Yikes!! bikes bikes and more Mobikes

Volume 17 Letter 11

Think launching a new product is exciting? Launching a new business model adds a whole new level of excitement, not to mention anxiety and risk. Advancements in Artificial Intelligence, Big Data, Internet of Things and Mobile Tech are creating new opportunities to redefine business. Should you be involved developing and launching a new business model, make sure you get it right! A little forethought can go a long way and success can often hinge on small decisions. Take the case of Mobike in China.

Mobile technology has opened up the sharing economy. Uber, Didi, Airbnb, car sharing and now bike sharing have all come of age enabled by the internet and mobile technology. The idea of bike sharing is simple enough and works well in cities with well-developed mass transit. Shanghai is a good case in point.

With a population of just over 30 million, Shanghai traffic is a nightmare. While getting around in the underground is no picnic at least you can accurately estimate your time of arrival. Unfortunately, upon exiting the underground you’re still left with that frustrating “last mile” to your destination. Enter bike sharing. For a monthly fee you can find an orange bike, unlock it with your smart phone and ride off to your destination. Even nicer in Shanghai is that unlike bike share systems in Paris and NY you don’t have to return the bike to a docking station. Just park it, lock it and walk away. The ride sharing team can find any bike anywhere via GPS. It’s brilliant!

When the first orange coloured Mobikes appeared on the streets of Shanghai I thought ‘what an awesome concept’ but a few months later when the yellow coloured Ofo bikes showed up it was obvious the business model was flawed. According to the New York times, there are now over forty bike share companies all competing for not only your business but also for the limited public parking spaces on the busy streets of Shanghai. Today share bikes are so prolific that frustrated riders often forgo their ride because their colour of bike is blocked by thousands of other bikes. It’s bike prison, you can see the bike colour you’ve signed up for but too bad its boxed in by a 1000 other bikes. As more companies enter this market the two wheeled wonders spill onto the streets completely blocking sidewalks and frustrating pedestrians. While local councils initially tolerated the use of public parking spaces by the bike share companies, they are now starting to haul them away.

None of the over forty bike share companies are making money. Some will tell you its OK because they’re ‘collecting data on usage and customer habits’. I don’t buy it. Remember the dot com companies that went bust in the early 2000’s? They presented the same flawed arguments about not needing to make money and like them, many of these bike share companies are likely doomed to the same fate. What might they have done differently and what can we learn?

  1. Build a sustainable competitive advantage – It doesn’t always need to be cool or high tech. The payment model and the UPC code system to unlock / lock and track the bikes is all very high tech and all tres cool but its not exclusive and it didn’t create a competitive advantage.
  2. Remove the threat of new entrants – Remember the Michael Porter model? That is, if the barriers to entry are low, expect cut throat competition. Turns out the barriers to entry in the bike share market are very low indeed and anybody and his bike can enter this market.
  3. Restrict competition: find a pinch point that will prevent others from competing or that restricts the number of competitors. The pinch point going forward in this case is the limited number of parking spots. The company that secures the bike parking spots will literally squeeze out the competition and control the market. It’s not high tech or leading edge – it’s just smart!

Developing a bike share system to take commuters that final mile was a brilliant idea. However, it wasn’t enough because nothing was done to limit competition from entering the market. The future for most of these companies is predictable. Anyone want to buy a cheap one speed bike?

 

1. China’s spin on the sharing economy NY Times International Edition Nov 27, 2017 P 9

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