Article by XIANEASE
When the bike-sharing boom started a couple years ago, it seemed there was a clear frontrunner among the various startups vying for market dominance: ofo’s legions of bumblebee-yellow bicycles swarmed Chinese cities in countless rows on sidewalks and in pelotons on city streets. Now, fewer than five years after its founding, the company enters 2019 dead-on-arrival, having shuttered nearly all of its operations and continuing to feel the weight of extreme debt and a collapse in consumer trust. The story of how it came to this is a fascinating one, an exemplar of the intense competition companies face in the world’s largest consumer market and proof-positive of the adage that if a company is to succeed in China, it’s generally better to be best than to be first.
The ofo story begins in 2014 at Peking University with three members of the university’s cycling club: Zhang Siding, Xue Dong and Dai Wei (the latter of whom became ofo’s CEO and the subject of many a breathless article about “unicorn startups in China,” but that part comes later). Early conceptions of the company revolved around bicycle tourism but, as an October 2015 article in Peking University’s online newsletter explains, “their primitive design of cycling business encountered stagnation due to the limit of target market.”
ofo’s epiphany came when they focused their attention locally. Peking University, according to that same October 2015 article, had a “prodigious” number of bicycles, many of which sat idle most of the time and cluttered walkways around campus. The fledgling ofo team came up with a solution to this problem: campus bike sharing. As their plans began to take shape, unforeseen problems stacked up, such as a lack of investment and promotion. It was more than the three-person team could handle. Luckily, their angel investor was waiting for them right around the corner. This angel investor, only ever identified as “a PKU alumnus,” caught wind of the ofo team’s plans and swooped in. The first round of funding came in May 2015, and by October of the same year ofo boasted 20,000 users and 2,000 deployed bicycles. It wouldn’t be long before they expanded.
It wasn’t until 2016 that bike-sharing rolled out to the rest of China. Cities like Xi’an had experimented with their own public bicycle programs in the past, but ofo’s big innovation was “dockless” bike-sharing; simply put, a rider could essentially pick up a bike anywhere and leave it anywhere. ofo’s fleet of bikes quadrupled in 2016, and as they expanded their reach they also had to contended with the emergence of Mobike, whose own dockless share bicycles began to deploy en masse in the fall of 2016. ofo emerged as a clear leader in the bike-share economy and drew even greater investment; also in the fall of 2016, ofo received a total of US$130 million in funding from Xiaomi and Didi Chuxing. Another round of funding soon followed and, by early 2017, the company was valued at around US$1 billion. Their business on the Mainland was a runaway success, so it seemed the next logical step would be to expand to the international market. The ofo world tour began around the time of their newly minted “unicorn startup” status; in February 2017, bright yellow ofo bikes began to hit the streets of Singapore.
In 2017, ofo seemed unstoppable. A launch in Cambridge in the United Kingdom came in April; July brought US$700 million in a new round of funding led by Jack Ma’s Alibaba; Seattle became the first US city with ofo bikes in August; in October services expanded to Sydney, Australia; and in December, bike-share services started in Paris, France. By the end of the year, ofo was operating in 20 countries.
March 2018 brought another round of funding, again led by Alibaba, this time worth a staggering US$866 million. In July 2018, a report in Le Parisien says that ofo operations in France had been successful, to the tune of 500,000 total rides and 95% consumer satisfaction, but elsewhere in the world, things weren’t looking good.
Around the time of La Parisien’s article about ofo’s France operations, US media outlets started publishing reports that the bike-share giant would be halting US operations. Reasons for this are myriad, but differ depending on who was doing the talking. ofo claimed that “onerous” regulations were stifling its growth in American markets, for example, a US$50 per-bike fee to be properly licensed in Seattle; some analysts point to city officials being more comfortable with the docked share-bike model that included a stronger partnership between share companies and municipal governments (such as the Citi Bike model in NYC); others posited that circulating images of massive “bicycle graveyards” in China and reports of bike-share companies fishing “thousands” of bikes out of rivers were creating bad press. Either way, ofo laid off 70% of its US-based employees and lost three top executives. Operational costs began to mount.
While all this was going on, Mobike, which ofo had previously courted for a merger, was picked up by Meituan-Dianping in April of last year for US$3.4 billion, according to Bloomberg. April 2018 was also when ofo’s talks with Didi Chuxing broke down, with CEO Dai Wei allegedly telling Didi CEO Cheng Wei that ofo would “never give up.” Didi, however, had already acquired what was left of failed bike startup BlueGogo and launched its own bike-sharing service, a situation that private equity investor and Peking University professor Jeffrey Towson vividly described to CNN as “a red flag…like when your wife tells you she’s starting to date again.”
In May, Dai sought to rally ofo’s remaining employees, vowing that the company would remain independent and comparing their predicament to Darkest Hour, the biopic about Winston Churchill. New regulations in China also restricted the deployment of new bicycles, in an effort to alleviate growing urban congestion. By July, Mobike was refunding user deposits and allowing future users to use the service without a deposit, a leveraging of their new parent company’s immense capital that was practically a deathblow to ofo, which was still charging users 99 RMB – 199 RMB in deposits. On top of that, Mobike’s acquisition integrated their services into more feature-rich apps and exposed them to a far greater potential user base. In August, Didi and Ant Financial considered a joint buyout of Didi for US$2 billion, but Dai Wei refused, apparently saying that even ten billion dollars wouldn’t be enough to buy the company out. Two months later, the refund-pocalypse began.
In October 2018, ofo was flooded with user requests to return their deposit. At year’s end, ofo had totally shuttered international operations.
THE LONG BIKE ROAD AHEAD
At the time of writing, 11 million people are queued up to get their deposits back from ofo; they are reportedly able to process between 8,000 – 9,000 claims a day, which means that, at best, refunds will finish up in three-and-a-half years. Chinese netizens on Weibo are claiming that if you write to ofo in English and say you’re a foreigner, then you might have more success being refunded. Their website is shut down as well, but allegedly the app is still somewhat functional, at least until the last “little yellow” bike has been destroyed. CEO Dai Wei has also been placed on a blacklist for his considerable debts, which will restrict his ability to travel around the country and prevent him from purchasing real estate property.
The fight over who will make China the “Bicycle Kingdom” once more has had its fair share of casualties, but ofo is the first giant to fall. Users still interested in bike-sharing services will undoubtedly have to one day switch to Mobike, or Ant Financial’s HelloBike. As billions of dollars in investment capital continues to flood into these companies, there is yet to be a bike-share company to turn a profit.
Having bike-share woes? Are you the eleven millionth person in line for your ofo refund? Let us know at email@example.com