By K.S. Anthony on 20 June, 2017

A New Start-Up Trend In Chinese Apps Is Raising Hundreds Of Millions: But For How Long?

Over the last decade, the most popular mobile apps in China have been for messaging, web browsing, and video: a testament to practicality and connectedness. WeChat – owned by tech titan Tencent which, according to Benzinga.com, also owns at least four of China’s top ten apps – leads the way with over 938 million active users, according to Business Insider.

To put that into perspective, Business Insider reported in February of this year that Snapchat boasts 158 million dedicated chatters.

In addition, Tencent bought a 5% stake in Tesla Motors this March which, TechCrunch notes, may have helped "pave the way" for Tesla's interest in building its next factory at a site outside of ShanghaiIndeed, mobile apps are hugely profitable in China: Bloomberg reports that Tencent surpassed Wells Fargo in market value last year to become the tenth largest public company in the world, worth $279 billion. 

Somewhere in the middle of the texting, browsing, and video-watching that dominates the market, a curious new trend snuck into China's app environment that may also have a positive effect on its natural environment: a sudden proliferation of bike sharing apps. For as little as 15 cents for 30 minutes, app users can electronically unlock a bicycle and ride it to wherever they need to go. What's more, Forbes reports, is that unlike Citibike and similar American services, the bikes can be parked anywhere. For urban professionals, the value is obvious. "I use the bikes to go to supermarkets because it is a bit far to walk there and takes too long to wait for a bus,” 28-year-old marketing manager Jacky He told Forbes. “I can find a bike whenever I want and I don’t have to worry about parking.”

The result? Millions of bicycles are now being shared across China... and the competition is fierce.

 

In February, Bloomberg reported that one major player, Ofo, raised $450 million at a valuation of $1 billion, including an investment from Ant Financial, an affiliate of Tencent tech rival Alibaba. Just two months later, CNBC reported that Ofo's valuation had doubled to $2 billion with over 3 million bicycles in 50 Chinese cities: an astounding feat, given that the company was founded with an initial investment of $21,800. They have already spread to London and Singapore and are hoping to expand to 20 countries – including France, Spain, Germany, and Japan – by the end of the year.

But Ofo is not alone: its largest competitor, Mobike, raised $300 million a month earlier and recently expanded to Manchester, England. Still others are cropping up, willing to take their chances by coming in late to the game. The growth is startling, but not all competitors get rich. An article in Techinasia.com describes how Wukong Bike shut down just 5 months after launch, taking a loss of $147,000 and losing some 90% of their bicycle fleet, presumably lost or stolen.

The value for investors, however, may have little to do with environmental or transportation concerns.

Jeff Towson, a private equity investor and Peking University professor, asserts that the Chinese bike-sharing craze is marked by "very questionable, non-economic behavior that will probably end badly, especially for investors." 

The problems are not with the service itself, Towson argues in an article on his website, but are based on several key points, the biggest among them being the relentless push to scale. "The leading companies are all trying to get big and capture market share," Towson writes, "with Mobike reportedly having over 70 percent of the China market, measured both by the number of bikes and number of rides taken."

Forbes notes, however, that Chinese investors' interest in these companies may not have anything to do with the bikes at all, but rather with data. Because China lacks credit score bureaus like Equifax, Experian, and Transunion, Internet companies are left to their own devices to develop credit pictures from online shopping, social media activity, and commuting habits. “These bike services are of high strategic importance to Alibaba and Tencent,” China Creation Ventures Zhou Wei told Forbes. “It is an indispensable way to get data on frequent users.”

Regardless of who wins or loses in the ongoing bike wars, one thing remains clear: China's tech ecosystem still holds promise for those unafraid to saddle up.

Cover photo adapted from original work by N509FZ/Wikimedia Commons

Topics: China, Business, Culture, International Business, Startups, Internet

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