Two-wheel drive: China tech giants bet on 'Uber for bikes' in hunt for next unicorn

October 20, 2016 7:04 PM EDT

A MoBike sign is seen in Guangzhou, Guangdong Province, China, October 8, 2016. REUTERS/Stringer


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By Sijia Jiang

HONG KONG (Reuters) - China's tech industry giants are sloughing hundreds of millions of dollars into what they're betting will be the country's next big internet craze - 'Uber for bikes'.

A symbol of China's cities long before a boom in cars, snarling traffic and smog, the humble bicycle is making a comeback. Start-ups equipped with smartphone apps, GPS and scannable codes are selling cheap bike-sharing to city-dwellers as the way to beat jams on China's most clogged streets.

The rush to invest in car ride-hailing apps in China peaked with Didi Chuxing's acquisition of Uber's China arm in August, creating a $35 billion giant. Now Shanghai's MoBike and Beijing-based ofo - both use customised Anglicised branding - have raised big money in the past month alone from bullish investors on the hunt for China's next tech 'unicorn'.

MoBike, backed by Chinese internet giant Tencent Holdings <0700.HK> among others, closed a $100 million funding round this month, two sources told Reuters. Ofo raised $130 million this month from investors including Didi, smartphone maker Xiaomi and U.S. hedge fund Coatue, which has backed Facebook and Google.

"We did not expect there to be so many investors and we did not expect this field to get so hot," ofo co-founder Zhang Siding, 26, told Reuters in an interview. Zhang was one of five Beijing students who launched the firm in 2015, now charging 1 yuan ($0.15) per hour to rent.

MoBike, also founded in 2015, and ofo say several hundred thousand residents of Chinese cities use the services every day, though tech sector watchers estimate neither yet makes a profit. Neither discloses earnings details.

Each claims to be the first of its kind in the world, raising the question for the firms and their investors of whether the model could be replicated in other countries.

In the meantime, the custom-made 'smart bikes' stand out in a country estimated to have close to 400 million bicycles: MoBikes have orange-red inner wheels with fewer spokes and airless tyres to reduce maintenance; ofo's yellow bikes have a lower-tech, retro look.

MOBIKE: BRINGING 'SEXY' BACK?

Riders use smartphone apps to unlock and pay the cost of hire, and they are free to leave the bikes wherever their journey ends, a feature ofo and MoBike say is a major plus over traditional rental services, which require bikes to be returned to a parking station. MoBike's app also allows users to see nearby vacant bikes using a GPS tracking system.

"I find it very convenient, because road traffic is so bad, especially during rush hour," said Yu Xiaoxia, 29, a teacher in the southern Chinese city of Guangzhou who pays 1 yuan per half-hour to use MoBike.

The ride is worth it for Yu but isn't all smooth. "The bikes are heavy to pedal, and it is also harder to find a vacant bike now that it (MoBike) is gaining more users," she said.

The two firms are growing fast - as is their rivalry.

Ofo, which says it has more than 300 employees, claims some 85,000 of its bikes are providing 500,000 rides daily. At MoBike, which declined to disclose how many people it employs, Chief Executive Wang Xiaofeng said his firm has more than 100,000 daily active users.

"We want to make bicycles sexy again by making a fashionable, high-tech bike," Wang, 43, told Reuters in an interview. Wang is a MoBike co-founder who was previously the Shanghai head of Uber.

Zhang said if each of his firm's bikes were used four times a day, the company would recoup the bike's cost in two to three months.

CHALLENGES IN STORE

It remains to be seen whether the new bike-sharing businesses will follow the path of bruising competition, heavy investment and ultimate consolidation seen in the taxi-hailing sector. Didi now reigns supreme after absorbing a local rival before cutting a deal to take over Uber China.

In the meantime, the business model faces challenges, both operational and strategic.

Risks of theft, vandalism and irresponsible users who park bikes off-limits are the biggest everyday headaches for both firms. The services are also prone to the caprices of regulators, an issue that has dogged China's taxi-hailing market, where firms still face tight restrictions on drivers.

Another issue could be the very design of Chinese cities, adapted to meet booming private car ownership over the last two decades.

"Bike-sharing is a good direction from a planning point of view. But many Chinese cities have been built with scales prioritising vehicles," said Sylvia He, assistant professor at the Institute of Future Cities at the Chinese University of Hong Kong.

"There are just not enough facilities for bikes," said He.

(Reporting by Sijia Jiang; Additional reporting by Julie Zhu; Editing by Adam Jourdan and Kenneth Maxwell)



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