 1.5 million daily rides.

 

Value creation

From the beginning, Ofo has sought to provide the most convenient, affordable and green solutions to its users. Its design of service offering is not only capitalizing the growing demand from urban commuters, but also creating shared values in three different levels

1) Convenience

Ofo was the first company to propose the “docking-free” concept, which revolutionized the public short distance transportation. By making a deposit of CN¥99 and spending CN¥1-2 per hour, users can easily locate bikes nearby and request a real-time code to unlock a particular bike through the mobile application. The bike could be used and left at anywhere and anytime without the confinement of a docking station, creating a better user experience as well as higher profit margins. Users can also choose to share their own bikes on the platform in exchange for unlimited free access to other Ofo bikes, generating economic value with the utilization of existing bike resources.

2) Environmental protection and travel efficiency

Bike-sharing promoted by Ofo has alleviated the problem of air pollution and traffic congestion. Major cities in China such as Beijing and Shanghai are known to suffer from severe smog pollution. Studies have estimated that for each mile traveled by Ofo users, the carbon emission is reduced by 0.27kg. By far, Ofo users have traveled over 50 million km, reducing the total carbon emission by 13.5 thousand tons. In addition, Ofo has taken steps further. They announced at the World Economic Forum’s summit recently that they plan to develop a smog-free bike that will absorb pollutants from the air.

3) Procurement

Ofo is the only bike sharing platform that fully embraces the two-way market. Its platform collaborates with bike manufacturers around the globe and also with Ofo users, encouraging bike sharing on its platform, Ofo managed to increase the usage of a single bike from 5 minutes to 76 minutes. Each bike has been able to grow from serving only one person to at least 10 people per day. Ofo added value by helping standardize the operation of bike sharing process, maximize bike utilization and promote the development of bike manufacturing industry.

4) After-sales service

By partnering with CPIC, Ofo provides travel insurance for every ride by its users. Ofo also educates users regularly on traffic rules and safety instructions through its mobile application. Full-time maintenance teams are deployed to each city or centralized area to systematically examine and repair Ofo bikes. All of the above operational decisions were made to ensure the quality of Ofo products and services, and the safety of users

5) Improve the local and regional business environment

Ofo’s mission is to “unlock every corner of the world, making bikes available to users anytime and anywhere”. It not only creates a new system solving the “last mile” issue but also promotes the new sharing economy business model in China. The enthusiasm for Ofo’s services amongst consumers indicates a demand for sharing and renting services, and an underlying trend of the shared value. Only in a few months, the bike sharing market has become one of the most popular sectors in China, attracting a large number of new entrants and hundreds of millions of dollars in investments from IT giants and notable investors. In light of this, Ofo has improved the local and regional business environment by promoting a shared economy.

 

Challenges and recommendations

Despite all the benefits outlined above, there are still a lot of challenges faced by Ofo.

Typical sharing economy platforms don’t necessarily own its own assets or spend the capital expenditure to grow and maintain them. But this isn’t really the case in bike-sharing. Regardless of rider volume, most bike sharing companies buy and own all the bikes and maintain and replace them, providing essentially a commodity B2C service with a low entry barrier.

1) Oversupply 

The continued influx of shared bikes has led several municipal governments like Shanghai to issue notices to bike-sharing companies demanding they stop adding more new bikes on the streets. Ofo should strengthen its unique positioning and continue promoting two-way markets and leveraging existing assets. It could aim to continue its effort in recycling old/abandoned bikes on university campuses or around the cities. Ofo would repair, repaint, and reinstalls locks on these old bikes, and turned them into new inventories ready for use.

2) High operating costs

A recent study by Penguin Intelligence reported that more than 30 percent of Ofo bikes are damaged and require repairs. To address the issue, Ofo could consider creating an incentive system for customers to help identify problem bikes and expedite/streamline the bike maintenance process.  For examples, rewards could be designed to give users who help report issues of bikes as well as the level of issues. Also, it would be helpful to incentivize users to assign credit ratings to the prior rider who well maintained the bike.  Ofo could also collaborate with the government for the establishment of an integrated social credit system, which in turn create greater value in the sharing economy.

3) Intense competition and multi-homing issue

The increasingly intense competition in the bike sharing industry has posed a great challenge for bike sharing companies who are already making little profits. To get more market share and active users, companies like Ofo had to provide various discounts and favors for riders. Other small companies are even more aggressive in order to get market share. The price war could be damaging to all companies in the market. To achieve a win-win situation, cooperation between companies is important but hard to achieve.  Acquiring small companies could be one solution to the survival of bike sharing business, such as the merger between Didi and Uber China. Unlike some of its competitors who target cycling enthusiasts, Ofo was initialized on university campuses and was targeting lower-end customers with predictable demand, such as students. Ofo should continue searching customer archetypes that present stable customer bases and provide sticky added value. For example, bikes for tourists is still a very fragmented space. Tour information could be potentially incorporated into the Ofo app, allowing Ofo bikes take the visitors to explore the new cities with convenient and proper guidance.

 

 

Sources

IResearch (2017). 中国共享单车行业研究报告. 艾瑞咨询

Rob Walker (2017). China’s App-Based Bike-Share Market. City Tech.

Matthew Brennan (2016). Mobike & Ofo: Bike Sharing Industry Report. Available at https://chinachannel.co/mobike-ofo-bike-sharing-industry-report/

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1 thought on “ofo: is bike-sharing really part of the sharing economy?

  1. Thank you Gloria for the interesting article. To e honest I am still struggling to understand why bike sharing companies have such a high valuation recently. As you pointed out this is such a capital-intensive business, which makes the business difficult to become profitable. The fact that consumers can multi-home also make competition fierce, and I don’t see one company dominates this market in next 5-10 years. Finally I also wonder whether this business is really good for society – massive supplies of colorful bikes all around the cities ruins the city’s landscape, and obviously the waste of materials, which offset the environmental impact of using bikes.

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