Ofo is also a shadow of its former self, having never recovered from digging itself into a financial hole two years ago. Early this year, it abandoned its bike-sharing interface and transformed itself into a shopping app, offering to compensate the millions of users it still owes deposit money with rebates for shopping in lieu of refunds. Its bikes are rarely seen on China’s streets anymore.

Mobike’s announcement last week marks the end of a duopolistic era for China’s bike-sharing industry, which exploded in popularity a few years ago.

Abandoned shared bikes crying out for help creep out nearby residents

In 2015, Mobike and Ofo were considered pioneers in popularising dockless, GPS-connected bikes rented through apps. Unlike traditional bike rentals with fixed parking stations, Mobike and Ofo bikes could be locked and unlocked using apps, allowing them to be left and picked up from anywhere in the cities they operated in.

Both companies quickly became unicorns, surpassing US$1 billion in valuation each and growing to operate in more than 200 cities in about 20 countries and regions worldwide.

But their cash-burning tactics to attract users and uncertain business models turned out to be unsustainable. By 2017, the bubble was already bursting – yet another casualty in big tech’s seemingly endless proxy wars for users and market share, leaving a trail of broken companies, and bikes, in their wake.

These same race-to-the-bottom tactics common to China’s tech industry have come under scrutiny, in a signal they may no longer be tolerated.

Boom and bust

But the companies struggled to find a sustainable business model.

“In the end it was just about burning cash,” said Li Bin, who was one of Mobike’s angel investors. “Users feel they can take advantage of [the free rides], but the whole thing just comes and goes very quickly,” Chinese tech site All Weather TMT quoted Li as saying in an interview in 2018.

The sudden flood of dockless bikes, often discarded carelessly by users in public areas, also caused massive headaches for regulators and city planners across China. In response, authorities nationwide rolled out heavy restrictions on the use of rented bikes.

Taxpayers foot the clean-up bill for China’s bike-sharing bust

Facing increasing pressure from investors looking to cash out, bike-sharing companies started looking at mergers and acquisitions to sustain their operations in the second half of 2017.

Investors of Ofo and Mobike discussed a possible merger but the deal fell through due to both companies’ complex capital structures and founder Dai Wei’s reluctance to sell the company, according to local reports.

The number of bikes on the road has also come down. In Beijing, there were about 900,000 shared bikes by the end of last year, compared to 2.4 million in 2017, according to the city’s transport authority.

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Thousands of bicycles abandoned in China as bike sharing reaches saturation

Thousands of bicycles abandoned in China as bike sharing reaches saturation

‘Bad business’

According to venture capitalist Finian Tan, the bike-sharing business model was “bad business” all along despite the high traffic generated on paper.

In addressing the faulty economics driving the bike-sharing business in the past few years, Tan used the analogy of a lemonade stand.

“If it costs you 50 cents to make one lemonade, and you sell it at 30 cents, you might have a queue of people. But that’s a bad business,” said Tan, the founder and chairman of Vickers Venture Partners.

“People only look at the queue. They need to look at the unit economics. If you look at the unit economics, you would never invest in Mobike.”

Mobike was making losses when the deal took place, but Meituan said in a financial report in 2018 that it was leveraging its offline operation experience and capabilities to increase Mobike’s operational efficiency and reduce operating losses, without giving any specific figures. In its latest report for the third quarter of 2020, Meituan said that the revenue for bike-sharing had increased.

Meanwhile, the fate of Ofo and Mobike does not seem to have deterred China’s tech giants, with their deep pockets, from engaging in price wars.

Ma Ce, a Hangzhou-based lawyer who specialises in internet services, said burning cash to shore up traffic and protect market share is “acceptable” market behaviour, but often results in losses that do not benefit anybody.

“Our country has published many guidelines at the provincial and municipal levels,” he said. “But we have not given clear rules about how to address companies burning money to subsidise products. There is nothing we can do about these losses.”