Hellobike to reshape bike sharing landscape in China

Hellobike’s Shocking US$500 million Funding

As the two biggest bike sharing players, Ofo and Mobike, continue to outperform competitors and dominate the bike sharing business in China, the market seemed to finally stabilise after a 2-year roller coaster ride. All of a sudden, Hellobike nailed down two rounds of funding in December 2017, completing 6 rounds of investment in a single year. Some people call it a miracle.

The first investment (Series D1) in December was led by Ant Financial and amounted to US$350 million. The most recent investment (Series D2) was led by Fosun Group (with GGV Capital) with total funding of CN¥1 billion (US$153 million). In fact, Alibaba set its position even earlier in March 2017 by investing (through Ant Financial) in Youon, which merged with Hellobike in October 2017.

Alibaba’s Concern

The investor structure of Ofo and Mobike may be one of the most complicated across all O2O sectors in China. Tencent directly invested in Mobike. Alibaba directly invested in Ofo. Didi Chuxing (which was invested by Tencent) invested in Ofo as well. Other than AT (Alibaba & Tencent), over 30 investors have led or participated the investment into Ofo or Mobike. Many of them have publicly expressed their preference on a merger between the top 2 bike sharing companies.

This is the concern of Alibaba. Why? If you recall the merger between Didi and Kuaidi, Tencent managed to direct a large volume of customers and transactions to its WeChat Pay by leveraging on the popularity of WeChat (Tencent’s social network app). Alibaba is worried about ceding another big payment user base to Tencent if the merger between Ofo and Mobike happens.

Is “Hellofo” Alibaba’s game plan?

With fresh inflow of cash, Hellobike, as the third biggest player, can start to accelerate its expansion. You may wonder that the faceoff among the Top 3 may very soon be ignited. Perhaps not, if thinking carefully. Ofo and Mobike directly compete by targeting 1st tier and some 2nd tier cities, while Hellobike heads straight to 2nd tier, 3rd tier and even 4th tier cities. Hellobike also extends its operation into 140 scenic/tourist areas. So far, little direct competition between Hellobike and the top 2 has been observed.

Looking at the bigger picture, wouldn’t the merger of a company that focuses on Tier 1 & 2 cities; with one that focuses on Tier 2-4 cities sound like a better match to cover users more effectively? In our opinion this is probably the strategic approach by Alibaba to reduce the likelihood of an Ofo-Mobike merger.

Ofo and Mobike in the middle of an arranged marriage

As many investors are pushing for a merger between Ofo and Mobike, the management of both companies hold the opposite standpoint. The close competition between Ofo and Mobike forces huge spending in advertising, promotion and customer acquisition. Investors want see a merger that will stop burning cash and start to generate a profit. However, Ofo and Mobike both have ambitions beyond bike sharing so are unlikely to give in (of their own accord) anytime soon.

Mobike has recently started cooperating with Shouqi (car booking app) and Dida (another ride sharing app, not Didi) and has integrated their services into Mobike’s app. One investor (Weilai Capital) of Mobike also invested in Shouqi, showing the support of Mobike’s ambition into greater consumer transport territory (bike sharing and ride hailing).

However, with Didi sitting as their biggest shareholder, Ofo’s position is a little awkward. Extending services into ride hailing is definitely not something they will consider. Either it will compete with Didi, or (if they partner with Didi and offer Didi ride hailing through their app) Didi will have a greater influence over Ofo. This is on top of the rumours that there are conflicts between the management of Ofo and executives from Didi. Clearly, Didi wish to have more influence in Ofo and Ofo is trying to retain control.

The biggest winner of the potential merger between Ofo and MoBike, therefore, is Didi. However, that would be the worst news for the management team of Ofo, MoBike, and Alibaba. That is why these three parties have publicly opposed the idea of merger.

Hellobike may be the best product?

If Alibaba invested in Hellobike because of strategic benefits, what would be the rationale for Fosun Group and GGV Capital in their decision? Other than economic considerations, the product can be a key factor.

Hellobike has set forth clear strategies, named “3510” (3km, 5km & 10km), utilising big data and artificial intelligence to build a dimensional transport sharing experience for customers. It has also partnered with WM Motors (electric car manufacturer) to provide “4+2” (4 wheels plus 2 wheels) service. The service integrates bike travel for trips less than 5 kilometers and car rental for trips more than 5 kilometers. This model has started the testing in Dongying city.

Hellobike also focuses on improving the overall riding experience by decreasing the weight of the bike frame with full aluminium alloy, reducing the unlocking time and innovating on seats. Big data analytics will help them to manage the logistics, avoid lost bicycles and keep the cost of operation at CN¥0.3 per unit per day.

It is not surprising to hear from one investor that “owning the customer is the only way to own the market, and such company that can do this is definitely worth investing in”.