With China’s third largest bike sharer bankrupt, riders worry about ...

With China’s third largest bike sharer bankrupt, riders worry about money tied up in deposits
Bike-sharing, the hottest start-up trend in China this year, claims its biggest victim, further chilling an industry that has burned through billions in cash

Sarah Dai and Meng Jing
PUBLISHED : Friday, 17 November, 2017, 2:24pm
UPDATED : Friday, 17 November, 2017, 2:24pm

Beijing white-collar worker Scarlet Sun considers herself a two-time victim of the spectacular rise of China’s bicycle-sharing industry – where millions of the country’s citizens have been able to grab a bike anytime, anywhere for the equivalent of a few US cents per ride.

Sun, already a user of China’s top two bike-sharing firms Ofo and Mobike, only tried a third provider this month when she urgently needed a ride and newcomer Bluegogo’s signature blue-and-white bicycles were the only option available.

“I immediately downloaded the app and paid 199 yuan as deposit. When I finished using the bike, I applied for a refund of my deposit because I didn’t want to put my money in three different bike-sharing apps,” she said.

When the same thing happened a few days later – and Sun had 398 yuan tied up in deposits – she called the Bluegogo hotline but nobody answered.

More details in http://www.scmp.com/tech/start-ups/artic...bout-money

Reminds me of the old adage - "What the wise man does in the beginning, the fools (in this case, the VCs that invested in Bluegogo just earlier this year) does in the end".

https://www.chinamoneynetwork.com/2017/1...osits-risk

What the wise man does in the beginning, the fools join in.
Market becomes too small and too competitive for all the wise man and fools to break even.
Cash burning rate increases as everyone competes for market share.
Eventually the wise man becomes a fool as everyone races to the bottom.
The one that survives in the end is the one who had burnt the most amount of cash and is backed by the richest fools.

As per the discussion on Mobike, I’m not even sure these kind of rental company makes business sense. Without ownership “sharing” also doesn’t work.

Alibaba etc are in it as a form of marketing expense for their payment systems

https://www.valuebuddies.com/thread-7890...#pid141324

(18-11-2017, 03:16 PM)specuvestor Wrote: As per the discussion on Mobike, I’m not even sure these kind of rental company makes business sense. Without ownership “sharing” also doesn’t work.

Alibaba etc are in it as a form of marketing expense for their payment systems

https://www.valuebuddies.com/thread-7890...#pid141324

the deposits create a certain amount of float that they can use to invest in other businesses.

it is unlikely that one will withdraw the deposits most of the time. All that is needed is to provide capex for the maintenance (or replacements) of those bikes, and provide a few "free days" to keep the consumers from withdrawing deposits.

Quote
"the deposits create a certain amount of float that they can use to invest in other businesses.
it is unlikely that one will withdraw the deposits most of the time. All that is needed is to provide capex for the maintenance (or replacements) of those bikes, and provide a few "free days" to keep the consumers from withdrawing deposits."

Completely wrong.
1. The deposits dont pay for much of anything.
2. Capex for maintenance is just one of the many high costs associated with these businesses currently. Why do you think Bluegogo can burn so much money in such a short period of time? USD 90Million IS a lot of money to burn.

Let us separate fact from fiction.
The amount of deposit(a very small amount or none at all) is not enough to pay for anything.
Consider the costs.

1. Bike RnD/software development cost. The earlier generation of shared bikes are dont last beyond a few rides. The later generations are better and more expensive. By better, it means it lasts a little bit longer.

2. Bike Capex and maintenance. no exact figures but it is highly likely the bikes don't last beyond 50 rides before the bike is rendered useless or needs extensive repairs. A mechanic needs to go to the location and carry out the repairs. In Singapore at least, the cost for a simple repair operation would be at least $40-$50 per bike bearing in mind they are all over the place. if it needs extensive repair, it will need to be brought to a reasonably big facility to carry out the repairs or to be discarded.

3. Bike distribution. Bikes will need to be re-distributed as many gets ridden to one place while other places get no bikes. It is mandatory in certain cities. And because these bikes are parked anywhere and everywhere(including inside rivers, on trees, in the middle of nowhere...)The logistic cost behind this re distribution will be staggering.

4. Compliance cost. The regulators are constantly introducing new rules to govern these shared bikes due to indiscriminate parking and abuse. In Australia, helmets are mandatory, so each bike must have a helmet attached.

5. All in, right now this business has the highest cash burn rate amongst all start ups. Can it be profitable? Maybe in the no so near future. If the big 2 merge and have sort of a monopoly and starts charging higher rates/incoporate ads/sell data collected/reduce runnings costs. It can be profitable.

come on guys, obviously bike sharing is not a viable business. A bicycle probably costs only like a hundred bucks, maybe $50 bucks in china. Seriously mobile phone people own nowadays, probably costs more than a bicycle. So cheap if really need a bicycle just buy one.

its just a loss making business with a sexy sounding business plan riding off the ride-sharing idea funded by cheap credit. I guess when markets are bouyant, people will buy into any story so long it can can IPO and make money for them.

This is exactly like what happen during the 2000 tech crash. makes me ROFL everytime i read about some ride sharing company.

I have been wondering for some time how the bike sharing business can survive for so long with many negative news on lost and damaged bikes.  Below article in Today may provide some clues on the business model and how it is different from Uber or Grab.

http://www.todayonline.com/business/impa...-bloomberg