With China’s bike-sharing startups jostling fiercely for space, one player in Chongqing, a major city in the Southwest of the country, has dropped out of the race. The question this raises for Chinese entrepreneurs is whether the sector is already too overcrowded.
The operator of Wukong Bike, Chongqing Zhanguo Technologies Co. Ltd, announced on June 13 that it was withdrawing the service, having entered the booming “Uber for bikes” market just five months ago.
The company said in a statement on Weibo that it would return all funds to its investors and refund all deposits and balances to its app users in 30 days.
It has been reported that many of the company’s bikes were being stolen by users. However Wukong Bike founder Lei Houyi attributed the firm’s failure to having limited access to the higher end of the supply chain.
“We couldn’t compete with the first few bike-sharing startups. The ‘Head Effect’ is very evident,” he said in an article published by The Paper. “Media and government resources all tilt to those companies like Mobike and ofo.”
‘Head Effect’ is a new term frequently cited by internet entrepreneurs in mainland China. It is taken to refer to original premium content or services that gain a brand following and are able to monopolize resources.
In the “Uber for bikes” battlefield, the success of early-bird start-ups Mobike, which is backed by Tencent, and the Alibaba-invested ofo, have encouraged a flow of copycat acts. Those first movers have the advantage of being able to lock up top resources from bike manufacturers, investors and local governments. The latecomers are left will little room in which to maneuver.
Mathew Brennan, the founder of China Channel, has more than 13 years of on-the-ground entrepreneurial experience in China. He believes the major disadvantage for new players in the market is that they lack scale and have to combat the fact that users are already in the habit of using other brands.
“It is very difficult to get people to download your app if you don’t have that many bikes on the street,” he says. “People are not going to have 10 apps for bikes on their phones – one or two are quite enough, and they may have already got used to Mobike or ofo.”
Many Chinese know that small startups have a high risk of failure and are unwilling to risk their deposits on them. Instead, they see that China’s internet giants are backing Mobike and ofo and consider that bigger companies are less likely to fail.
“It is very difficult to imagine how someone could break into this market from zero now,” says Brennan. “New players are not just fighting Mobike and ofo, but Tencent and Alibaba.”
There is still a possibility, however, for local markets to be taken by smaller players. Brennan believes that in some Tier 3 Chinese cities where there are very few or no sharing-bikes to date, it may be possible for a local company with strong local government connections to fight off opposition from bigger players.
Sharing-bike users in China now number 28 million and the market topped 1.23 billion yuan (US$18 million) in 2016, according to a research paper released by iiMedia Research Group. By the end of 2017, it is expected to expand more than eight times in size to top 10.28 billion yuan, reaching 209 million users.