In the US, China’s bike sharing behemoths face an uphill climb

July 15, 2017, 2:54 PM UTC

I’m in New York this week, en route to Fortune’s annual Brainstorm Tech conference in Aspen, Colo., where I’ll be talking about “bike sharing” with Davis Wang, co-founder and CEO of China’s largest bike sharing venture, Mobike.

The concept of bike sharing has seized the imagination of global tech investors lately as a host of Chinese bike sharing ventures take their turbo-charged business models global. Mobike recently launched operations in Singapore, Japan and Manchester and is reportedly coming soon to Washington D.C. Arch-rival Ofo has rolled out in Singapore and Cambridge, England and vows to have operations in 20 countries outside China by the end of the year.

Can China’s bike sharing behemoths conquer the world?

In pondering that question, it helps to remember that bike sharing is an idea that was not made in China. The French city of La Rochelle created one of the first successful bike sharing programs in the 1970s. Cities in Denmark, the Netherlands, the United Kingdom experimented with community bike schemes throughout the 1990s. In the United States, Denver introduced the first citywide bike sharing program, called B-cycle, in 2010. About 60 U.S. cities now run bike sharing programs. The National Association of City Transportation Officials estimates the number of rides on U.S. bike sharing services–including Boston’s Hubway, Chicago’s Divvy, Washington D.C.’s Capital Bikeshare–topped 28 million last year. New York’s CitiBike program, the nation’s largest, provides more than a million rides a month.

If anything, the Chinese have come late to bike sharing. While bikes have been a crucial mode of transport in China’s cities since the Mao era, ridership declined steadily after the 1990s as China’s prospering middle class commuters traded up for passenger cars. That trend has been reversed only in recent months thanks to frantic competition among about 30 privately funded bike sharing startups, none of them launched before 2015.

But the power of those fledgling ventures is formidable. Consider the industry’s two heavyweights: Mobike (whose investors include Tencent, Foxconn, Singapore’s Temasek, Warburg Pincus and Sequoia Capital), and Ofo (backed by Alibaba, ride-sharing giant Didi Chuxing and Russia’s Digital Sky Technology). Both companies claim valuations in excess of a billion U.S. dollars. On peak days each now provides more than 25 million rides–almost as many as all the American bike sharing services put together provided all last year.

How did bike sharing in China get so big so fast? It helps that China has more people than the U.S., and that China’s cities are far more densely populated. But the critical factor is that unlike the U.S. and Europe, China’s brand of bike sharing embraces capitalism red in hub and spoke.

In U.S. cities, most bike sharing programs are run by local, non-profit organizations. Some are publicly owned, some are public-private partnerships (like B-Cycle), and some are fully private (like CitiBike). But all work in close partnership with city governments, and have broader goals than turning a quick buck. In communist China, bike sharing has been left to private companies juiced up with capital from homegrown tech giants and American V.C.s. The result is a bike sharing boom in which everyone seems hellbent on global domination and monster IPOs.

This essay was originally published in our CEO Daily Newsletter. Subscribe.

A second difference is that American bike sharing programs are based on docking kiosks, while in China bikes can be picked up and abandoned anywhere. Dockless bike sharing is a lot more convenient for riders, but creates chaos on city streets (as anyone who’s been to China lately can attest). Still, it’s a curious role reversal: China’s approach to bike sharing favors growth and disruptive innovation, where the U.S. has opted for stability and control.

Should U.S. cities embrace the Chinese model? One can imagine conservative and liberal justifications for doing so. Shouldn’t city governments get out of the bike sharing business? Wouldn’t welcoming in the likes of Mobike and Ofo extend the benefits of bike sharing to a larger number of people faster at lower cost? But it’s also clear Chinese challengers would undercut local legacy programs, and wreak havoc on existing investments in bikes and docking stations. And who wants abandoned bikes clogging public spaces or piling up on private property?

This smart analysis in The Information explores the complex politics of the U.S. bike sharing market in detail, noting that “the potential tension between cities and venture-backed businesses has echoes of the emergence of ride-hailing services like Lyft and Uber, which tore into the business models of the regulated taxi industries in most cities.” Maybe. But in the end, Uber and Lyft succeeded in establishing a presence in most U.S. cities while Chinese cities have shut them out. China’s bike share giants, similarly, may wind up spinning their wheels overseas.

Read More

Artificial IntelligenceCryptocurrencyMetaverseCybersecurityTech Forward