INTERNET: Sharing Economy Opens to Umbrellas

Bottom line: A new umbrella-sharing company reflects China’s tendency to overzealously jump into new trends, in this case shared economy ventures, and is likely to fold within its first two years.

Startup sees big bucks in shared umbrellas

China is rapidly emerging as ground zero for new concepts in the sharing economy. Our streets have already become flooded with shared bicycles, shared smartphone batteries are finding their way into our shops, and shared offices are taking over our cities. Now a new company has found yet another way to share, with word that a startup has just landed some angel investment for a shared umbrella firm.

In this case the company and the amounts of money are relatively insignificant, with Yisan Technology getting a modest 10 million yuan ($1.4 million) to begin its operations in the boomtown of Shenzhen. (English article) But the funding does highlight China’s tendency to go overboard with many new technologies, in this case pouring millions and even billions of dollars into causes with questionable futures.

Some people reading this will say I’m too much of a naysayer, and that with this kind of attitude we would still be living in caves and using our legs as primary source of transport. I would counter by arguing that innovation is crucial to advancement of any society, but that risk-taking needs to be a bit more calculated.

The problem in China is that too much money and effort get wasted on innovations with little or no chance for success, largely because there’s very little culture here of planning or testing the waters before rushing into new ideas. That process is empowered by a very immature venture funding complex that will throw money at almost anything without really understanding the idea of business models necessary for success.

All that said, let’s look at the latest sharing economy news from the umbrella space, which has Yisan getting its startup money from Siye Chuangtouhui Investment Management, which is probably exactly the kind of immature financier I’ve mentioned above. Yisan is putting the money to good work, buying 20,000 umbrellas which it is deploying around its hometown of Shenzhen.

The company plans to gradually expand to other cities, with an ultimate target of one umbrella for every 10 city residents. Yisan’s founder says his company is planning a rapid expansion, aiming to put 30 million shared umbrellas in its network by the end of this year, and 50 million by the end of 2018.

High-Tech Umbrellas

Yisan says an average umbrella costs it about 90 yuan, or about $13, meaning these are relatively high-end products with the usual location-based technology and other high-tech bells and whistles. By comparison, the average umbrella I usually buy here — and there are many — costs around 30 yuan, or about one-third of Yisan’s cost.

Like many of the other concepts, this is one that looks good on paper. Umbrellas are a product that people frequently buy on impulse, usually because it starts to rain outside and they’ve forgotten to take an umbrella from home. As a result, people like me often have multiple umbrellas stored away at home, most of which rarely get used but were simply bought on the cheap in a moment of need.

That would make this industry look ripe for a shared product. But there are many complications in the process, most notably the fact that these umbrellas will probably get easily lost or damaged and thus might have difficulty paying for themselves through hundreds of uses necessary to make the business model work. To make the concept work, you would also have to get a massive user base and deploy the umbrellas quite widely.

These Chinese innovators tend to take their money and buy massive amounts of new product, and then to heavily subsidize their networks to get users to sign up. That often results in a flood of interest at the start, followed by a rapid abandonment of the product when subsidies slow or end and suddenly people go back to their old patterns.

The trend seems to be that these categories explode, and then undergo rapid consolidation until there’s only one player left, and even that player may have difficulty due to lack of scale. Obviously there will be the occasional success story, and everyone will point to that as reason for pursuing more of these shared economy forays. But the vast majority of these will ultimately collapse, and I would say this umbrella sharing idea, while commendable, has a more than 90 percent chance of folding within its first two years.


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