In late July, I did a tour of Mobike’s headquarters in Beijing – and I had a fascinating talk with founder Hu Weiwei and VP of International Expansion Chris Martin. It was a fantastic experience and I left with a much better appreciation of the rocket-ship ride the company has been on. I am writing up three (more serious) business articles on the bike-sharing business from this experience. But here is a summary of my trip – and then five big things I learned.
Arriving at Mobike HQ: Wait, Have I Been Here Before?
The Mobike headquarters is near the Liangmaqiao subway station in northern Beijing. So on the way there, I got a nice walk along the river (canal?). And, of course, I couldn’t help but notice all the on-demand bikes on way. These days these bikes are mostly Mobike and Ofo. This is a change from 6 months ago when +30 companies had rushed into the market and there were lots of different types. It got to the point where there weren’t enough new colors to go around and they had to do combinations. Here is one of my favorites.
I also passed one of Mobike’s new outdoor ads. You can see similar ones by ofo in the subways now. This was something I have been noticing and wanted to ask Mobike about. Given their overwhelming presence on the streets, why use outdoor media? Their answer to that is below.
I arrived at their new headquarters at the Manning International center – and I immediately started having deja vu. I had definitely been in this building before, but couldn't quite remember when. It's an odd building that sits over the river (canal?) and the roof deck replicates the bow of a ship (see photo below). I remember giving some sort of Friday night talk on the roof near the “bow” part of the ship. And I definitely remember getting pretty drunk at the cocktail party after and then stumbling around inside this building. That last part is pretty fuzzy though.
Entering the lobby, the headquarters looks pretty much like what you would expect to see. Lots of people hustling around and working on laptops in random places. A café, which was holding an employee meeting, off to the left. And lots of orange everywhere, so its similar to the bike colors.
On the left wall, there is an interesting pictorial history of the bicycle, with their company listed as the newest part of that history. I think that is not contestable at this point. On the right wall, there is a history of Mobike in a timeline. The line stretches across the entire wall with various milestones marked. But then you notice that the timeline only began in 2015. So at this rate, that timeline is going to run out of wall space in another couple months.
And of course, everyone in the bustling lobby is noticeably young and casually dressed. It's an Internet start-up. People are wearing everything from jeans and t-shirts to shorts and sandals. Standing in the lobby in my suit, I felt pretty out of place. And a bit old. I made a mental note to drop a couple references to One Direction.
I was met in the lobby by Luke Schoen and Huang Xue, both from media relations. I immediately felt the compulsion to disclose that I had been drunk in their building in the recent past. In retrospect, that was maybe not a great way to introduce myself. They politely ignored that and said they had just moved in about two months ago. And off we went on a tour. I pulled out my long list of questions.
Meeting the Founder
After some discussion, we headed up to the second floor deck, which is the part that looks like the bow of a ship. I continued peppering Luke and Xue with various questions, likely pushing the boundaries of acceptable social graces. I was then surprised to be joined by VP of International Expansion Chris Martin and co-founder and President Hu Weiwei.
This was pretty lucky as their international expansion was a topic I was trying to find out about. And Chris is the person spearheading that effort. He's a pretty interesting guy. Dressed in jeans and a t-shirt, Chris comes across as a young guy in perpetual motion, which makes sense. Mobike has been launching in a new city almost every week and Chris appears to be a big part of this frantic pace. In the last couple of weeks, they have launched in Manchester, Florence and Milan. And the word of mouth is London is next month. Chris comes across as a super-charged executive and is instantly likeable. Although I immediately resented him for speaking Mandarin so much better than I do.
Founder Weiwei makes a different impression. She’s poised and very-well dressed, like a Fortune 500 CEO. She has an assistant hovering behind her, trying to get her attention about various things. But there is none of the eccentric behavior that is so common in Silicon Valley CEOs these days (Jobs, Zuckerberg, Kalanick, Musk). She comes across as precise and very thoughtful. I scribbled down two notes while she was talking. The first was “very smart”. The second was “gravitas”, which I circled twice.
Weiwei strikes me as a particularly good example of the newest generation of Chinese women entrepreneurs. And this is a demographic worth paying close attention to. Keep in mind, women typically generate 50% of household income in China, which is fairly uncommon globally. And virtually every study shows they are the most financially ambitious women on the planet. As of last year, China has over 80% of the world's self-made women billionaires.
Within this phenomenon, there is a new generation of women entrepreneurs and executives emerging, with a lot of this happening in the Internet space. Take a look at Jean Liu, President of Didi Chuxing. Or her cousin Zhen Liu, previously Senior Vice President of Uber China. Weiwei is part of this newest generation of Chinese women entrepreneurs. They are not yet as well known like Jack Ma and Pony Ma. But they are the group to watch.
Ok. Those were just some impressions of Weiwei and Chris. Back to the business questions, which were my goal for the visit. And this is where I put in two big qualifiers.
First, you'll note I haven't quoted Weiwei or Chris. Or Luke or Xue. I am not a reporter and there is no "on the record" with me. I am gathering information for my own analysis and understanding. But everything is "off the record". Sorry if that is disappointing. But I have put together a ton of analysis on this company based on the visit, so hopefully that makes up for it.
Second, there is a problem with a guy like me looking at a company like Mobike. I am in private equity / advisory and this is a venture capital situation. It is a different skill set. Private equity tends to be about figuring out what is probable. Venture capital is about what is possible. I spend most of my time on strategy and competition questions (longer-term forces that determine probabilities). But early-stage companies like Mobike (“zero to one” situations) are far more about betting on big ideas and the ability of specific people to execute fast. So you’ll notice I focus more on the longer term consumer and competition questions. And I tend to avoid the “how to grow fast?” and “how to build an entrepreneurial culture?” questions that are probably more relevant – but out of my expertise.
And these are important questions for Mobike. Most of their success or failure will be determined by their rate of growth and the performance of Weiwei, Chris, and the senior management team. How fast and effectively can this group execute?
I will leave that question to smarter people. But the growth in the past twelve months has been stratospheric, like a meteor blazing across the sky in Russia (see that amazing video here). In twelve months, they have gone from a tiny start-up to 6.5M bicycles deployed in over 100 cities. And talking with their team, that is what really comes across, that this is a company operating at a flat out sprint.
Here are my five take-aways on Mobike and bike-sharing in general.
Take-Away 1: It's about focus and speed right now.
I peppered the management with questions about various business models: e-commerce, subscriptions, advertising, bike sales and such. And the answer I kept getting from Weiwei was basically “not right now” (my words, not hers). The company is focused on expanding as fast as possible mostly within their current business model, which is “pay as you go” bicycle rentals.
Weiwei also had an interesting comments about really focusing on two products right now. One is the bicycles (and their IoT network). The other is the company itself. Building the company and getting its corporate DNA right are a big part of what they are working on right now.
My first take-away is they are really focused. And they are moving as fast as possible on expanding geographically with their current model.
Take-Away 2: They are pulling away in an “operational marathon”.
Certain businesses have economics where you build certain advantages and these then limit your competition. For example, it is next to impossible for any company to launch a competing cola to Coca-Cola, despite the fact that making soda is pretty easy.
But most businesses don’t really have this sort of protected existence. Most are instead engaged in a never-ending “operational marathon”. This means every month they have to get larger, more efficient and effective. They have to grow. They have to improve their products. They have to improve their marketing. They have to optimize their supply chain. And so on. You are constantly improving your operations. It’s like running a marathon and if you are a little faster than your competitor you can slowly pull away from the pack over time. Hence the term "operational marathon".
That is what Mobike looks like to me. It looks like a company in an operational marathon and they have been slowly pulling ahead of their competitors. When you look at their market share, international expansion, quality of bicycles, software running on their network and so on, they have clearly opened up a lead from the pack operationally. Focus (point 1) has a lot to do with this. So does the speed and effectiveness of the management team. Being first mover in a market also helps.
However, the problem with an operational marathon is you are never ultimately protected. You can stumble and fall and others can then catch up with you (somewhat) This has happened recently to companies like KFC and McDonalds in China, with their food scandals. Similarly, Samsung was the most popular smart phone in China in 2010, but then they fell back and Xiaomi passed them. Then Huawei passed Xiaomi.
So even when you get big (which eliminates a lot of competitors), you can still fall back depending on performance. The operational marathon never ends.
Take Away 3: Something new and powerful is going on in bike-sharing marketing and sales.
I spoke with Chris about how their business grows in cities. After deploying a small number of bikes in a city like Manchester (about 1,000 bikes at launch), ridership just starts to naturally grow. A small number of bikes starts to get increasing usage and then a launch event and word-of-mouth amplifies this (the brightly colored bikes really do get people's attention). From there growth happens organically and just keeps going up and up. I was trying to figure out how much money Mobike actually spends on marketing and it appears to be very little. You host a launch event to get some press and then deploy some bikes (which costs money). But that’s most of it. The marketing and sales aspects of this business appear both powerful and amazing low cost.
I think it’s clear we are witnessing something new and important in terms of sales and marketing. It reminds me of people started talking about viral marketing for social media and e-commerce.
Looking back, I can only think of 2-3 companies that have become so pervasive in my life so quickly. There is Wechat on my phone, which I use almost every 15 minutes. And there is Baidu, Google and Facebook, which I use frequently. These companies emerged very quickly and became embedded in your life and consciousness. But these are all phenomenon in the virtual world. Mobike is becoming the same type of overwhelming and ubiquitous presence in the physical world. From the moment I leave my office or home, I am barraged with these bicycles. I must walk past over 1,000 of them every day. It is an onslaught of branding and outdoor media that makes Coca Cola’s advertising look small in comparison. But these are not just advertisements covering every street. They are also points of sale. So it is like Coca-Cola somehow covered the streets of Beijing with +200,000 vending machines.
Oh, and one more difference. These pervasive, pretty low cost, advertising plus "points of sale" bikes are also mobile. They can be moved around to where the people are at various times. It's like the army of vending machines covering every street also follows people around.
Also, I did ask about those billboards / outdoor signage they are putting up. The answer is basically this is for branding purposes. While they have a ubiquitous presence on the streets, it doesn't create a clear association. The billboards are emphasizing the "reliability" of the bikes (and other things).
I am working on a longer piece on this new type of sales and marketing. And I'll try to get quotes and comments from management in those longer, more specific pieces. But I think this is a big part of their success. That plus the fact that there is a lot of latent demand for riding bicycles in a more convenient way.
Take Away 4: What exactly is a “smart bike”? And is in-house manufacturing a long-term advantage in smart bikes?
One thing that Weiwei mentioned that I thought was really important was about how technology and Internet companies in China can really benefit from the country’s huge manufacturing base and its massive consumer population, which is now easily reachable via smartphones and mobile payments. This point almost exactly echoed my comments on CGTN that same week (here). I basically argued that there are two advantages Chinese internet companies have over companies in Silicon Valley – access to the manufacturing ecosystem and the huge domestic consumer population, which enables specialization. I think this is why we see are seeing Chinese innovation leadership in companies that both sell to domestic consumers and have a significant hardware component – such as in drones (BPI), handsets (Oppo), home devices (Xiaomi) and smart bikes (Mobike).
This raises the question of what exactly is a “smart bike”?
A smartphone is really a computer in your pocket. And Tesla’s electric cars are really computers that move around. In both cases, these companies were innovators in integrating hardware, software and services into one holistic package. And this combination of hardware, software and services is critical for a couple of reasons.
First, by integrating hardware / software / services, you get better economics. For example, Apple makes +90% of its revenue off the handset sales but it is the software (itunes, app stores) and services (icloud, etc.) that make it sticky for consumers. They can keep their customers year after year in a way that other manufacturers of durable products (traditional cars, ovens, washing machines, etc.) cannot.
Second, devices that integrate hardware, software and services can do things traditional dumb devices such as fliptop mobile phones cannot. For example, Elon Musk’s electric cars keep demonstrating new abilities relative to traditional cars, such as doors that open when you walk towards the car. These are smarter products. How long this "smart vs. dumb" advantage lasts is a question. Leading smart cars may keep ahead their competitors in terms of new features. But smart toasters probably can't do much more than dumb toasters, and will become commoditized pretty fast.
So what is a “smart bike”? What can it do that traditional bikes cannot? And will this advantage last?
So far, the answer is that smart bikes can be used “as needed”. Their big selling point is still convenience (not price), which I have written a lot about. Because they are smart and can exist free of any store or docking station, you can use them and leave them as needed.
However, this is just the beginning and maybe these smart bikes will soon do other things. For example, Mobike can basically move their bikes around town by offering users little payments to move them. So they can re-position to the high demand spots and times in the city, such as outside the subways at closing time. That type of mobility is a new feature of smart bikes.
Smart bikes can also now basically self-report damage (by virtue of not moving and having the network pick this inactivity up). They are also getting better in terms of security. They can now self-charge by solar panels and pedaling. Perhaps longer distance electric bikes are coming, which you could charge at stations around the city? Basically, smart bikes are increasingly able to do new things. This is all bad news for manufacturers of traditional, dumb bikes.
One difference with Mobike’s approach versus their competitors is they are manufacturing their bikes in-house. They are doing the Steve Jobs and Elon Musk approach of innovating and manufacturing mostly in-house. This does let them integrate their hardware, software and services more closely and probably lets them upgrade faster. It also facilitates the integration of their bikes and their IoT network. Depending on the rate of advancement of these bikes, this could make it difficult for a company that is outsourcing the hardware to keep up in terms of features and services. But if these bikes flat line in terms of advancement (smart toasters, not smart cars), this could become less of an advantage.
I am working on a longer piece on “smart bikes” and how a more integrated approach may or may not enable Mobike to stay ahead on the development curve.
Take Away 5: Is there a “game over” scenario for bike-sharing?
I think this is really the most interesting question – and is something squarely in my area of research. Is there a point where a bike-sharing company becomes impossible to compete with? What is the combination of volume, services, and cost structure that creates a "game over" scenario.
This happened for Didi Chuxing early on because of the unique economies of two-sided platforms. At a certain point, their rider and driver volumes made it impossible for new competitors to enter – and they ended up with +90% of the market. It also happened with Wechat very quickly. However, in other companies like Facebook and Airbnb, it developed slowly over several years. Note: "Game over” is not the same as “winner take all”. There can be several untouchable winners in a business.
It is still not clear to me whether bike-sharing will have this sort of “game over” moment. Certainly, the market leaders can continue to pull ahead, which I have described as an operational marathon. But that is different from there being a point where a well-run and well-funded competitor simply could not offer the same service as Mobike or ofo. Recall how even super-smart and super-capitalized Google could not break into Facebook's business with Google+.
I am trying to work out what the equation for “game over” is in bike-sharing. I’m pretty sure it has to do with “effective marketing spend” by virtue of bicycle density within a geography. I also think it will involve increased switching costs, complementary services and economies of scale. But I’m still working on it. This business is ultimately a really interesting combination of a software business (i.e., intangible assets) and a traditional rental business (i.e., tangible assets).
Ok That was pretty much my visit to Mobike HQ. I headed back to the Beijing subway, which was of course horrendous after 4pm. And along the way, I saw one of those rare golden bicycles. They are kind of disappearing so I always consider seeing one as good luck.
The author is Jeffrey Towson, Professor of Investment at Peking University Guanghua School of Management, as well as a best-selling author and a private equity investor.