INTERNET: Ofo Withdraws from 14 Cities, Settles Complaint

Bottom line: The departure of Ofo from 14 cities reflects growing frustration by local officials with bike sharing services, and could be followed by more expulsions until the industry consolidates to a single major player.

The honeymoon seems to be rapidly ending for China’s cash-rich shared bike services, with word that Ofo, one of the oldest players, is withdrawing from 14 cities in its bid to figure out what exactly it’s doing. At the same time, media are reporting that Ofo has also settled a dispute with a customer who was injured when his brakes failed while he was biking downhill in Beijing.

These stories highlight just a couple of the many issues that Ofo and Mobike, the industry’s other leader, will face as they pedal into uncharted territory with their innovative but problematic services. Reflecting the looming consolidation that’s coming, one of my sources tells me that BlueGogo, one of the larger late arrivals to the scene, is currently shopping itself but is apparently finding little or no interest.

All of this is quite a lot of chatter for an industry that is just celebrating its first birthday. I first wrote about the shared bike craze just last September, when Mobike launched its service en masse in Shanghai. (previous post) But I do recall that Ofo first launched on the Shanghai college campus where I was teaching right around this time last year, or perhaps a month or two earlier.

For me, the most remarkable things about these services are how quickly they’ve grown, how much investor cash they’ve soaked up in the process, and how quickly they’re running into a wide array of problems. The two big operators, Ofo and Mobike, now have millions of bikes on the street in most major cities and many smaller ones, and have even expanded abroad. But they’re also being dogged by practical problems such as bikes that are frequently broken or unusable for other reasons, as well as the huge urban clutter they’ve created, and legal liability when injuries or even deaths occur.

That mounting stack of problems could ultimately prove to be insurmountable, though we’ll revisit that issue towards the bottom of this post. First let’s look at the latest headlines, which say Ofo will withdraw from 14 markets, including the relatively large cities of Jinan and Qingdao, both in Shandong province. (English article) The reports say the departures are for a variety of reasons, including technology issues and also expulsion by some local governments.

The technology issues excuse seems a bit ingenuous, since the technology for these services is relatively mature and there’s no reason it would work in some cities but not others. The expulsion by local governments is more likely the reason behind many of these withdrawals, since the conflicts between these services and local governments have been well chronicled.

Taking the High Road

More enlightened cities like Beijing, Shanghai and Shenzhen have taken a more high-handed approach and are trying to work with these operators to find ways to tame the many problems they’ve created, most notably a huge amount of new urban clutter in these already-crowded cities. But I can easily see smaller cities and even some larger ones simply saying “enough is enough”, and deciding to kick out the services or perhaps chose a single operator.

The second story is more incremental, and simply says that Ofo has settled a dispute with a Beijing rider surnamed Feng, who was injured relatively seriously when his bike brakes failed while he was riding downhill. (Chinese article) Ofo’s insurance company said it would only pay up to 10,000 yuan ($1,450) for the man’s injuries, including a number of broken teeth, even though the actual bill was more than 20,000 yuan.

In a mature market like the US, this man probably would have settled for tens of thousands of dollars, and that probably would have been the end of the case. In this case he also reached a settlement, though the terms weren’t disclosed. But I’m guessing it was for perhaps 20,000 or 30,000 yuan, basically enough to cover his expenses.

I can already sense that people are starting to tire of these services, no pun intended, as they really do create quite a bit of chaos on the roads and sidewalks despite their convenience. Patience is probably running thin among government officials as well, and we could see other cities follow the lead of these initial 14. At the end of the day, it’s still far from clear how things will ultimately pan out.

But I suspect natural consolidation will occur, perhaps leaving just one player in the end, in as little as a year from now. That would probably be just fine with most cities, since it would be much easier to regulate and work with a single player that wasn’t flooding the streets with new bikes and promotions as it fought a cutthroat battle with rivals for market share.

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