bike-sharing company Ofo
A staff member from bike-sharing company Ofo gathers Ofo bicycles for use during evening rush hour in Beijing, The firm’s founder has admitted considering bankruptcy. Image Credit: Reuters

Beijing, Shanghai: On the sidewalks of Shanghai and Beijing, once bright-yellow Ofo bicycles lie in varying states of disrepair — chains unhooked, wheels buckled and paint starting to fade — reflecting the quick rise and sharp fall of the Chinese bike-sharing start-up.

Millions of Ofo users are clamouring for their deposits to be returned and the firm’s founder has admitted considering bankruptcy. Ofo’s plight is a warning for China’s tech investors, who have ploughed tens of billions of dollars into loss-making businesses such as bike sharing, ride hailing and food delivery.

Not long ago, Ofo was racing into markets overseas and raising billions from backers, including Alibaba Group Holding Ltd and Didi Chuxing.

“It now appears bike sharing is the stupidest business, but the smartest brains of China all tried to get in,” Wu Shenghua, founder of now bankrupted bike-sharing company 3Vbike, said. “It really now seems ridiculous.”

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Ofo was a phenomenon. Its dockless bicycles, which could be picked up by scanning a QR code and left anywhere, grew from Beijing campuses to become an icon of young, urban cool. The firm garnered a valuation of $2 billion (Dh7.34 billion).

Its bicycles — and those of main rival Mobike — could be found on almost every city street corner, often in staggering numbers. Ofo’s advertisements featured major Chinese pop stars and showed trendy youngsters pedalling around the hippest areas of town.

Dozens of smaller rivals emerged in China over the last two years, only to go out of business, leaving Ofo, fellow Alibaba-backed Hellobike, and Mobike, backed by Chinese social media and gaming giant Tencent Holdings, as the major players.

But costly battles for market share have meant Ofo and its rivals have struggled to turn popularity into profit. Ofo’s very survival is now at risk as debts to suppliers have come due and user demands for deposits have mounted.

“It’s a very tricky business, all the profits are eaten away by competition. It’s something that really needs to be part of a bigger business,” said Maxwell Zhou, founder of tech start-up metaapp.cn and a former employee of Mobike in China.

“It’s very similar to email in that way. It has a lot of benefits for society, but none of the email providers were able to create a barrier to entry, so anybody could host emails, and eventually nobody could make any money.”

At its peak, Ofo had bike fleets in more than 20 countries, from France to Australia and the US. Company insiders, however, said it tried to grow too fast, and found itself facing a wide array of hurdles, from traffic regulations to vandalism, as well as spiralling costs.

“In retrospect of course there was problem with management, and we were expanding too rapidly,” said a former Ofo executive who worked on international expansion.

The firm has pulled back from markets like Germany and the US, and has been forced to sell assets, including some bikes for as little as $2.

Ofo gets no love from Chinese riders

In China, once-loyal users have turned on Ofo, lining up at its offices in Beijing to demand the return of deposits paid upfront to use the service. Over 12 million people have so far requested repayment online.

Jiang Zhe, 21, a university student in Beijing, said he usually bought a month pass for Ofo bikes, but has lately struggled because so many are broken.

“I haven’t used Ofo recently because I can’t find any working bikes,” he said.

In a letter to employees last week, Ofo CEO Dai Wei said the company was struggling to resolve a cash shortage, in part because of user refunds as well as payments to suppliers. He said the firm was battling on amid “pain and hopelessness”.

The rare near-implosion of a wildly popular and innovative firm in China has spooked some authorities. The transportation ministry said it was asking Ofo to optimise its refund procedure, but also called on the public to be more “tolerant” to allow domestic innovation to thrive.

Many weren’t convinced, including the former Ofo executive.

“It would be tough for the company to get back to its golden days, I don’t think it can be like before. I think most people are really just waiting for the final days,” he said.