2017 those gone bust bike sharing companies

Looking back at 2017, shared bikes were undoubtedly one of the hottest topics of the year. This year, many shared bike companies experienced a process from sudden emergence to explosive growth, and then to being forced to stop services and declare bankruptcy.

The latest data shows that in the past six months, six shared bike companies have experienced operational anomalies, roughly causing user deposit losses exceeding 1 billion yuan. The difficulty in refunding deposits has become the biggest problem troubling shared bike users.

Today, I will take stock of those shared bike companies that have already gone bankrupt and analyze the direct reasons for their collapse and the problems behind them.

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In just half a year, six companies went bankrupt

Wukong Bike

On June 13, 2017, Wukong Bike fired the first shot in the collapse of shared bikes. The operator of Wukong Bike, Chongqing Zhanguo Technology Co., Ltd., announced that due to a strategic adjustment, it would officially terminate support services for Wukong Bike from June 2017 and exit the shared bike market. After stopping operations, Wukong Bike refunded all deposits to users, totaling about 1 million yuan.

3Vbike

On June 21, 2017, 3Vbike announced that due to a large number of bikes being stolen, 3Vbike would cease operations immediately. Users who had not yet received their deposit refunds were urged to apply for refunds as soon as possible. 3Vbike founder Wu Shenghua stated that he had personally funded the production of 1,000 bicycles, but only a few dozen were recovered after being put on the market, with some areas experiencing a 100% loss rate, making it unsustainable.

Xiaoming Bike

In July 2017, Xiaoming Bike users reported difficulties in getting their deposits refunded, leading to a surge in refund requests. The CEO of Xiaoming Bike stated that the founding team had already exited, and there were technical issues in processing refunds. Xiaoming Bike currently owes users about 50 million yuan in deposits, with only a Weibo channel available for refunds.

Dingding Bike

On August 2, 2017, Nanjing Tiebi Network Technology Co., Ltd., the operator of Dingding Bike, was listed as an abnormal enterprise due to illegal fundraising and a broken capital chain, losing contact with the Qixia Administration for Industry and Commerce. On October 31, Dingding Bike founder Ding Wei stated that for the more than 10,000 users who could not get their deposits refunded, he still hoped to return the money or give each person a bike worth 1,800 yuan.

Coolqi Bike

By the end of September 2017, Coolqi Bike's branches in Shenyang, Hefei, Zhengzhou, Xi'an, and other places were reported to be deserted. Coolqi Bike faced issues such as difficulty in refunding deposits and losing contact with multiple local administration offices. Some areas had already started clearing Coolqi Bikes. Coolqi Bike still owed users 700 million yuan in deposits.

Bluegogo

Bluegogo was considered by many to be the 'best-riding shared bike.' However, even with this title, it could not avoid the fate of bankruptcy. Before Bluegogo issued a statement, company employees posted on a professional social platform that Bluegogo had announced its dissolution. On October 20, Bluegogo announced that users who applied for refunds before October 30, 2017, would receive their refunds by November 10, 2017. However, by mid-November, many users reported that they had not received their refunds despite the promised deadline.

The remaining shared bike companies are also not having an easy time. On one hand, small companies' market shares are being continuously eaten up by large companies like ofo and Mobike. On the other hand, competition among large companies is becoming increasingly fierce.

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Why did so many shared bike companies go bankrupt?

1. Broken capital chain

The essence of shared bike competition is the competition of the capital behind them. Currently, the leading companies Mobike and ofo are backed by multiple capital giants. It is not easy for second and third-tier shared bike companies to obtain continuous financing.

In the current situation where the profitability of the shared bike industry is unclear and companies are continuously burning money, additional investment in second and third-tier shared bike companies increases investors' concerns. Therefore, they prefer not to make additional investments. The founders of these companies are not industry giants and cannot sustain the companies on their own.

In the current situation of capital concentration, fierce competition among giants, and intense price subsidy wars, shared bike companies with limited financing capabilities and broken capital chains are at their wits' end and cannot continue to exert force. Gliding against the wind, they either move forward or die. As a result, some shared bike companies enter a cycle of stopping services or being taken over.

2. Incorrect positioning

Shared bikes have become an important part of people's lives and travel. According to data from iResearch, people generally use shared bikes for trips within 3 kilometers, with each use lasting about 30 minutes. Therefore, people's choice of shared bikes is influenced by the following factors.

Which app is installed on their phone: This determines that the shared bike companies that entered the market first occupied the users' mobile terminals. Which bike is closest to them: This determines that platforms with a higher density of bike deployment have an advantage.

30 minutes is a very short experience. People are more concerned about whether they can reach their destination quickly and smoothly rather than the experience in between. Using shared bikes is a low-frequency event, with most people using them 1-2 times a day, costing about 1 yuan each time or even less. This expense can be considered negligible. Therefore, promoting free rides is not a good marketing strategy. On the contrary, it makes investors question your business model.

Many shared bike companies do not have their own distinctive features or main directions, leading to a high degree of similarity among shared bike apps and a lack of unique labels.

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Difficulty in refunding deposits has become a major issue

Recently, the issue of difficulty in refunding shared bike deposits has further escalated, mainly involving Bluegogo and Coolqi Bike. The apps of both companies can no longer process deposit refunds. Coolqi stated that refunds could only be processed at their Beijing headquarters, and only by the user or a direct relative with valid identification. Bluegogo announced two refund phone numbers on Weibo, which were almost impossible to reach.

Faced with the deposit refund dilemma, some companies even proposed using bikes to offset deposits. Former Coolqi CEO Gao Weiwei stated that the cost of manufacturing a Coolqi bike was 650 yuan, which could cover the 298 yuan deposit, suggesting that users could take a bike home instead.

Setting artificial obstacles makes it increasingly difficult to refund deposits. The difficulty in refunding deposits is essentially to increase the cost for consumers to get their refunds and to ease the company's financial pressure. When the time and effort cost of getting a refund exceeds the deposit amount, refunding becomes unnecessary. The essence of difficult refunds might be 'no refunds.' The more people who cannot get their deposits back, the more profitable it is for the bike company.

On December 20, Shenzhen held a hearing on the legislation for the management of internet rental bicycles, with deposit handling becoming a hot topic. According to statistics from the Shenzhen Consumer Council, from January 2017 to now, they have received over 10,000 complaints about shared bikes, 99% of which were about difficulty in refunding deposits.

Despite various laws and regulations, users' rights have not been effectively guaranteed. Currently, China's third-party regulatory system is not fully established. Not refunding deposits at most counts as a breach of promise to users, bearing the corresponding liability for breach of contract. Whether the funds are regulated is not yet subject to mandatory regulations.

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Third-party deposit regulation is nominal

With the emergence of shared bikes, the issue of huge deposits has always been a concern. In August, the China Internet Network Information Center released a 'Statistical Report on the Development of the Internet in China.' The data showed that, conservatively estimated, the scale of deposits in the shared bike field alone is nearly 10 billion yuan.

According to insiders, most bike companies do not use third-party escrow and there is a phenomenon of misappropriating deposits to maintain cash flow. Moreover, most accounts and procedures are handled according to the standards for general deposit accounts, and banks are not required to fulfill third-party regulatory obligations.

In September this year, Xiaoming Bike claimed that user deposits were earmarked for specific purposes and entrusted to Huaxia Bank for supervision. However, Huaxia Bank stated that the settlement account opened by Xiaoming Bike at its Guangzhou branch was a general deposit account, and the bank was not required to fulfill third-party regulatory obligations.

Coolqi Bike claimed to have set up a 'special account' at Minsheng Bank. However, according to Minsheng Bank's Beijing branch, Coolqi Bike only opened a general deposit account, and the bank 'did not have any substantive business cooperation with the company.'

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Conclusion

The emergence of shared bikes has indeed met the public's need for short-distance travel, playing a positive role in solving the 'last mile' problem and alleviating urban traffic congestion. However, with the exit of some shared bike companies, the issue of difficulty in refunding deposits, which harms user interests, cannot be ignored.

The deposit issue is related to the long-term development and future of the shared bike industry. Relevant government departments need to work together to seriously study the methods of deposit regulation and come up with specific measures to tighten the regulation of deposits. This will make shared bikes more stable to ride.

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