Ofo has just shut down its international division as they prepare for bankruptcy. The dockless bike-sharing start-up which showed such initial promise now seems to be ready to accept their fate. Millions of Chinese Ofo users have since applied for refunds of their deposits. Ofo’s main competitor Mobike seems to be going as strong as ever, so what contributed to this devastating fall and how can other companies looking to operate in the Chinese market ensure this does not happen to them?
1. Not preserving their capital
Normally at the introduction stage of an innovative service into the Chinese market, lots of competitors move in aggressively and fight for customers. They normally heavily subsidise their own services. We saw this with the initial introduction of Uber into the Chinese market.
An initial high expenditure gets you market share, which in turns allows you to raise more money. Essentially those who manage to fundraise the most are normally the companies that are initially more successful. Ofo did this successful emerging with their main competitor Mobike. This is not the end of the story. Even after market leaders have been established, the money wars continue. For example, Ele.me and Meituan – food delivery apps are still operating on losses. Similarly, QQ wallet will also be operating on a loss.
This is best illustrated with the fight between travel-booking companies Ctrip and eLong (Expedia). After losing millions of dollars each year, Expedia decided to exit by selling its stake in eLong to Ctrip. Ofo were stuck in a money war battle with Mobike a battle that would not be won soon.
2. They went global too quickly
Before they had really established themselves in the domestic Chinese market they decided to go abroad in 2017 to Europe. They would have spent a lot of resources in doing this. Although their valuation may have been temporarily inflated in this period it contributed to their losses. Companies like Huawei show its always better in the long term to establish yourself first in the Chinese market
3. Conflicts with some of the big players in the Chinese market
Didi as China’s mobility force and Alibaba as China’s consumer giant have the ability to put anyone out of business in China, especially if they become your competitors. In mid 2017 Didi launched Didi bikes and over the next year there were at least two rounds of negotiations between Ofo and Didi but they ended collapsing. There was clearly some animosity between the two companies which Ofo should have avoided at all costs. Didi & Alibaba later partnered with other bike sharing companies and became Ofo’s competitors.
4. They remained a standalone bike-sharing company
It was pretty evident early on that a standalone bike-sharing company would have trouble competing on its own. Whereas a successful bike-sharing company is likely to be worth around the 3-billion-pound mark a leading ride-sharing business is more like a 50 to 100 billion pound company. It was always quite clear that a bike-sharing company was going to be part of a more comprehensive mobility service. Cars, scooters, trains would all be integrated into this mobility service.
As briefly mentioned above there were problems with the relationships Ofo tried to build up with Didi and some of the other big players. Didi ended up going with Bluegogo and launched its own bike service, Alibaba opted with Hellobike and Meituan with Mobike. Ofo stated numerous times they wanted to remain an independent company. If they had been more willing to partner with the bigger powers they probably wouldn’t be now preparing for bankruptcy.