Waning sharing economy
The retreat of the sharing economy in China’s first-tier cities over the past few years is obvious to anyone who has been paying attention.
The shared bikes that used to line the sidewalks and subway entrances in Shanghai and Beijing seem to have disappeared. Reports about the troubles haunting sharing start-ups flood the media, such as the news that Didi Chuxing moved to cut more than 2,000 jobs around the 2019 Spring Festival holidays, the bankruptcy rumors that swirled around Ofo late last year, and the story of the CEO of Togo, a car-sharing start-up, who was surrounded by customers and employees demanding refunds and unpaid salaries last month.
The fall of the brightest stars in China’s sharing economy, like those mentioned above, has also been pressuring market players to adopt a more conservative market strategy.
He Yuefeng, who founded shared parking start-up Xiaomazhiting, is one of those still banking on the sharing economy business model. But faced with a general market slowdown, he shifted his company’s fast expansion strategy in 2017 to a “contraction strategy” in 2018, which he will continue this year.
“We have seen a lot of examples, the rapid rise and fall of many sharing start-ups... from my point of view, the sharing economy has been developing too fast, led by a relatively young generation of entrepreneurs, but many of their products do not have backers – solid market demand and mature government regulations – for their long-term survival,” He told the Global Times during a telephone interview on Sunday.
He is particularly cautioned by shared bicycle companies like Ofo. “On the one hand, you saw those companies develop fast with a lot of capital pouring into the sector. On the other hand, we can see via media the ‘corpse mountains’ of abandoned shared bikes. Are the bikes being buried? No, it’s the money that is buried,” He said.
Xiaomazhiting has launched internet-linked locks at parking spaces in residential neighborhoods and commercial properties in a number of Chinese cities. The intelligent locks allow users to reserve online to use idle private parking spaces. So far, Xiaomazhiting has launched more than 10,000 such locks nationwide, He said.
The last golden year
He’s company was launched in 2017, often considered by many as the “last golden year” for the sharing economy wave in China. That year, Ofo had secured financing of more than $1 billion in the first six months, while Mobike also announced a $600 million financing round in July. In the shared electric charger market, the total investment volume surpassed 1 billion yuan ($148 million) in the first half of 2017, according to a report by the CCTV financial news channel in December 2017.
“Investors, particularly angel investors, were crazily going after sharing economy projects at that time, because the sharing economy was the new ‘investment hotspot’’ after mobile internet. Many domestic investors were seeking such a “hotspot” for their capital. Many of them did not carefully study the feasibility of those sharing economy projects. They were just blindly betting their money on those projects, hoping that one of them would hit the market,” Guo Tao, a veteran angel investor, told the Global Times on Monday.
With such passion among investors and entrepreneurs, there emerged many sharing economy companies on the domestic market, from shared bikes and cars to shared umbrellas, gyms and karaoke. A number of strange shared products also appeared, such as shared sleeping warehouses, which were launched in mid-2017 but stopped by local governments a week later.
Guo, who had contacted several of those projects earlier, said that many of those companies were just using the sharing concept as a type of gimmick. “Many of those companies had ultra-high operation costs and a single profitability model. Besides, there were too many similar competitors on the market and users didn’t adhere to any of them,” Guo said.
Companies that have banked on the idea of “sharing” have also faced problems they had never imagined before.
Malicious damage has been one of them. Just as some people try to harm the locks on shared bikes, some people have destroyed the intelligent locks installed by Xiaomazhiting in parking lots, He said.
“In residential neighborhoods, some property owners who don’t welcome our products report them to the urban management departments asking to demolish those installations. Some drivers even crash their cars straight into the locks to break down those installations. We can hardly do anything to deal with such problems,” He said.
Profitability models pose another problem. Like shared bikes, Xiaomazhiting has to accumulate a large user volume before profits are possible. “We have to launch millions – or even tens of millions – of those smart locks before we can talk about profits,” He said, adding he is not sure whether he can reach that target before capital burns out.
Receding capital
The receding of the sharing economy in China has been accelerated by dwindling investment. As the sharing concept gradually loses its shine and more sharing economy start-ups fail, investors are looking to draw money from the sector to the next hot industry, whatever it may be.
Guo said that now he would say no to almost any project linked to the sharing concept, though he notes there may be an exception for projects that really stand out. Many investors Guo knows share the same attitude.
“If an entrepreneur claims that he wants to establish a sharing company, it’s very likely that the investors wouldn’t even look at his project prospectus,” Guo said.
According to Guo, many investors have been burdened by such projects in recent years, as those start-ups were burning money at a faster speed compared with companies in other industries, casting a psychological shadow for investors.
Chang Xin, who worked for QF Capital as an investor, expressed a similar view. “So far, there are very few sharing economy companies that can make profits after they burn such a large amount of investment capital. This is not what the investors have anticipated. Those companies can’t make big money,” she told the Global Times on Sunday.
He said that financing was never easy for his company, even in the so-called “good days,” but it is bec
coming even more difficult now.
“It’s almost impossible now,” he said. “And this applies not only to the sharing economy, but to other industries. Investors would rather put their money in banks than invest in start-ups.”
Hope exists
But despite the failure of many companies, there still remain fighters quietly clinging to their business models and trying to survive the industry’s winter.
“After the bubbles of the sharing economy are squeezed out, the companies that remain will really match market demands,” Liu Dingding, an independent tech analyst, told the Global Times on Monday.
One example is Hellobike which, even following the fall of Ofo and Mobike bicycles, has been on the rise with a better, deposit-free business model and higher quality, Liu said.
Some shared gym companies are also holding on. The Global Times on Monday visited a shared gym located in a Shanghai neighborhood popular with young people. The gym, which resembles a box with a treadmill and wall-mounted TV in it, appeared quite popular among locals, who struggled to get a reservation.
He is also persistent. In addition to his shared parking business, he is now launching “shared villas,” similar to Airbnbstyle accommodations, for rent near famous tourism sites. He says it is a good business model based on the market feedback he has received so far.
“I think for the sharing economy, it’s important that companies understand what the market needs, instead of creating something to make the market accept,” he said.
Liu also said that he is still optimistic about two kinds of shared economy businesses: one is shared houses like Airbnb, while the other is shared transportation, such as bike sharing. “I believe that those sectors have rigid demand in the market, regardless of investment tides,” Liu said.