Getting less cars on the streets of Oxford has been local government’s mission and it certainly has worked. The amount of cars you see here are less than a few years ago despite the growing numbers of residents and visitors. As an alternative, bikes are very popular to get around town. And bike share companies are not missing the opportunity. This summer, two dockless bike companies are entering Oxford – Ofo Bike (China) and Pony Bikes (local start-up). 

Dock sharing scheme has been a phenomenon in China in past few years. We can all learn something from its success and downs. This week, our guest contributor Alan Chan, will share his in-depth view of The “Internet of Bikes” sensation in China.

A Golden Era for Automobility Innovation: The “Internet of Bikes” sensation in China

By Alan Chan

What is the “Internet of Bikes”?

Much has been written about the overnight sensation of the dock-less bike-sharing services in China. Over the course of the past year or so, the bike-sharing landscape has evolved so fast that it is worth the world to take notice of.

For those who have not experienced the product/service, they are different from traditional bike-sharing schemes that typically come with designated docking stations and cash payment options. Users can locate these bikes using their smartphone, grab and drop them off, literally, anywhere in the city, and pay via mobile payment solutions.

Mobike and Ofo are the two market leaders that together dominate over 90% of the market share in China. Mobike uses smart locks where users can simply scan the QR code on the bikes via smartphone to unlock the bikes. It charges only 1 RMB per 30 minutes (in addition to 299 RMB deposit). Ofo uses mechanical padlocks on its yellow bikes and operates with a similar business model. Users can top-up their accounts via mobile payment solutions.

Michael Moritz, a partner at Sequoia Capital, called these dock-less, shared and connected bikes in China “Internet of bikes”, a term adopted from the concept of the “Internet of Things” that refers to the inter-networking of physical devices embedded with electronics, sensors, software and network connectivity that enable these devices to collect and exchange data.

Left:The two market leaders: Mobike (orange) and Ofo (yellow)
Right: Bike-sharing apps in China (Not exhaustive)

Mobike now claims to have more than 100 million users who take an average of 20 million trips on its 6 million bikes every day. They have raised an astounding 928 million USD investment in just two years, with big-name backers like Tencent, Foxconn and Temasek Holdings. Ofo is also backed by big-name investors like Alibaba, Didi Chuxing and DST Global. To seek further growth, Ofo and Mobike are now expanding into overseas markets. Some investors are even anticipating a mega-merger or IPO.

A win-win ecosystem

The Internet of Bikes model hits the sweet spot of consumers, industry, and policymakers with win-win value propositions.

First of all, it is an ultra-convenient and highly affordable first and last-mile mobility option for the consumers. Many urban white collars threat it as an opportunity to get exercise before and after work.

Secondly, it has revitalized the declining traditional bike industry. Bike and smart lock manufacturers are now receiving piles of new orders from these well-funded start-ups. Essentially, they have catalyzed a new cultural shift. Biking is no longer associated with the old-fashioned, low-income and elderly population in China. It is now perceived as a “cool thing” and “upgrade” because of its young, environmental-friendly and tech image.

Thirdly, for the policymakers, it helps reduce air pollution and traffic congestion. Mobike says its bikes have helped to cut nearly 200,000 tons of carbon emissions. In addition, the terabytes of daily mobility data generated from these services can help improve public transport planning and city design. For example, Mobike is now working with local authorities to “decentralize” urban public transport hubs by locating several hubs outside the city center which can still be easily reached by cycling.
More than just a network of physical bikes

In fact, there is more than a dozen of “Uber for bikes” start-ups in China and a few of them such as Wukong and 3Vbike have already gone out of business due to the intense competition. Mobike and Ofo, as the first movers, stand out from the crowd as they have pioneered a range of innovations that promote sustainable growth.

Take Mobike as an example. In terms of the product design, their bikes are built specifically for the sharing purpose – rust-proofing aluminum body, solar paneled basket and airless tires – to make sure low maintenance and long product lifetime. In terms of the software, Mobike has built-in GPS and SIM card, which allows real-time location tracking, data-driven fleet management, and remote software update. They have also built an artificial intelligence (AI) platform, namely “Magic Cube”, which learns upon environmental and user mobility data about where they go, when they travel and other behavioral patterns to optimize its bike delivery, dispatch and maintenance operations.

It is more than just putting physical bikes on the pedestrian sidewalks but providing an integrated technology solution built around a ubiquitous network of connected mobility devices.

Leveraging technology to encourage more responsible usage

Needless to say, the vandalizing, destroying or dumping of these bikes after use has caused serious concerns about public space usage and traffic safety.

As countermeasures, Ofo has partnered with Alibaba-backed Ant Financial to integrate its service with Sesame Credit social credit-scoring system, which scores Alipay users based on a complex algorithm that takes into account everything from shopping habits to whether they pay their bills on time. Such a trust system helps attract more quality users and promote responsible usage.

Mobike also offers incentives like ride credits to users who report misbehavior cases. Mobike Preferred Locations (MPL) are set up in crowded areas as designated parking zones to minimize random parking. To help rebalance the demand and supply of bikes, Mobike’s intelligent platform can selectively label the underutilized bikes as “bonus bikes” with a red packet attached to them. Users are therefore incentivized to pick these bikes and ride them to other spots. They are also working with local governments to formulate new regulations that make cities more bike-friendly in long-term. The new technology enablers are not only making the bikes smarter but also promoting more responsible usage for the benefits of society as a whole.

Left :“Bonus bikes” on Mobike app;
Right: Ofo partners with Ant Financial Sesame Credit

Exploring future monetization models

In order to fully appreciate the “Internet of Bikes” business model, one has to recognize that it is an internet play rather than a pure product-centric play. Instead of the service charge per ride and the deposit fees, what really matters is, in fact, the potential in data monetization.

For most people, it looks like these companies are practically giving away their products for free just to beat the competition. But in almost all cases of Internet start-ups today, the larger their user base, the higher their market valuations. As a result, an ideal scenario for these bike-sharing start-ups is to obtain an ultimate monopoly position. Once companies establish that “winner-takes-all” status, they can monetize their customer data as a compelling competitive advantage.

Like mobile payment, ride-hailing and food delivery, bike-sharing is a high-frequency and sticky entry point to attract an enormous amount of user. As Internet giants such as BAT continue to expand horizontally across our connected lifestyles, they are constantly looking for new “hooks” that can draw more users to join and stay in their services ecosystems. Bike-sharing represents an attractive use case, short-distance smart mobility, which is an integral part for tech giants to complete their cross-boundary ecosystems. This explains why Ofo is backed by Alibaba and Mobike is backed by Tencent.

One can easily imagine many ideas of how bike-sharing start-ups can monetize its user base and data, such as providing courier services, e-commerce sales and packaging mobility data for business customers (B2B) and local governments (B2G). Through artificial intelligence, bike-sharing big data can help explains when, how and probably why an individual or a group travelled from A to B at any particular time. Such 360-degree understanding of user’s mobility patterns would allow brands to design more targeted advertisements for different consumer segments and derive more data-driven insights. For example, retail business owners can analyze these mobility patterns to pick their store locations that maximize customer traffic.

A golden era for automobility innovation

As Ofo and Mobike continue to enter new cities such as Seattle (US), Cambridge, Manchester, London (UK), Florence (Italy), Fukuoka and Sapporo (Japan) this summer, China’s automobility revolution has growing impact for the world.

Similar business models are also proliferating all over the world, such as Spin and Limebike in the US, Ponybikes in the UK, in Hong Kong, and oBike in Singapore. This is unprecedented because it changes the traditional Western perception of China being a “nation of copycat” taking market-proven ideas from the West and simply adapting them for the local market with only minor modifications. China is now exporting some of the world’s most game-changing innovations.

Left: Mobike launches in Manchester, UK
Right:Ofo launches in Seattle, US

In fact, the “bicycle renaissance” is merely a fraction of China’s on-going automobility revolution. Automotive incumbents, mobility start-ups, tech behemoths, investors and government regulators in China are now all making big bets on the so-called “Internet + Transport” transformation, which covers shared smart mobility services, vehicle electrification, and self-driving cars.

China is the world’s largest automobile market today, with sales of 28 million vehicles in 2016. China has 15 megacities with a population in excess of 10 million. Over 771 million of the nation’s population lives in urban areas, compared to 322 million in the U.S. China’s rapid urbanization and pain points associated with car ownership has accelerated the growth of usage-based mobility services.

The Ministry of Industry and Information Technology in China is targeting 35 million vehicle sales by 2025 and expects New Energy Vehicles (NEVS, referring to battery electric vehicles and plug-in hybrid electric vehicles) to make up at least one-fifth of that total. As vehicle emissions are a major source of China’s air pollution, the government sees NEVs as a long-term solution to ease air pollution. It is also a strategic opportunity for China to level the playing field and create local champions in the global automotive industry.

Furthermore, Chinese consumers are fully embracing digital connected lifestyles 24/7. China is a mobile-first society and has over 750 million mobile Internet users. Didi Chuxing, the Uber of China, claims to have 20 million rides booked per day covering 400 cities in China.

With the booming scene of “mass innovation and entrepreneurship” and the Chinese government’s desire to leverage technology to transform China into an innovation-driven economy, China will emerge as the epicenter of the world’s automobility disruptions. The Internet of Bikes is not a single case and we expect to see more China-originated innovations in the field of future mobility. It is now essential for the world to take a closer look at China’s automobility innovations.

About the Author

Alan Chan is a Senior Consultant at Gao Feng Advisory Company, a globally pre-eminent strategy and management consulting firm with roots in China. He specializes in digital strategy and innovation within the context of China.

 He is a Senior Consultant at Gao Feng Advisory Company, a globally pre-eminent strategy and management consulting firm with roots in China.


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