A business failure case in the service-sharing industry: ofo bikes
An astonishing rise
ofo is a Beijing-based bicycle sharing company founded in 2014 by five members of the Peking University cycling club. First launched in Beijing city back in 2015 and named ofo because of the logo resemblance to a cyclist on a bicycle, this very promising public-sharing driven start-up managed to raise multiples rounds of $100+ million funding from massive tech firms including Xiaomi, Didi Chuxing, Digital Sky Technologies Global and Alibaba, therefore reaching an estimated company valuation of $2 billion in 2017 with over 3 million of the company’s bright yellow bikes located in more than 50 Chinese cities.
The business model of the company, based on the dockless system of its bicycles which can be unlocked and located in a nearby zone through its smartphone app by charging customers at an hourly rate for use, had successfully seduced the Chinese market but also many overseas countries and cities worldwide. In 2017, the company was already operating in 250 cities and 20 countries with an estimated 10 million deployed bicycles in service. With its strong presence in major cities such as Singapore, Seattle, Sydney and Paris, ofo have established many partnerships with well-known institutions such as the United Nations Development Program, Clara Lionel Foundation (Rihanna’s organisation) and Texas A&M University for extension of its operations.
The official logo looks like a rider on a bike
After reaching the peak, time to climb back down
2018 marks the downward of the trend for ofo’s business and expansion. The company announced massive reduction in operations, including withdrawal from most US cities and from several entire countries. Indeed, due to consistently high operational costs, lack of additional funding and also to the failure of merging with Mobike and of reaching an acquisition deal with Didi Chuxing, the company had to begin an international and domestic contraction to stay alive. This resulted in the retirement of ofo bikes from dozens of cities and also the lay-off of its overseas-based employees and workforce by 70%. Due to consistent cashflow issues and imminent bankruptcy, the company decided to re-center its business on China in order to focus on only a few cities.
Each bicycle can be unlocked with their QR Code
The crisis situation only aggravated with time as the company only ordered 80,000 of its expected 5 million annual bicycles and as millions of ofo users started to requests deposit refunds, some of them going directly to ofo’s headquarters in Beijing to claim their dues. With the inability to repay its debts to customers and suppliers, the startup also struggled to repair its damaged bikes fleet, which made it harder for its users to find available bikes, prompting them to switch to ofo’s competitors such as Mobike, Bluegogo or HelloBike. As of the 3rd of February 2019, ofo’s website has become defunct and shows a plain white page. The ofo app still works and bicycle’s location are still shown in the app.
People in lines awaiting for refunds outside ofo’s headquarters in Beijing
The company is in the middle of a consumer trust crisis and controversy increased on this dockless model of bike-sharing businesses as companies did not ensure that the bikes were parked properly, therefore cluttering sidewalks, blocking pedestrian and handicapped access. These issues have forced cities to start regulating the number of bikes that may be deployed.
What could have been done to avoid this catastrophe?
Ofo is most likely out of business, while its competitors are still operating at a stable growth rate. How come? Well, even if ofo had its mini-program running on WeChat which allowed users to unlock its bikes without installing the mobile app, the company should had teamed up when it had the opportunity (such as with Didi) with other transportation or service platforms in order to develop business in a cooperative way like its competitors did. (Mobike has been acquired by Meituan Dianping in 2018 and Didi Chuxing acquired BlueGoGo during the same year)
Indeed, public bike-sharing users are more in favor for the use of multi-functions apps such as WeChat (with its apps ecosystem) were you can actually order food and hail a bike or a car without leaving the app. In other words, one app for a multitude of services is much more convenient than one app for each service just as it is often the case for western countries. In addition, Mobike announced that users no longer needed to pay deposits for hailing bikes, which was a huge blow for ofo which couldn’t keep-up because it was already struggling with its requested refunds and it did not have the economic resources to follow-up.
One big mistake the company made was to start expanding internationally too fast, as concerns about durability and efficiency increased for this particular business model, which resulted in forcing the company to pull-back from many overseas markets and to limit its operations to key countries for their international division. Yet another factor was the ability of the company to recycle its used bikes , which it did not had, therefore creating massive material pollution as mountains of bikes are piled up right outside Chinese cities such as Shanghai.
Piles of bikes are left aside in Chinese city neighborhoods