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On your bike!

During the September holidays my wife and I took our young family to China for a family holiday. 

Amongst all of the historical sites and the dramatic landscape, the friendly people,  the spicy as well as sweet food and the shear scale of the worlds most populous country we saw a number of very interesting – and in the end particularly Chinese – scenarios play out on the streets of their teeming cities    

One of the most interesting things for me was the plethora of hire bikes available in all major Chinese cities. From Shanghai to Beijing to Xian at every train station and bus depots and on most major roads there was an abundance of cheap hire bikes available for rent. 

These bikes are literally piled up at the front of train stations ready for eager commuters to use for the last portion of their particular journey

The rider simply needs to unlock the bike (there is a lock built into the back wheel) via a mobile based app that Is linked to their bank account. (Note: it seemed everything in China was available to be paid for via mobile payment systems – we have a lot of catching up to do in this area!) 

The users then rides off – no helmet needed as this is not enforced in China.  When they arrive where they are going they simply relock the bike via the app and leave it on the side of the road wherever they may be. 

The rider only pays for the rime the bike is unlocked and a very small fees of a few Yuan per hours – less than a $1

All bikes are GPS tracked and the owner doesn’t seem to mind where they are left as they can easily retrieve them if they wish 

 I was fascinated to see how the economics of this practice worked and I looked further into it once I return back to Oz

The dockless bike craze that has swept China and many parts of Asia has even made its way to Australia over recent months with similar programs available in Melbourne Sydney and Adelaide but not in my home city of Brisbane just yet

The general premise is this: You can hire a bike for usually a few dollars an hour and because the bikes are dock less you can pick them up and leave them anywhere you want rather than having to take back to a designated area or docking station that a number of Australian Councils have brought it over recent years to vary degrees of success 

So how do the companies behind the dock less bikes actually make any money from what at face value appears to be a low margin hire scheme  ?

Effectively the owners of these bike sharing schemes make money in three ways

  1. the hire fee itself which in China (and even Australia) is very low would provide some regular revenue to cover the cost and upkeep of the bikes – but may take awhile to recoup the set up costs   
  2. advertising on the actual frame on the bikes and the wheels – again not a huge revenue source would likely flow from this practice 
  3. the actual deposit required to register for the scheme
  4. access to the data that is generated from the GPS tracked bikes

It is these last two sources of income which is where the bulk of the revenue and hence profit comes. 

To register for the bikes in Australia is approximately $60 -$90 per customer which doesn’t sound like a lot of money compared to the cost of bikes but when you realise the sheer scale of the schemes in China you get an idea of why the promoters are going down this economic model.

One of the largest share bike operators in China – OFO – apparently has 100 million registered users! Each put a deposit down which adds up to a lot of capital available to the company to provide bikes and use for other purposes such as investing. 

The final source of revenue may will be the largest given that the data supplied by millions of individual bike riders and their daily habits is a very valuable source in today’s sharing economy. 

To this end it is no surprise that the two largest operators in the Chinese market –OFO and MOBIKE are ultimately funded and partly owned by Alibaba and Tencent two of the largest Internet companies in China.  This backing has seen the value of the companies soar to the billions 

Bike sharing companies promote their services based on their desire to be “clean and green” to free up congestion in our cities but at its base level they are really generating capital to be used for other purposes and generate data that can be on sold to other users or their ultimate owners.

This “new” economic model again is a new frontier in the digital economy – one that we will likely see more and more of over coming years

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