The idea of the current pick-up-anywhere bike-sharing services mainly came from two sources: docked bike-sharing and online ride-sharing services. Docked bike-sharing services, mostly sponsored by local governments, are subject to regional and other restrictions, so they can hardly meet consumers' demand for convenient use and payment. As for ride-sharing services, which used to create controversy in China, consumers are not motivated to use the service when generous subsidies are no longer available.
This demand gap stimulated the emergence of dock-less bike-sharing, which adopted mobile payment, GPS positioning and smart lock technologies. At the beginning, shared bikes were mostly concentrated in limited areas for the purpose of being manageable. But with the sector gradually becoming seen as a promising investment opportunity with big returns, a growing crop of bike-sharing operators have undergone rapid expansion, leading to a substantial increase in the number of shared bikes deployed in cities.
This begs a question: How come the bike-sharing sector is still able to attract so much venture capital? First of all, as a representation of the Internet age, especially the shared economy in the mobile Internet era, bike-sharing has satisfied considerable market demand, making it a perfect example of the so-called economics of the Internet era theory, which holds that businesses should focus on scale expansion rather than profits. Second, although it is unclear how bike-sharing companies can achieve profitability, the sector already has abundant cash flow thanks to its massive usage. In other words, the large customer base could mean that companies in the sector become acquisition targets for larger market participants. Abundant cash flow may be interpreted as proof of growth and the basis for financing.
The Internet era is not an economy built on stories. The foundation of the Internet era should be a combination of emerging technology and traditional business. If we take a close look at many shared economy businesses, most of them are actually disguised with beautiful stories. This will not promote the transformation and upgrading of the Chinese economy, but instead will point to greater market risks. The dot-com bubble at the end of the 20th century was a bitter lesson, and we should learn from it.
This article, written by the director of Chanson & Co, a boutique investment bank in Beijing, was originally published in the Global Times.