The rise and fall of Ofo … the billion dollar Chinese bike sharing platform
December 27, 2018
The streets of Beijing and Shanghai are littered with yellow Ofo bikes, lying abandoned in varying states of disrepair, chains broken, wheels buckled and paint fading. A reflection of the quick rise and sharp fall of the billion-dollar Chinese bike-sharing platform.
Not long ago, Ofo, led by its 24 year old founder Dei Wei, was racing into overseas markets and raising billions from backers including Alibaba and Didi Chuxing. Even the pavements near my suburban London home featured a cluster of the bikes.
“It now appears bike sharing is the stupidest business, but the smartest brains of China all tried to get in,” Wu Shenghua, founder of another bankrupted bike-sharing company 3Vbike, said. “It really now seems ridiculous.”
Ofo’s plight is a warning for China’s tech investors, who have plowed tens of billions of dollars into loss-making businesses such as bike sharing and food delivery.
Ofo was a phenomenon. Its dockless bicycles, which could be picked up by scanning a QR code and left anywhere, grew from Beijing campuses to become an icon of young, urban cool. The firm garnered a valuation of $2 billion.
Its bikes – and those of main rival Mobike – could be found on almost every city street corner, often in staggering numbers. Ofo’s advertisements featured major Chinese popstars and showed trendy youngsters pedaling around the hippest areas of town.
Dozens of smaller rivals emerged in China over the last two years, only to go out of business, leaving Ofo, fellow Alibaba-backed Hellobike, and Tencent’s Mobike, as the major players.
But costly battles for market share have meant Ofo and its rivals have struggled to turn popularity into profit. Ofo’s very survival is now at risk as debts to suppliers have come due and user demands for deposits have mounted.
“It’s a very tricky business, all the profits are eaten away by competition. It’s something that really needs to be part of a bigger business,” said Maxwell Zhou, founder of tech startup metaapp.cn and a former employee of Mobike in China.
“It’s very similar to email in that way. It has a lot of benefits for society, but none of the email providers were able to create a barrier to entry, so anybody could host emails, and eventually nobody could make any money.”
At its peak, Ofo had bike fleets in more than 20 countries, from France to Australia and the United States. Company insiders, however, said it tried to grow too fast, and found itself facing a wide array of hurdles, from traffic regulations to vandalism, as well as spiraling costs.
In China, once-loyal users have turned on Ofo, lining up at its offices in Beijing to demand the return of deposits paid up-front to use the service. Over 12 million people have so far requested repayment online.
In a letter to employees last week, Dai Wei said the company was struggling to resolve a cash shortage, in part because of user refunds as well as payments to suppliers. He said the firm was battling on amid “pain and hopelessness” …
“Due to failures in making correct judgements towards external changes from the end of last year to the beginning of this year, ofo has shouldered immense cash flow pressure. We need to process refunds for users, pay back the suppliers’ debts while maintaining the company’s daily operations. Every penny is spent cautiously.”
“In the past six months, cash flow and media pressure have rendered us powerless and discouraged, especially after failing to get funding. I’ve thought about using all the operating capital to pay back the deposits and debts from the suppliers. I’ve even thought about dissolving the company and filing for bankruptcy, so that we wouldn’t have to feel pressured anymore.”
He ended the letter with seemingly encouraging remarks. “I hope that every ofo employee can agree to and firmly believe that we will carry on with courage and will not be dodging our responsibilities. We will be responsible for every penny we owe, and for every user who has once supported us!”