5 Things I Learned from My Visit to Mobike Headquarters (Pt 2 of 2)

In Part 1, I gave a summary of my visit to the Mobike headquarters in Beijing - and my meeting with founder Hu Weiwei. That is located here. I ended up touring and asking questions for about 2-3 hours. It was really fascinating.

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 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 amazingly low cost.

I think it’s clear we are witnessing something new and important in terms of sales and marketing. It reminds me of 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 (DJI), 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).

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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.

Thanks for reading. A special thanks to Bill Adams at Hume Brophy - and everyone at Mobike.

Cheers, Jeff

Part 1 of this article is here.

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I write and speak about "how rising Chinese consumers are disrupting global markets - with a special focus on digital China".

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If you would like my recommended China reading list, you can get it at www.jeffreytowson.com. You can also get a free chapter of my One Hour China Book there as well.

Some previous posts include:

• I Took 20 Chinese Students to Meet Warren Buffett. Here's What Happened.
• Stop Calling Me an Introvert. I Prefer "Power Thinker"
• How I Went From NYC to Working for Prince Alwaleed
• Starbucks' Big Success in China Has Been Surprisingly Painless
• The Awesome Story of Wang Shi and China Vanke
• My Favorite Map for Understanding China

About: I am a Professor of Investment at Peking University Guanghua School of Management in Beijing. I am also an investor, consultant and former executive / slave to Prince Alwaleed.

Photos by Jeff Towson