Copyright 2016, Forbesindia.com

Ofo: Wheels of fortune

Can a Chinese firm export its bicycle-sharing scheme to a nation of car lovers? It won't be easy


g_107519_ofo_280x210.jpgChris Taylor in downtown Seattle. He leads Ofo’s business in the US, where the company has 40,000 bikes
Image: Ian Coble for Forbes

 
A van pulls up to a warehouse on the south side of Seattle, unloading yellow bikes and placing them in a repair line. It looks nothing like the bicycle graveyards found outside repair shops in China, where thousands of bikes lie abandoned and rusting, but the same company logo appears: Ofo.

Four-year-old Ofo was a pioneer in dockless bike-sharing, in which bikes don’t lock to a station but have electronic locks on the tyres that click open with the scan of a bar code. That means anyone can ride a bike anywhere and leave it there for the next person to pick up.

The Beijing-based company has 15 million bikes across the globe and an estimated valuation of $3 billion, according to PitchBook. Ofo raised $866 million in an Alibaba-led funding round in March, a month before Mobike, its rival in China, sold to Meituan-Dianping for $2.7 billion.

Ofo’s early start, though, won’t enable it to coast to success in North America. There will be plenty of homegrown competitors to fight off, after investment in US bike-sharing and scooter-sharing companies topped $260 million in the first five months of 2018, according to PitchBook.

There’s another problem. Americans love their cars as much as the Chinese love their bikes. “The cities are built in a way where it’s car-friendly and it’s not bike-friendly,” admits Yanqi Zhang, 32, a co-founder of Ofo. “It did not look very straightforward that we could do any bike business.”

Chris Taylor, a former Uber employee who is head of Ofo’s US expansion, knows he has an uphill ride. A polite Midwesterner who hasn’t owned a car in 10 years, Taylor, 36, didn’t even visit China before he took the job to translate Ofo’s business for the US market. He knew that what worked in China, with its cheap labour costs and little regulation, doesn’t necessarily work in the US.

But there are signs Americans can be persuaded to part with their car-centric ways. In 2010, people took 320,000 trips on bike-share systems in the US, according to the National Association of City Transportation Officials. That number jumped to more than 28 million in 2016 with the rise of dock-based bike-sharing, which requires customers to ride from one bike parking station to another.

[bq]Ofo was a pioneer in dockless bike-sharing. It has 15 million bikes across the globe and an estimated valuation of $3 billion[/bq]

Dock-based rentals have two things going against them. One is that they are less convenient than free-floating fleets. The other is that the docks cost a lot of money—$3,700 for each bike and its dock in the Washington, DC, programme. Dock systems wouldn’t exist without either handouts from the government or revenue from advertisers like Citi (in New York City) and Ford (San Francisco).

Smartphones make docks a lot less compelling. Mobike and Ofo seized on the idea and filled the streets with brightly coloured bikes that anyone could scan to unlock. “We had to adapt the business model,” says Ryan Rzepecki, the founder of Social Bicycles, a bike-share service that operates in 40 US cities and saw two government contracts fall apart after years of negotiations. At his heels were other US startups like Lime and Spin, which are bringing the Chinese model to the US. ­Rzepecki rebranded his company as Jump and sold it to Uber for about $200 million in March.

Ofo’s opportunity to enter the US came last year when outdoorsy Seattle, after investing millions in a dock-based programme, tore up the docks and opened the city to privately funded dockless systems. Ofo, Lime and Spin are all giving the city a tryout. In six months the trio booked 469,000 trips, nearly double what the dock-based system did during its entire 30-month lifetime. That’s not good enough, though, with a bike averaging six uses per week, a third of what an operator will probably need to make a profit.

In China, Ofo charges 15 cents for a ride. In the US, it gets $1 and up. Buying the bikes is just the start of the operator’s costs: It has to pay people to rebalance bikes around a city and collect and repair broken ones. In China low labour costs mean Ofo can hire swarms of people to comb the streets. For the US Ofo had to develop software that would track how often a bike was being used. If a bike hasn’t moved in 24 hours, then it might be broken or in an unreachable location, and Ofo sends someone to collect it.

Compliance costs? Nothing much, perhaps, in Asia, but something to be reckoned with here. Seattle requires companies to respond within two hours to any bike parking complaint. In Chicago, a new pilot is requiring bikes to lock to objects like a bike rack or signpost. Many cities also put limits on the number of bikes each company can deploy.

Then there’s the cost of keeping up at the high end of the market. Bird, in Santa Monica, California, introduced motorised kick scooters in September 2017. Spin gets $20 a day per scooter in San Francisco (its bikes bring in around $1 a day). Lime also added scooters to its lineup alongside electric power-assisted bikes. Not to be left out, Ofo will add battery-powered bikes and scooters this summer.

Hype is not enough. As Susan Shaheen, ­co-director of the Transportation ­Sustainability Research Center, points out: Remember the frenzy around the Segway a decade ago? It didn’t exactly transform transportation.

With 9 billion rides cumulatively (and 1 million in the US), Ofo is probably well short of the volume it needs to be profitable on its huge asset base. But there’s no reason it can’t get there.

The company plans to expand from 30 cities here to 100 by the end of the year. If it survives, Ofo could become one of the first Chinese companies to be a household name in the US. “I just knew right away that this technology was exactly what is going to fundamentally change how people get around in cities,” Taylor says. “You have to have that belief to will it to reality.”