Why these startups bike the bullet

RECENTLY the three-way bike-sharing war in Singapore notched up a gear as ofo raised US$700 million in Series E funding, Mobike unveiled new bicycles and oBike declared that it has local advantage. Despite large amounts of venture capital poured into these companies, the sector remains profit-challenged as players incur high costs but offer relatively cheap services.

Why do such ventures persist when it's obviously hard to make a profit, and why do investors back them? This question is key to understanding startup psyche. The answer to which should also prompt new methods of evaluating such "disruptive" businesses, especially if Singapore wants to attract more of them.

In a bid to uncover why unprofitable businesses continue with their ventures, The Business Times spoke with the three bike-sharing players here. The premise is that bike-sharing is a sector much like the rest of the sharing economy, where firms are unprofitable and burning venture capital to acquire users and market share so as to stay in the game and outlast their rivals.

First, all three companies are presumably not profitable. When asked if they were, none would give an affirmative answer. They instead pointed to priorities other than profitability, which included gaining market and customer share, and expanding the business overseas. China-based Mobike in fact said: "We could be profitable today if we wanted to, but we are investing in the future."

Then, when asked why offer bike-sharing services when it's tough to make a profit, the three gave responses that suggested bullishness in the potential of the bike-sharing industry, and desire to "disrupt" the public transportation sector in Singapore. Mobike, for one, disagreed that bike-sharing is an unprofitable business and said that its business model is very clear and sustainable. "As we scale rapidly, we are achieving huge economies of scale. Right now, we're investing to address a massive demand for our service. There is a huge addressable market worldwide and we have only just begun."

oBike said that even if bike-sharing is far from lucrative, as a homegrown company, it hopes to see Singapore succeed in becoming a model car-lite urban city. "Our main focus is on gaining market share and encouraging use of bicycles as a first-mile and last-mile transport solution."

As for China-based ofo, it too cited the Singapore government's goal of a car-lite nation, and highlighted that its latest US$700-million Series E funding - believed to be the largest investment round in the industry to-date - demonstrates investors' confidence in the global bike-sharing industry and the growing importance of the sharing economy.

When asked about exit plans, it was unsurprising that none of the three players had one. After all, bike-sharing is in its nascency, a scheme that became popular in China only in the past few years. The players also cited their young ages (ofo is three years old; Mobike is two; oBike is less than a year old) and a shared commitment to grow (and not pursue an exit) for now.

Finally, the players were asked about the future of bike-sharing, given that many sharing economy pioneers are evolving. Uber, for instance, is moving into driverless cars, and Airbnb, to social experiences. This is an important question as it reveals the larger potential of bike-sharing, and could determine new ways to evaluate such "disruptive" businesses.

It appears that the data collected from bike-sharing rides is a useful resource that could be worth a great deal of money.

Homegrown player oBike said: "Currently, cycling data from oBike is shared with the Urban Redevelopment Authority and the Land Transport Authority to facilitate future town plans. We see bike-sharing being integrated as part of the wider public transportation. It will operate as an essential but complementary service to the entire transportation network."

Moreover, bike-sharing will also create technological capabilities in artificial intelligence (AI) and Internet of Things (IoT) that could be valuable and applicable to transport and even other industries.

Mobike said that it has an AI platform that can integrate and analyse hundreds of variables (such as weather, time of day, location, crowd patterns, and supply and demand trends) to deliver highly accurate predictive models used to enhance operating efficiency. This smart platform will enable a better experience for both the user and host city, Mobike added.

Rival ofo said: "In the near future, we envision bike-sharing services as central hubs connecting riders to net-based resources via the IoT, and creating an AI-based eco closed loop." That is, bike-sharing services can be integrated into the traditional public transportation network through a common smart card ticketing system or other IoT devices.

With that, new metrics must be created to evaluate "disruptive" businesses, including putting a price on the data and new technological capabilities that such businesses can create. These will be the assets of most startups in the sharing economy, and could explain why despite unprofitability, such startups continue to receive venture capital, which they will fervently use to acquire market share. Fundamentally, the more users the startup amasses, the stronger and more valuable their data and tech capabilities will be.