By Pete Sweeney
HONG KONG: Meituan-Dianping is setting a new pace in Chinese bicycle-sharing. The multipurpose online service app agreed on Wednesday to buy Mobike for $2.7 billion. Given the competitive and cash-burning realities, its stakeholders should be relieved at the sale. For rival Ofo, and backers Alibaba and Didi Chuxing, the riding gets tougher.
The long-term viability of China’s dockless bike-sharing startups has yet to be tested. Thanks to a market awash in venture capital, entrepreneurs have focused more on accumulating customers quickly than earning a profit. They have done so by heavily subsidising rides, sometimes even paying users to pedal. Mobike and Ofo have managed to hog most of the recent money, raising billions from strategic investors and Singaporean sovereign wealth funds. Alibaba just led an $870 million round into Ofo last month.
Plenty of cash has been incinerated buying bikes, fixing them and moving them around cities. Last year, some stakeholders called for the two biggest operators to merge and end the price war. That didn’t happen because Mobike and Ofo are effectively pawns in a cutthroat mobile-payments battle between Alibaba and Meituan-backer Tencent. The combat continued, and even extended overseas in a quest for higher margins.
Parking Mobike inside Meituan should have some advantages. It will sit alongside offerings like food delivery, ride-sharing and ticket-buying. The price tag is also right around recent private estimates, suggesting Meituan, which itself is valued at over $30 billion, didn’t get over-exuberant.
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Ofo has raised $2.2 billion, according to Crunchbase, more than twice as much as Mobike, partly to refurbish its older fleet. It also has run into image problems. An attempt to put bikes at the University of San Diego, for example, ended in public embarrassment when administrators ordered them out. Alibaba and Didi have started hedging their bets, investing in Ofo rivals such as Hellobike. Local media reported that Alibaba pushed Ofo to put up its two-wheelers as collateral for loans.
Yet Alibaba can hardly afford to surrender a market with 400 million registered users to Meituan and Tencent. The e-commerce giant could try to plow more money into rider incentives, but it would have to force Ofo executives to rethink their strategy. Either way, the climb looks uphill.