Blaming regulations, the China-based company pulls back from the U.S. market.
Ofo is out: Just a year after launching 40,000 lemon-yellow bicycles in more than 30 different markets in the United States, the Chinese dockless bikesharing company is scaling back its operations and has laid off 70 percent of its North American operations team, as Quartz reported recently.
Ofo’s American journey ends where it began: Seattle. Last Monday, the City Council voted to make its pilot dockless bikesharing program permanent and made allowance for doubling the total bikes and e-scooters roaming the city to 20,000 vehicles. After the Emerald City’s docked bikeshare system, Pronto, went belly up in early 2017, the city became an exciting (and downright goofy) testing ground for the new experiment in dockless bikesharing. Up to four companies could remain in Seattle to duke it out for riders, but Ofo has bowed out, blaming the $50-per-bike permit fee.
“The exorbitant fees that accompany these new regulations—the highest in the country—make it impossible for ofo to operate and effectively serve our riders. And as a result, we will not be seeking a permit to continue operating in Seattle,” said Lina Feng, Ofo’s general manager in Seattle, in a statement after the City Council vote. (Note: The company eschews the upper-case.) “We’re incredibly disappointed to be leaving the first U.S. city to welcome ofo and thank the City for its partnership and support this last year.”
Add that to a long list of city regulatory obstacles that the China-based company has objected to. In Washington, D.C., it blamed a cap on the number of bikes. In Chicago, it was lock-to requirements. In New York City, the company bailed on filling CitiBike’s transit deserts. But the answer might be a bit simpler: The business model that brought the company success in China didn’t translate well to the United States.
In China, sheer saturation of city streets not only made for mesmerizing bike-graveyard photos: It succeeded in shifting car trips to dockless bikes. Ofo claimed 32 million trips every day on 10 million bikes across 250 Chinese cities; it was valued as a $2 billion business. But that density-driven strategy didn’t translate to market dominance in the U.S., even as Ofo introduced itself with month-long free-ride promo campaigns in most markets and big fleets of free-floating bicycles, a technique that one Twitter user compared to “street spam.”
CityLab talked to a former Ofo employee who was familiar with the company’s marketing strategy but asked not to be identified for this story as they search for a new job in the industry. “I think the culture of government and bike ridership in China is very different in the United States,” the ex-Ofo staffer said. “Cities felt they were behind the ball with regulating ride-sharing, and I think they were trying to catch up with bikeshare.”
But even in Dallas, where regulations were relatively lax, Ofo wasn’t able to gain market dominance over rivals LimeBike, Mobike, and Spin. The firms initially flooded Dallas with about 20,000 bikes, but scattered deployment across the sprawling city, combined with vandalism of bikes, eventually led them all to exit or scale back. “The Dallas experiment is a really good example where companies wanted to approach it as closely to China to gain dominant market share,” the former Ofo employee said. “Unlike with ride-sharing, the latent demand takes time to build up. Even without a cap, it couldn’t be realized, so we didn’t need that many bikes out there. That’s capitalism working—for once—the way that it’s supposed to.”
Dallas City Council passed regulations that included a $21 per bike fee in late June. Ofo brought its Dallas fleet down to a more manageable 1,000 bikes about six weeks ago, before departing the city altogether. Now only 3,500 bikes remain in the city between LimeBike and local dockless company, VBikes.
Ofo will continue with a small footprint in some markets, such as San Diego, the University of Denver, the Phoenix metro area, and College Station, Texas. As it exits other cities, Ofo does have plans to recycle the bikes it leaves behind. “As we wind down select markets, we remain committed to environmental sustainability and will continue to donate ofo bikes in good working condition to local communities and recycle all bikes when they're beyond repair or no longer able to use,” said Taylor Bennett, spokesperson for Ofo North America. “In Dallas, we’re donating ofo bikes to City Square and Bikes for Tykes, as well as working with Commercial Metals Company to recycle the bikes.”
So what does this pullback mean for the state of private dockless bikesharing in the U.S.? Dana Yanocha of the Institute for Transportation & Development Policy thinks that, going forward, U.S. cities need to be strategic about how, and if, they partner with private companies. “Cities, you need to really think about what they want bikeshare to do and why they have a bikeshare program in the first place,” Yanocha said. “It's not just to have a bikeshare program. It’s hopefully to achieve some larger mobility and accessibility goals. That includes choosing a type of operator that’s going to get you to those goals. There’s no free lunch.”
That also includes balancing the public interest through caps, fees, and other regulations. “The heart of the issue is that private companies are essentially using city resources—they’re using streets and cycling infrastructure and public space to park bikes, and it doesn’t really make sense for cities to give those resources away for free,” Yanocha said.
Jeffrey Dowson, a professor of investment at Peking University who has studied the sharing economy in China, sees Ofo’s pullback as a sign that a Chinese-style bikesharing is unlikely to succeed in a more regulated environment. “It’s not like rolling out Netflix and just putting bikes on the street,” he said. “Everyone got confused by the word ‘sharing,’ because there’s no sharing going on. It’s a rental business with a very cool app. But the economics of it are closer to vending machines—it doesn’t scale the same way and it doesn’t throw off cash the same way, because you have to buy millions of bikes as you grow.”
Some of the most promising bikeshare startups have found partner companies to take them to the bigger mobility-as-service dance—Uber bought Jump, Lyft bought Motivate, and both Google and Uber joined fundraising rounds for LimeBike on the heels of e-scooter mania. (Chris Taylor, formerly Ofo’s head of North American operations, joined the e-scooter company Bird, before the North American team layoffs, as Forbes reported.)
But Ofo hasn’t found anyone to tag along with—yet. It’s still possible that DiDi Chuxing (the Uber of China) might buy the bike company with Ant Financial, Alibaba’s finance subsidiary, as Reuters reported Friday. Rumors about merging with Mobike have also swirled around—but those hopes were dashed after Mobike sold for $2.7 billion in April to China’s version of Yelp and Groupon, Meituan-Dianping.
Companies like Uber, Lyft, and DiDi Chuxing or even other sharing companies like Airbnb have the potential to grow because they offer a platform for connect things that already exist to a network. “It’s very cool to offer a mobility ecosystem, where you can go on to get a car or a bike within that ecosystem,” said Dowson. “But if you’re trying to stand alone, you’re not competitive. I’m not sure bikesharing on its own is a competitive thing.”
Yanocha agrees. “We don’t know for sure that you know bikeshare doesn’t have to be operated without a subsidy,” she said. “If private companies aren’t able to turn a profit and make this work, then maybe we’ll see it going back to the more traditional public-private partnership model.”