Date
21 October 2018
Gobee.bike, Hong Kong’s first bike-sharing service provider, decided to close down its Hong Kong operation after incurring heavy losses mainly due to huge maintenance costs. Photo: Reuters
Gobee.bike, Hong Kong’s first bike-sharing service provider, decided to close down its Hong Kong operation after incurring heavy losses mainly due to huge maintenance costs. Photo: Reuters

Bike-sharing business model won’t work in Hong Kong

Gobee.bike, Hong Kong’s first bike-sharing service provider, has shut down the business after its launch in April last year.

The bike-sharing business model can’t sustain itself. It has succeeded in mainland China because internet giants like Alibaba and Tencent view it as a key access to end-users’ data. However, Hong Kong lacks the whole ecosystem, and bike-sharing as a business can’t survive on its own.

Bike-sharing is considered one of China’s “four new inventions”, together with high-speed rail, mobile payment and e-commerce. In fact, China invented none of these. In the 1960s, Provo, a group of Dutch activists, left 50 bikes on the streets and asked residents to use them, thereby unwittingly starting the bike-sharing trend. Germany’s state rail operator, Deutsche Bahn, also launched a large-scale bike-sharing program in 1998.

The sharing-economy model enables people to share things by using the internet technology. It not only improved efficiency but also provided convenience to others. The taxi-hailing service Uber is a typical example. Private car owners can share rides with others and earn income from their service. Some apps enable people to list their furniture and home appliances online for rent or sale.

In the bike-sharing business, all bikes are owned by the service operator and put on the streets to be used by its customers. It’s very similar to a traditional bike rental shop, but it uses new technologies such as e-payment and Global Positioning System. Users can unlock and return the bike anywhere and anytime. That is not actually part of the sharing economy.

Likewise, property owners put their spare rooms online and lease them to travelers. In fact, many big hotels have also developed their own apps to lease spare rooms on a short-term basis. It’s more of an upgrade to the traditional hotel business. More people are using the gimmick of sharing for various businesses, such as co-working space, co-living, etc.

The bike-sharing industry has seen a boom on the mainland. Since 2013, there are over 100 bike-sharing companies in China. But two leading players, Mobike and Ofo, now account for over 90 percent of the market. They have so far raised over US$1 billion from private investors, mainly backed by Chinese internet giants Tencent and Alibaba.

Gobee.bike was launched in April 2017 by French entrepreneur Raphael Cohen. It’s the first bike-sharing service in the city, and it had 10,000 bikes at its peak. The company raised over US$90 million in its first financing round in August last year, led by Alibaba Hong Kong Entrepreneurs Fund. However, the company decided to close down its Hong Kong operation after incurring heavy losses mainly due to huge maintenance costs.

Frankly speaking, the bike-sharing business model can’t stand on its own. The bike itself costs around HK$500, and Gobee charges HK$10 per hour. In theory, the company can break even after 50 hours of rental. However, the firm had been grappling with enormous maintenance costs from its use of GPS and e-payment systems. Also, it had to hire people to check and repair the bikes from time to time.

Hong Kong is not a bicycle-friendly city; very few residents would use bikes for their daily commute. They only ride bikes on weekends as a recreational activity.

Meanwhile, let’s look at the bike-sharing sector in mainland China. Even the dominant players Mobike and Ofo have yet to generate any profit because despite the gigantic size of the Chinese market, they have to contend with high maintenance costs. 

The two startups manage to survive because Alibaba and Tencent view them as key offline portals to gain more customers. Therefore, the profitability of the business itself does not matter, as long as it can help other core businesses.

Mobike users, for example, need to use WeChat Pay to pay the rent, while Ofo users have to use Alipay. Moreover, the embedded GPS system in the bikes records the routes taken by the riders. Internet giants collect valuable data from that and push location-based ads to users.

So even if a bike-sharing service can hardly earn a profit by itself, it can run as a public service in the cities, which can contribute value to the entire ecosystem of the tech giants.

However, there is no such ecosystem in the Hong Kong market right now. Without the financial backing from tech giants or strong investors, Hong Kong-based bike-sharing operators, like Gobee, would sooner or later run out of money to burn. 

The full article appeared in the Hong Kong Economic Journal on July 13

Translation by Julie Zhu

[Chinese version 中文版]

– Contact us at [email protected]

BN/CG

Hong Kong Economic Journal columnist

EJI Weekly Newsletter

Please click here to unsubscribe