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Taking a closer look to Mobike’s deposit removal: Ofo’s day will be tough

The removal of any forms of barriers of usage is an important strategy that Mobike implements to create more opportunities to attract additional users and redirect the competitors’ users to Mobike.

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Taking a closer look to Mobike’s deposit removal: Ofo’s day will be tough

Shared bicycle program Mobike made a major announcement on Thursday. Mobike will remove its deposit requirement for all users in China. Mobike’s user deposit was set to be 299RMB (45 US Dollars). The previous requirement would only waive deposit for those who have a credit score high enough in their Alipay account.

Mobike will also enhance its tie with the program’s owner, Meituan, as the shared bicycle will appear on Meituan’s frontpage, according to the corporate’s announcement on the July 5th. The bike-sharing services will also feature more on electrical-powered bikes and increasing bike qualities in the future.

Mobike was acquired by Chinese online life-service hegemon Meituan earlier in April 2018. Backed by a company with an approximate worth of 60 billion US Dollars, Mobike’s recent move intends to give its main competitor Ofo another hard hit in the long-standing duopoly competition.

 

As long as Someone Bears the Burden

“Through returning and waiving user deposit, Mobike will be more acceptable for everyone.” Mobike’s CEO Hu Weiwei calls the corporate’s move “setting the standard for the entire bike-sharing industry”. However, critics argue that the waived deposit offers bike-sharing users very little incentive to cherish and properly treat the rented bikes in the future.

The return of all collected deposit, which is estimated to worth 150 million US Dollars, would be a huge burden for Mobike’s financing department. However, as Meituan now bears the burden for the well-known bike-sharing program, Mobike now can easily offer its generosity to every user: At the end of the day, the bike-sharing idealists are no longer paying the price for their products.

The removal of any forms of barriers of usage, however, is an important strategy that Mobike implements to create more opportunities to attract additional users and redirect the competitors’ users to Mobike. Users may be attracted by Mobike’s no-deposit policy and no longer put any deposits in other bike-sharing services, resulting in an overall increase in Mobike’s number of users and market shares.

 

Another Hit on the Struggling Ofo

Meanwhile, Mobike’s biggest rival Ofo is now having a struggling period in its own operations. After missing the opportunity to merge with Mobike and failing to reach an acquisition deal with Didi, “Little Yellow” now suffers from consistently high operational costs and lack of additional funding to expand its business.

Ofo took on a very different approach with Mobike’s no-deposit policy. The bike-sharing company terminated its strategic cooperation with Zhima credit, and started to collect a deposit from all Ofo product users starting from last month. While the company stated that it will develop its own credit system in the future, the act was interpreted as a sign showing the financial predicament of the once-dominating bike-sharing service.

Reports have shown that Ofo is desperate in financing its business by discovering all forms of potential revenues. In-app games and news were found by media earlier on Ofo’s bike-sharing application. The company now tries to utilize its massive number of users in selling ads to turn into a profit. Although the company denies its intention to profit via these means, it is nevertheless a very clear sign of changes that Ofo intends to make.

Ofo would not be following Mobike’s generous no-deposit policy that easily. Reports suggest that Ofo is facing a “dark moment” according to Dai Wei in an internal staff meeting earlier in May. With no external financing sources, Ofo is not likely to catch up with the recent Mobike strategy to attract more users.

The bike-sharing stalemate is no longer a fair game: Mobike now has more capital, support, and mobile application traffic to utilize than its long-time rival Ofo, which struggles in keeping up with healthy cash flows and operational costs. Ofo now fell into a follower position in this competition, instead of the ones leading the business to grow.

Having very small differences among their services, bike-sharing firms are tangled in this endless game of huge expenditure and acquisition. Ofo however, with no larger investing groups to support its economically unwise spending, will be forced to play smarter strategies to keep up in the business.

It is a crucial time for ‘Little Yellow’ to explore more options and start to redefine its strategic goals: Instead of dominating the bike-sharing company, perhaps it is the time to change its gear to retain the existing users from not switching to Mobike for the low-cost services.

 

Chauncey Jung works with a unicorn Internet firm based out of Beijing. His professional experience pays him off an insider perspective over China’s internet industry. Completed his bachelor and master education in Canada, Chauncey is obsessed with trending technologies and economic developments across Asia. He can be reached at [email protected]