Chinese state media hailed it as one of China's  "Four Great Inventions" of modern times.

Today, what most people  remember are the graveyards.

Or the thousands of bikes left  on streets and public areas.

In less than a year, 70+ bike-share  startups burned billions of dollars  

to put 20+ million bikes on Chinese streets.

It was insane. It was unsustainable. Oh boy.  

In this video, we dive into the bonkers  Chinese bike-share bubble of 2017-2018.

## Beginnings

Bike-share as we know it dates to  a social experiment in the 1960s.

In 1965, a Dutch industrial designer and  engineer named Luud Schimmelpennink pedaled  

out a scheme called the "White  Bicycle Plan" (Witte Fietsen).

Schimmelpennink was part of a counter-cultural,  

anarchist social movement called Provo.  They liked to do these public provocations  

to confuse the authorities while also offering  action-oriented solutions to social problems.

Car ownership rates in Amsterdam  were rising - bringing along with  

it serious traffic congestion,  pollution, and fatal accidents.

Provo hated cars. They called  them steel boxes of poison gas,  

and found them asocial and isolating.  The bicycle on the other hand was  

minimalist, vulnerable, green and  counter-cultural. They liked it.

So for the White Bicycle plan,  Schimmelpennink painted a number  

of bikes white and left them on the streets  of Amsterdam without locks. Free to use.

We call it the first generation of bike-share.  

No docks, user registration or electronic  tracking. Or government approval. The first  

White Bike was immediately impounded  by the police for not having a lock.

The scheme was not particularly large.  Schimmelpennink later said that no more  

than 10 bikes had been placed on  the streets. He attempted a larger,  

sanctioned version but was rebuffed by  the city council. But the idea stuck.

## 2nd and 3rd Generations

The first sanctioned bike-share programs began  

in Denmark in the 1990s, and  they quickly became popular.

We consider these second generation  systems. Users picked up and dropped  

off their bike at a special dock, paying  a small coin deposit to unlock them.

The "Bycyklen" program as it was  called - the name means "city  

bicycles" - expanded to Denmark's  largest city Copenhagen in 1995.

To survive heavy use and stave off theft,  

the 500 custom bikes had no gears or  parts that can be reused in other bikes.

In 1998, the city of Rennes in France launched  a fully-computerized bike-share. The bikes,  

fitted with electronic locks and smartcards.  

And a truck carted bikes between  docks to keep them all stocked.

This third-generation of bike-share system  worked and more improvements arrived. In 2000,  

Munich introduced its "Call a Bike" service,  which pioneered mobile phone-based services.  

You unlocked the bike with a code sent  to your mobile phone via SMS text.

Bike-share helped make bikes a legitimate form of  public transit, particularly for that "last mile".

By the end of 2008, Paul DeMaio of MetroBike  LLC estimated that there were nearly 100  

third-generation programs around the  world. Including in Mainland China.

## The Beijing Bikes

In the 1970s and 1980s, there  were so many bikes in Mainland  

China’s cities that visiting journalists  nicknamed it "the Kingdom of the Bikes".

That is no longer the case. According to  the Ministry of Transport, the number of  

bikes in Mainland China peaked in 1995 at 670  million units. And then the cars took over.

The first notable third-generation  bike-share in Mainland China was  

established by the Beijing city  government back in 2005. But it  

was during the lead-up to the 2008 Beijing  Olympics that the program became prominent.

Mainland China wanted to show  its best face to the world,  

but Beijing in those days had a serious  traffic congestion and air pollution problem.

So to improve the air, the city government  from July 20th to September 20th banned  

cars from the road on alternating days  based on their license plate numbers.

But people still need to get to where they  are going, so the government encouraged  

cycling - partnering with companies to deploy  thousands of bicycles for use. The Transportation  

Bureau estimated that four million Beijing  people switched to cycling during this period.

Unfortunately, the bike rush  was not sustainable. First,  

the setup for renting a bike cost  too much. You had to put down a  

deposit of 400 RMB and pay a rental cost  of about 5 RMB an hour or 20 RMB per day.

Too high for 2000s-era Beijing, where  the average per-capita disposable income  

was 24,725 RMB. A bus ticket  to compare cost just 1 RMB.

Another major issue were the docks. The rental  partner companies did not cooperate, so cyclists  

can only rent and return at a company's dock. This  effectively doubled the distances between docks.

The docks' location were problematic  too. Real-world checks found them sited  

in impractical or even unsafe places.  Like between two automobile throughways.

The bikes were also poorly maintained.  Sitting outside in the elements after  

a while they rust or lose bells, handles,  and grips. Such things aren’t safe to ride.

In the year after the Beijing Olympics  ended, the market dried up. Beijing's  

largest bike rental shop Fangzhou -  which once had over 10,000 bikes and  

575 docks - collapsed, returning user  deposits and selling excess bicycles.

Nevertheless, other Chinese  cities like Guangzhou, Shanghai,  

and Hangzhou started their own private-public  bike-share programs. Some got quite large.

Wuhan's for instance started in 2009, and  eventually grew to 700+ docks and 90,000 bikes.

## Dai Wei and Ofo

Now it is time to introduce the first  of our private bike-share companies:  

Ofo, led by Dai Wei (戴威).

Dai was born in 1991. His father had once  been the party secretary of China National  

Chemical Engineering Group, a major  state-owned enterprise. He attended  

a top school in Bejing and in 2009 entered the  prestigious Peking University to study finance.

After undergrad, he volunteered to teach at  a school in the isolated western province  

of Qinghai. The daily commute was about 17  kilometers, which took 50 minutes via bus.

Dai has long been passionate about biking -  joining the university cycling club. So he  

and the other volunteers bought bikes  and cycled to work. That experience  

convinced him that biking was "the  best way to get to know the world".

So he thought to start an internet business  involving bicycles. In February 2014 - while  

still teaching in Qinghai - he  registered the Ofo domain name.

Ofo, because the three letters together  look like someone riding a bicycle.

After his gap year, Dai started a masters  

degree at the Guanghua school of  management at Peking University.

There, he and four classmates - mostly  from the cycling club - formally began  

the Ofo startup. Now they  just have to do something.

In the first year, Ofo tried many things,  

all related to biking. They tried organizing  cycling vacation trips in Hainan and Taiwan,  

a website for swapping second-hand bikes,  and a bike health service. Nothing caught on.

## Doing Bike-share

Then in May 2015, Dai reportedly saw a student  looking for a lost bike and had an epiphany.

During a "Strategy and Game Theory"  class, he and his cofounders mulled  

over having lost over a dozen bikes to  theft. Dai himself personally lost five.  

So they brainstormed countermeasures  like anti-theft patrols.

They came up with a very literal bike-share  scheme. A hundred people pooling together  

their bikes for shared use. The idea being  that even if the thieves stole fifty of  

the bikes out of the pool, the remaining  would still be enough for everyone to use.

This was what Ofo originally launched. They  marketed it with WeChat articles titled "We  

Have a Dream: to Enable PKU People to Use a Bike  Anytime Anywhere" and "These 2000 PKU People Will  

Do Something Great" - asking university members  to contribute their bike for access to the pool.

But Dai and others quickly  realized the flaws of the approach.  

Users had trouble locating a shared  bike. And the lack of branding made  

it harder to promote the service. So Ofo  decided to supply the bikes themselves.

And then in a moment of brilliance, they created  an app to facilitate the bike rental process.  

You scanned a bike's QR code and got back  a password to unlock it. No need for docks.

The bikes themselves were cheap.  Each cost about 2700 RMB or  

$30 USD. A little more for licensing  and other prep. They charged about  

0.5 to 1 RMB per ride depending on  the length, so about 8 to 15 cents.

The new Ofo service launched in either June or  September 2015 on the Peking University campus  

with its 30,000 students. Sources differ as  to when was the pilot or official launch.

Nobody believed that the yellow bikes wouldn't  just get stolen. One co-founder recalled in a  

now-deleted Xinhua interview that they pulled  an all-nighter the evening before the launch:

> We were extremely tired, but kept  looking closely at our backend numbers  

throughout the day. We had 500  registered users, and 200 rides.

> [In the older model], we had to beg and  beg for even 10 users. That was the first  

time we felt like we created a product  with its own vitality, one that can grow.

As mentioned, Ofo did 200 rides its  first day. They did 300 the next and  

500 the third. By the end of October,  Ofo users were doing 4,000 rides a  

day on a thousand bikes. By December,  20,000 daily rides and 100,000 users.

Product-market fit now secured, the company  raised a Series A round of 15 million RMB or  

$2.3 million from GSR Ventures - an  early investor in rideshare giant Didi.  

They used the money to expand to twenty  university campuses across the country.

## Mobike

Now let us introduce the second company:  Mobike, founded by Hu Weiwei (胡玮炜).

Hu Weiwei was born in the city of Dongyang in the  

Zhejiang province in 1982. She graduated  from Zhejiang University City College with  

a degree in journalism and moved to  Beijing with nothing but a suitcase.

Over the next decade, she wrote for  business and car-oriented magazines  

like Daily Economic News,  Business Value and GeekPark.

In mid-2014, she left and used her life  savings to start her own media website:  

GeekCar, covering entrepreneurs and all the  latest trends in the world of transportation.

She hired a few journalists and set up shop in a  small courtyard space that moonlighted as a bar.

One day in late November 2014, she  brought some student designers and  

entrepreneurs to meet William Li,  founder of the EV company Nio.  

They came to talk about smart bikes  that can capture riders' health data.

But Li did not think that  would work - as a car guy,  

he thought cars would do that better  than bikes. He instead suggested an app  

that let you rent a bike and then leave  it without needing a stationary dock.

He later recalls the idea coming from  trying to rent a bike at bike-shares  

in Shanghai and Beijing, but finding  the user experience horrendous. You  

had to apply for a card to start,  and docks were few and far between.

The other guys were not really interested,  but Hu was. Over the next few weeks,  

the two talked through the unit economics  and implementation. They also came up with  

the venture's name: Mobike, which  just combines "Mobile" and "Bike".

Li provided $230,000 in angel funding to get  the company started, which it officially did  

in January 2015. Despite him providing the idea  and initial investment, William Li has made it  

clear in interviews that Hu was no puppet. She,  not him, was the company's early driving force.

## Mobike's Launch

Li insisted that each ride be priced at just 1  RMB. If in Europe, 1 Euro. In the US, 1 dollar.

To make those unit economics work,  the bike had to last four years  

which meant a custom design. Hu  found a designer named Wang Chao.

He designed a sturdy, chain-less  bike with solid tires and hidden  

brake cables. Hu produced the bikes on her  own dime at a cost of about $300-450 each.

A former Motorola engineer returning to  China from Japan helped make a GPS tracking  

system that synced with a mobile app. This  also helped as a theft-prevention measure.

All throughout the process, people doubted  her. How can a former financial journalist  

ever raise enough money to build  a shared bicycle network at scale?

She herself later said that  had she known what it took,  

she probably wouldn't have done it. But she  focused on executing and kept moving forward.  

When things got a bit dodgy financially, Hu  took out a personal loan to keep it afloat.

However, she soon recognized that she needed  more experienced management. In December 2015,  

she poached the general manager  of Uber's Shanghai operations,  

Wang Xiaofeng or Davis Wang  (王晓峰), to join Mobike as its CEO.

Wang is a formidable executive, having before  worked at P&G, Google China, and Tencent.  

After Tencent, he joined Uber China as general  manager of its Shanghai operations - ferociously  

competing in the rideshare wars for two years.  He would bring a similar ambition to Mobike.

Mobike did their official launch on April  22nd 2016 - bringing their orange bikes to  

the streets of Shanghai. The Mobike marketing  team including founder Hu Weiwei herself onsite  

at the Damuqiao Road subway station in Shanghai  to sign people up and demonstrate the service.

Only a few elderly paid attention. That  first day, Mobike did just 17 rides.

One employee recalled being concerned  and remembers Hu telling him:

> At the beginning, you might think 17  is a small number. But in a few months,  

you will see millions, even tens  of millions of rides per day.

> At that point, those rides will just  become data. Only now, at the very beginning,  

can you truly experience the joy  of winning over users one by one.

Fortunately, growth quickly followed.  Four months later in August 2016,  

they had over 10,000 bikes in Shanghai alone  en route to 100,000 by the end of the year.

CEO Davis Wang ran the Uber playbook -  planning a lightning expansion across  

Mainland China's biggest cities in  an attempt to build an unassailable  

network. This eventually put  them head-to-head against Ofo.

## Ofo's Early Error

At the start, Ofo focused on providing  bike-share services only to university campuses.

This became somewhat of a problem.  Riders kept taking the bikes off  

campus and leaving them there. Now  new customers had no bikes to ride,  

hurting growth. Ofo hired trucks to bring  bikes back, but this failed to stem the tide.

After a debate, CEO Dai initially decided that the  company should focus on just university campuses.  

He felt that this was a protected niche  - if you can call 2 million users in  

200+ universities in 20 cities  a niche - that Ofo can dominate.

Bike-share customers are price-sensitive,  

but not overly so. What matters most is that  they can find a Ofo bike not too far away,  

be able to unlock it with ease, and  have a comfortable and safe journey.

That means having a dense network of  high-quality bikes. Far easier to do  

on a small college campus than the urban core  of a Tier-1 Chinese city. Just imagine the work  

and logistics it will take to handle  and maintain such a massive network.

Ofo must forecast demand, deter theft,  distribute bikes to handle spikes,  

deal with the weather, and more.  They were having enough trouble  

expanding to universities. Going to the  cities can all quickly get out of hand.

So in May 2016, Ofo prevented the  bikes from being ridden off-campus.  

A few customers complained, but the  restrictions raised bike network  

density and utilization and Ofo's monthly  revenue run rate rose to $1.5 million.

And on the campuses, the unit economics looked  amazing. Each bike was used about 10 times a day.  

At about 0.5 RMB per ride, a bike breaks even in  just 3-4 months. There are some maintenance costs,  

but that was then about 1 RMB a day. So,  the campus business basically broke even.

But a few months later in August 2016, Mobike  entered the Beijing market and started competing  

with Ofo on the campuses. Founder Hu Weiwei  told media that this wasn’t intentional:

> In the beginning, Mobike did not intend to  enter colleges, but there is a lot of demand  

in colleges. Some college students rode the  Mobike cycles into the campus. And universities  

including Peking University want to cooperate with  Mobike to create a campus free of motor vehicles

That might be true. But once it started working,  

Mobike certainly leaned into it. They  flooded the campuses with their orange  

bikes and sent promotional red envelopes  of cash or coupons to students and staff.

It quickly became clear to Ofo's management  that they had to leave the school campus and  

take Mobike on in the city streets.  Cofounder Austin Zhang later said:

> [Looking back two years ago], we should  have gone straight into the cities and  

not wasted our time ... During the time we  were developing our service on the campuses,  

we [had] already lost some of our speed.

CEO Dai himself echoed this saying:

> If we entered the cities directly in  May, the competitive landscape would have  

developed completely differently. The biggest  regret I had about 2016 was entering cities  

too late. People are accustomed  to staying in their comfort zones

## Easy Win?

Despite that realization, Ofo brimmed  with confidence about their prospects.

This was because they believed that their unit  economics were superior. Mobike's bikes with  

their digital smart locks, complicated GPS,  and custom designs cost 5-7 times more than  

Ofo's cheaper bikes. And the campus data told them  they were already at break-even after 3-5 months.

So for every bike Mobike deploys, Ofo can do  ten. So Ofo can raise a boatload of cash and  

flood China's urban areas with bikes.  And larger network always wins, right?

In September 2016, Ofo closed a series-B  round for tens of millions of dollars.  

At the press conference announcement, Ofo  investor Zhu Xiaohu of GSR Capital boldly  

declared that this bike-share "war" will  be over within 90 days. (共享单车将在90天内结束战争)

But Mobike refused to back down. That same  month, Mobike announced a $100 million series-C  

round. Investors Warburg Pincus and Hillhouse  Capital Group were amongst those involved.

Then on October 10th, Ofo announced a $130 million  series-C round, a month after closing their  

series-B. The big new investor this time around  was Didi Chuxing, the Chinese taxi-hailing giant.

Didi had recently concluded a long,  

brutal battle against Uber China that they  won by absorbing the smaller competitor.

But then Mobike hit back with yet another  $55 million series-C+ round. This one led  

by the messaging and gaming tech giant, Tencent.

So by the end of 2016, Mobike and Ofo had pulled  in over $300 million dollars of funds - aligning  

themselves with big, rich tech giants. Suddenly  the bike-share war didn't seem so easy to win.

## Crashing the Party Mobike CEO Davis Wang admitted in a December 2016

interview that the bike-share business  does not have a high barrier of entry.

He then added that such moats  would make their workers lazy,  

anyway. Which sounds like  something my father would say.

Once a guy hits on something, within a few months  you have dozens of that thing. That’s how fads  

are. When Groupon got big in the early 2010s,  you had a thousand Chinese Groupon-wannabes.

The same happened for bike-share. In 2016 alone,  

25 bike-sharing companies entered the market. We  will meet some of these guys later in the video.

By June 2017, you had seventy bike-share startups  in China - painting their bikes a rainbow of  

different colors. Zhang, the Ofo cofounder,  joked that they might run out of colors.

Interestingly enough, the big bike-share  leaders argued that all this new competition  

was actually good. In one NBER paper, Ofo  provided data for dozens of Chinese cities.

It seemed to show that whenever Mobike entered an  Ofo-only city, Ofo's signups, ride volumes, and  

revenues actually grew. Signups by 65%, rides by  40.8% and average revenue per ride by 0.041 RMB.

So yeah sure, competitors might steal  customers from each other. But that was more  

than compensated for by the overall expansion of  the pie. Not an uncommon argument to make during  

bubbly periods of expansion. Harder to make though  if things descend into zero-dollar price wars.

## A Fine Frenzy The obvious thing would be for Ofo and Mobike to

merge and consolidate the market  without excessive competition.

There was precedent in Chinese internet  history for this. Taxi hailing apps Didi Dache  

and Kuaidi Dache merged in early 2015 to  create the aforementioned Didi Chuxing.

And food delivery apps Meituan and Dianping merged  to create Meituan-Dianping. In both cases, the  

mergers calmed excessive competition and prevented  disorder. Why not do the same in bike-sharing?

My guess is that you do a merger when the  companies are deadlocked. But Mobike and  

Ofo both still believed then that they can  win the whole market. So as 2017 opened,  

the two prepared for battle, filling their  war chests with titanic funding rounds.

In January 2017, Mobike closed a $215  million investment round from Tencent,  

Warburg Pincus, and new strategic  investors CTrip and Huazhu Hotels.

They then augmented that with a strategic  investment from Foxconn a few weeks later.  

The two announced a partnership to produce  ten million new internet-enabled bikes.

Then in February 2017, Ofo launched  a price war. From the 24th to 26th,  

Ofo entirely waived the 1 RMB ride fee -  literally letting customers ride for free.  

They also issued generous rebates - giving people  2 RMB of credits for every RMB they put in.

Mobike decided to follow. And then on March  3rd, they hit back with another nationwide  

free-ride campaign. Ofo quickly matched  that with the promotional slogan, "You ride,  

I pay" (你騎車、我買單) - sending mass SMS texts to  customers to announce the flash promotions.

Ofo then rearmed their wallets by raising  $450 million at a $1 billion valuation from  

the American investment fund DST Global  with participation from Didi and others.

Flush with cash, the bike-share  companies immediately launched  

another salvo of aggressive promotions during  the Qingming Festival break, April 2-4th.

If you are not familiar with Qingming festival,  

it is the time of year when Chinese head back  to their home villages to visit and clean the  

graveyards of their ancestors. It is a big  holiday in both Mainland China and Taiwan.

For the bike-share companies, it meant  lots of people out and about. So,  

Ofo launched another marketing campaign  of red envelopes and free rides. Mobike,  

Hello, and all the other  bike-shares followed suit.

None of this made sense. Why sell your  service for free during the time when  

people are most likely to use it!? And  people both in and outside the industry  

recognized that this was all very  dumb and economically unsustainable.

Yet the companies' leadership seemed to feel that  they had no choice. In late November or December  

2016, Davis Wang was asked in an interview about  profits. He replied with some tongue in cheek:

> "If I had a 30% profit margin,  why would I seek investors?  

Why would I let them share in  our profits? The reason we keep  

seeking investors is precisely because  we don't have a clear profit model yet.

> We hope others will give us money  to keep us alive, to keep us growing,  

to let us run faster than others, and then  together we can find that profit model. So  

when it comes to startup projects, it's  still too early to talk about profits."

Note that he said this in late 2016, before  the February 2017 price wars. The whole thing  

was a land grab. Profits we can figure  out later. But how long can it last?

## Replay The price wars continued into the summer.

In June 2017, Mobike and Ofo raised even more  money. Literally less than half a year after the  

last fundraising rounds. Mobike with a staggering  $600 million series-E led by Tencent ...

And Ofo with a monster $700  million series-E. This round  

was led by Tencent's economic rival Alibaba  reportedly at a valuation of $3 billion.

This officially positioned Ofo and Mobike  on opposite sides of the long-running  

Alibaba-Tencent feud. So in little over  than a year, the two have raised over  

$2 billion. And like as before, another  round means another wave of promotions.

In late June 2017, Mobike offered 20  million "free-ride monthly" cards for  

just 20 RMB. Basically pay  20 RMB and get 30 days of  

free rides anywhere. They gave 10  million more cards just for free.

Ofo and others like Hellobike matched.  Ofo one-upped Mobike by literally giving  

people up to 20 free rides a day for  thirty days. Didn't need to do anything,  

just claim the promotion right inside the app.

## Overseas

The big economic thing about this June 2017  round of financings however was going overseas.

The narrative was that now that China has  mastered the innovative bike-sharing model,  

they can go and export it overseas to the  US, Australia, United Kingdom, and more.

One of the first Chinese bike-share companies  to go overseas wasn't Mobike or Ofo,  

but Bluegogo. You can probably call  them the third-largest of the era.

They raised $90 million - including $58  million at the start of 2017 - and had  

about 700,000 bikes across Mainland China.  Their blue bikes are particularly known for  

their higher quality, including  the ability to switch gears.

In January 2017, they announced a move to San  Francisco as well as Seattle. That they would  

be dropping hundreds of blue bikes onto  the SF streets right out of the ... blue.

Now SF already had a regional bike-share scheme  called Bay Share, done in exclusive partnership  

with a company called Motivate. Moreover, city  officials freaked out at the prospect of having  

all those bikes on the streets blocking San  Francisco's iconic views of the homeless.

Letters of anger flew. Motivate lobbied  hard to maintain their monopoly. Bluegogo  

attempted to salvage the effort  and continue their US expansion,  

but failed when the necessary  permits could not be secured.

Mobike and Ofo's international  rollouts went much slower. The  

two companies first started with  trials in Singapore - a market  

with a business-friendly government  and good bike paths - in March 2017.

Then after that, they expanded to Japan as well as  Europe, the United Kingdom, and the United States.

Mobike did a decent rollout in the British  city of Manchester - making a flashy video  

promoting the benefits of cycling and bike-shares.

But ultimately, those plans' ambitions  far exceeded their substance. Most were  

small pilots of just a few dozen  or so bikes. Few got very large  

before things started to go bad  in the second half of the year.

## Losing Money Bad

During an April 2017 Bloomberg interview,  

Austin Zhang said that there indeed was  a bubble in bike-share. But it's okay!

> "There will be a bubble for the industry ... But  

as long as we continue to do practical  things, then there won’t be a bubble.”

I am skeptical that we can call subsidies and  zero-dollar marketing promotions "practical  

things". But beyond even those, the two businesses  faced serious problems. Ofo, in particular.

First were the bikes' attrition rates. There isn’t  much official information, but estimates exist.  

Ofo's smaller and lighter bikes were more pleasant  to ride but particularly susceptible to damage.

One mid-2017 estimate found that 20% of Ofo's  bikes disappear or are damaged each month.

Ofo also underestimated the logistics cash burn.  

Cargo vans in Beijing cost  about 650-750 RMB per trip.

Ofo needed 100 vans to service the city,  so that is about 6 million RMB each month.

Part-time labor means another 1 million  RMB. So all in all 7 million RMB or a  

million bucks a month just for vans  trucking bikes around in Beijing.

And then there was the lavish spending.  Internally, the company fell prey to the  

chaos of unrestrained growth. Ofo  financial staff reported feeling:

> “immersed in ecstasy and feeling crazy  

at spending a continuous flow of  investments and customer deposits"

They expanded from 800 to 3,000 employees -  paying salaries way higher than the average.  

They rented four floors in one of the priciest  buildings within Beijing's major tech hub of  

Zhongguancun. CEO Dai Wei personally had  the cafeteria done to look like Google's.

Recall that Dai had no serious job before  starting Ofo. He was known to be a generous boss,  

once awarding 10,000 RMB to an employee  on the spot for reciting a classical poem.

The wild environment led to financial  mismanagement and outright scams. One  

of the latter centered on Ofo's regional managers,  

who had hiring responsibility for repair  and placement workers. They report 5-6  

"ghost workers" and pocket their salaries,  an easy extra 20,000 to 30,000 RMB monthly.

To be clear, Mobike had issues too. Sure,  their heavier, sturdier bikes had lower  

total cost of ownership than Ofo’s bikes.  But deploying them also cost a lot more.

And allowing themselves to be  dragged into price wars annihilated  

the supposedly superior unit economics  underpinning their whole business model.

During the peak of the bubble,  Ofo's monthly operating expenses  

were estimated at 300 million RMB or $43  million USD. Mobike's were similarly high,  

which combined with their higher  costs meant that by December 2017,  

they were losing an eye-popping 680  million RMB or $95 million USD each month.

## Playing with Deposit Money

So despite all the money raised, it  was not enough to pay for all the  

aggressive promotions, ambitious  expansions, and lavish spending.

So at some point in 2017, many of the  bike-share companies started dipping  

into their customers' deposits. To sign  up the service, you first had to pay a  

deposit to protect the company against loss,  theft, or potential damage to the bikes.

But the promise then was that if  customer is to ever close the account,  

then the deposit is returned. Mobike  charged a deposit of 299 RMB, about $42 USD,  

while Ofo charged just 99 RMB, or $14  USD. They later raised that to 199 RMB.

It is not a lot of money by itself, but when  multiplied over tens of millions of users,  

the money suddenly becomes very significant.  Theoretically, the whole deposit is supposed to  

be placed in the custody of a third-party  bank or something and never touched.

But back then there were no government  regulations requiring this. So the money  

just sits there. And naturally, companies  get tempted to stick their hands into the  

cookie jar and use that deposit money for  operations or buying new bikes for expansion.

The thinking was that if the company  pulled out a small portion of the deposits,  

the rest should be enough to  handle any refunds requested  

during normal course of operations. But  what happens when things aren't normal?

Then it is like a run on the bank. Rumors on the  internet that this and that company is in trouble  

and deposits won't be refunded. Suddenly, everyone  rushes for refunds and collapses the company.

## Regulatory Changes

In the beginning, the Chinese  government supported bike-share.

They agreed with the companies that  bikes were addressing the "last mile"  

problem with a green solution. Mobike reported in  

early 2017 that in cities with their  bikes, there were 3% less car rides.

Bluegogo said that bikes had reduced the  number of car rides under 5 kilometers by 3%.  

Look at all the carbon savings! Never mind the  trucks carting the bikes around. But whatever.

And state media saw the bike-share companies  going abroad as yet another sign of China's  

unending technology successes. State  media hailed bike-share as one of  

China's great modern achievements alongside  high-speed rail, Alipay, and e-commerce.

Yet before long, attitudes began to sour. By  mid-2017, the companies had scattered over 16  

million shared bikes across Mainland China. Bikes  were being left haphazardly on footpaths, between  

buildings or highways, and in public areas. Many  were broken and essentially abandoned as trash.

The turning point was arguably that Qingming  festival period in early April 2017,  

in the midst of a price war.  Media outlets reported over  

ten thousand bikes had been left in  Shenzhen's Bay Park scenic areas.

Police called up the various bike-share  companies to order them to clean up the mess,  

and they did. But pictures  of the bike-clogged paths  

had already circulated around the  internet, and the mood had turned.

In late April, Shanghai began soliciting opinions  on new rules for the previously-unregulated  

bike-share companies. Thirty other cities  and the national government did the same.

Under these new rules, bikes  have to be registered and in  

good condition. Businesses must remove  any broken bikes from the field. And  

Bluetooth-based geofencing was mandated to  guide people to designated parking spots.

Some of the larger cities like Shanghai also  imposed caps on the total number of bikes. A  

survey from the Shanghai Bicycle Association  indicated that the city needed about 500,000  

good bikes for daily needs. Yet by mid-2017 it  had over a million, provided by 11 enterprises.

So they capped the total number of  shared bikes in the city - distributing  

quotas to various operators based on  factors like capacity and user demand.

Furthermore, entrants cannot now simply buy ten  thousand bikes and drop them onto the streets  

overnight. Instead, they must ramp up slowly  - a thousand or so at a time. They cannot  

deploy more bikes until they can prove to the  authorities that they are following the rules.

## Rumblings

These rules essentially ended the blitz-scaling  and imposed a ceiling on the market's total value.

The growth was over. Like a rocket  starting to fall back towards the ground,  

bike-share companies started closing  down in the second half of 2017.

I mean, startups had been failing all  throughout. One pretender called Kala  

Bike deployed 667 bikes in the city of  Nanning in Guangxi province in January  

and February 2017. They promptly lost all  but 157 of their bikes and dematerialized.

But now the failures were fairly large. A  notable one was Wukong Bike. Like the video  

game Black Myth: Wukong, it takes its name  from the Monkey King character in the book,  

Journey to the West. Never played that game.

Anyway. Wukong Bike dropped 1,200 bikes in  the city of Chongqing. If you are familiar  

with Chongqing - like from TikTok or something  - you might recall that the city is hilly.  

It's literally nicknamed the Mountain  City. Why will people ride bikes there?

Founder Lei Houyi - a former loan shark -  said that the city's terrain would actually  

get more people to use the bikes because  ... yeah publicity or something. They also  

lowered their rental prices to 0 RMB, which  was not conducive to generating revenue.

And their bikes did not have GPS so thousands  were stolen or lost. Upon noticing this,  

the company tried to raise more money  but failed in June 2017. Lei said:

> We deployed over a thousand bikes, but  only managed to recover a few dozen in the  

end. We didn't bother searching for the  rest either—the project was shut down.  

What's the point of retrieving them now?  Just consider it a public service, haha.

How is that a public service? Anyway, eight days  later, another company called 3VBike blew up too.  

They did so just a few months after  their founding. Talk about a fast  

turnaround. The founder had spent 600,000  RMB of his own money to launch a thousand  

bikes in four cities and almost all of  them were stolen or hidden by users.

The first flashy one was "Coolqi"  (酷骑单车). They are a far smaller player,  

having peaked at about 1.5 million users in total.

Founded in November 2016, their bikes are  normally fluorescent lime. But then in June 2017,  

they gained a modicum of notoriety when  they started promoting these gold-plated  

bikes equipped with fancy phone holders and  charging cables. Garish, but it did seem to work.

A few months later in August, customers  noticed that they were unable to get  

their bike security deposits back. Employees  and former employees reported getting their  

salaries delayed. Phone numbers  and support channels went dark.

By September, people were piling up at the  company's empty headquarters to get their deposit  

money back. Thousands of complaints were sent to  the government and local consumer associations.

In a later interview, Coolqi founder  Gao Weiwei blamed Coolqi's collapse  

on technology troubles and rumors spread  by malicious forces. Tired and exhausted,  

he said that he will not start another  business and sought a quiet life, saying:

> Entrepreneurship is too exhausting,  too heartbreaking—it's no way to live.  

It feels meaningless, lacking  any purpose or value in striving

## Bluegogo Collapses

And then in November 2017, third-ranked  player Bluegogo filed for bankruptcy.

You might remember these guys from the time  they tried to blitz-scale San Francisco.

In China, they tried to lean on having high  quality bikes and a good riding experience.  

But when Mobike and Ofo launched their  price wars in the first half of 2017,  

people stopped caring about that.

And after their botched US expansion,  their cash - including an estimated  

2 billion RMB or $250+ million  of customer deposits - ran out.

Rumors swirled that the managers  had fled the country. People can  

no longer unlock the bikes using the  app. The app itself was removed from  

the app stores. And requests for refunds  of deposits and prepaid cards were ignored.

The collapse was the first major indication that  the bubble had popped and deflation was underway.  

Didi would later buy Bluegogo's  assets in December 2017. Oh wait,  

isn't Didi Ofo's big backer? Why  would they do that? Funny you asked.

## Mobike Sells. Ofo Collapses After a bloody year of battle, a stalemate.

Mobike and Ofo cannot dislodge each other  and no longer had the money to do more.  

Moreover, their combat has disrupted Chinese  

social order and brought unwanted  government attention and regulation.

Parties began calling for a merger.  Including investor Zhu Xiaohu,  

the guy who said a year ago that it would  be over in 90 days. But for whatever reason,  

the two companies still refused  to head to the wedding altar.

Perhaps it had to do with their different  approaches to the bike-share market.  

Mobike with their high-tech-infused  bikes and Ofo the low-cost provider.

In late November 2017, Davis Wang is asked whether  a merger is possible. He answers with a resolute  

no, saying that Mobike intended to expand into and  build more differentiated products in the future.

Or perhaps it had to do with Ofo's complicated  situation and its strained relationship with its  

investors. What follows is a bit of speculation,  but it has been reported in a few sites.

After three consecutive rounds of financing,  Didi had become Ofo's largest investor with  

30% share of the company, a seat on the  board, and veto power over corporate matters.

Didi, like the investor Zhu, supported the merger  with Mobike, but cofounder Dai Wei publicly  

refused because he felt he and his team would be  sidelined and then run out of their own company.

Frustrated, Zhu eventually sold his shares.

Relations between the Ofo management team  and Didi had deteriorated in 2017. Didi  

grew increasingly concerned  about Ofo's rampant spending.

So in mid-2017, Didi supposedly helped secure  a $1 billion financial lifeline for Ofo from  

the Japanese investment fund Softbank. The  condition however was that Dai accept two  

or three Didi executives to oversee finance  and operations. Dai ended up nixing this,  

putting the Didi executives on forced vacation.

The Didi relationship was burned, and  those guys have some sharp elbows.  

You don't beat down Uber in China by  being a pushover. They start using their  

board veto power to nix potential  financing deals and other mergers.

Then in December 2017, they acquire  Bluegogo's assets. A month later,  

they launch their own bike-sharing brand,  "Qingju" (青桔). Yes, they are now directly  

competing with their own investment while  simultaneously blocking it from saving itself.

So in March 2018, Dai turns to shareholder Alibaba  and their loan subsidiary Ant Financial for a  

combined asset-backed loan and fund-raise.  The Series-E2-1 round raises $866 million.

The next month, April 2018, Mobike sells  to the food delivery giant Meituan for  

$2.7 billion and the assumption of Mobike's  hundreds of millions of dollars of debt.  

The valuation had declined from  the $3 billion in the latest round.

William Li, the NIO guy, later  said that the time was finally  

right. CEO Davis Wang and reportedly Hu  Weiwei did not agree or want to sell,  

but the investors had the final  word. Both left shortly afterwards.

Mobike eventually gets merged  into the app and just rebranded  

to Meituan Bike. And that is where it is now.

Ofo is left alone. Throughout 2018, the  company tries to save itself. They rolled  

back their international efforts, laid  off thousands of workers, and moved out  

of their fancy Beijing office. Occasional  hopes of Softbank saving the day lingered.

None of this turns the company around. Finally in  December, the end comes and the company files for  

bankruptcy. Thousands wait in line to get their  deposit money back. They probably never will.

A Beijing court puts Dai Wei on a  financial blacklist - which prevents  

him from buying excessive goods  or taking fancy transportation.

After the bankruptcy, Ofo tries  to sell adverts on the bikes,  

but the bikes are now in graveyards. They pivot  to becoming an e-commerce and cashback service.  

And then finally just selling sponsored  posts on their WeChat public account.

## Hello: the Survivor

An interesting survivor of the bike-share wars  was a little player, HelloBike or just Hello.

They avoided the bloodiest battles  by building their strengths in  

lesser known tier-3 and 4 cities  before going to the major cities.

Such tier-3 and 4 cities have different needs.  With worse public transportation systems,  

cyclists rent for longer and travel further. You  also benefit from overall cheaper cost of labor.

It is a similar market strategy practiced  by the BBK smartphone brands Oppo,  

OnePlus, Realme, and Vivo against Xiaomi.

They also spent more time  diversifying their lineup,  

investing in electric bike and scooter  sharing. CFO Fischer Chen later said  

in an interview that the competition  in those spaces was more "rational".

HelloBike survived the roughest bubble  years as an independent player. Though not  

without turning massive losses of their own,  losing 5 billion RMB between 2018 and 2020.

Today, HelloRides has cemented itself as a  medium-tier Chinese tech company specializing in  

local transportation and e-bike sharing services  alongside Meituan Bike and Didi's QJ Bikes.

## Conclusion

This all took place over the  short span of three years.

Yet the craziest thing about the bike-share  bubble is that it was not all that unusual.  

Just before it, we had the aforementioned  taxi-hailing wars between Didi and Uber.

And then after it, we would have  the group-buying and food delivery  

bubbles. The latter still ongoing as  of this writing. Everyone agrees that  

subsidizing $0 bubble teas is stupid, but  consumers seem to like it. So whatever.

After the bubble popped, bike-share was  fully incorporated into the big tech giants'  

features - a tab in an app. And with the subsidies  drying up, prices increased and expansion slowed.

But the messes still happen. And so  cities continue to take hundreds of  

thousands of bikes off the streets  - consigning them to the graveyard.