Hellobike partners with a county government in Hubei province to promote low-carbon commute. / Photo credit: Hellobike

The bike-sharing war in China is not ending anytime soon. The market is expected to add another 167 million users between 2017 and 2019 to hit 376 million customers, and much of this growth will happen outside the top-tier cities of Beijing, Shanghai, Guangzhou, and Shenzhen.

While industry leaders Mobike and Ofo are making a push into smaller cities, Hellobike, the market’s third-largest player, already has a head start.

Start small

As of May, Mobike and Ofo still outnumber Hellobike by huge margins, thanks to their continued dominance in large population centers. But this isn’t the case in China’s less crowded, less prosperous areas: Hellobike has racked up about half of the users in second- and third-tier cities, according to data monitoring firm Trustdata.

Cities in Tier 2 and below currently account for 72 percent of China’s bike-sharing population, while those in Tier 1 make up 28 percent, Trustdata shows. And the smaller cities – which are slower to adapt new habits compared to megacities – will be seeing more dockless bikes. According to a report from the China Academy of Information and Communications Technology, many bike-sharers started focusing on lower-tier cities in 2017 as Tier 1 markets reached a saturation point.

Penetration of cycle sharing apps jumped in smaller cities as a result. The rates climbed from below 2 percent in Tier 2 and 3 cities to 10 percent and 6 percent respectively through 2017, according to data provider Jiguang.

Launched in late 2016 – about two years after Mobike and Ofo – Hellobike was the first bike-sharer that zeroed in on small cities. It has deployed bikes in Tier 1 regions as well, but they aren’t its priority.

Though Hellobike’s rivals “have a first-mover market advantage, China is an enormous country,” says GGV Capital partner Jixun Foo in a statement. The venture fund is one of Hellobike’s early investors. “Its competitors did go after some of the second-tier cities, but there were many cities that they didn’t cover.”

“At least 100 small cities have yet to see dockless bikes enter,” Hellobike’s chief operating officer (COO) Han Mei told Tech in Asia recently at TechCrunch Hangzhou. “These are the markets that we want to crack next.”

Han Mei, chief operating officer of Hellobike / Photo image: TechCrunch China

The bike startup currently operates across 220 Chinese cities. In comparison, Mobike is present in 176 cities, 11 of which are overseas. Ofo has operations in 250 cities around the world.

Han believes Hellobike has honed its edge by spending the last two years in less developed – even rural – areas. “They have very different transit conditions from the megacities,” she observes.

For example, more effort is necessary to rebalance fleets and handle maintenance in places with lower population density, as bikes tend to be more spread out. In a Tier 1 city, bikes are often the last-mile solution between transit stations and destinations. But in a smaller city, a bike ride can easily cover the whole journey.

Hellobike has also forged close ties with local authorities as bike sharing comes under stricter regulatory scrutiny in China. It also helps that its second-largest shareholder Youon relies on selling bikes to governments. On the other side of the equation, many local officials want private bike providers to help in their low-carbon transition. In Dongying, Zhenjiang, and Binzhou – all prefecture-level cities with a population under five million (Beijing has over 20 million) – local regulators have invited Hellobike to launch.

But Mobike and Ofo still “have the chance” to topple Hellobike as they ramp up their expansion in Tier 3 and 4 cities, Yu Xue, research manager at IDC China, tells Tech in Asia. The two front runners have started advertising to their massive user bases through apps and on bike frames – efforts that could bring in more revenues to contain Hellobike’s presence, Yu adds.

A strong ally

Mobike, Ofo, and Hellobike seen in Hangzhou, a Tier 2 Chinese city / Photo credit: Tech in Asia

Hellobike isn’t the only bike-sharing firm to venture into smaller cities, but hardly any of the others – except Meituan’s Mobike and Alibaba-backed Ofo – can match the strong alliance it enjoys with its top investor.

Hellobike had mostly remained an underdog until its recent tie-up with Ant Financial. The fintech behemoth, in which Alibaba has a 33 percent stake, made its first investment in Hellobike last December and became its largest shareholder in May after bankrolling it with US$321 million.

At present, Hellobike is worth over US$2.3 billion, according to its COO Han. Ofo was reportedly valued at US$3 billion last December and Mobike was sold to Meituan in a deal worth US$3.4 billion in April.

Ant’s help went beyond writing checks. Last April, Hellobike’s service became available through Ant’s Alipay e-wallet, so users no longer had to download the startup’s standalone app. Hellobike hasn’t disclosed exactly how much traction Alipay has generated, but Han admits that Ant is “very valuable” to its “online user acquisition.”

Hardly any of the others – except Meituan’s Mobike and Alibaba-backed Ofo – can match the strong alliance Hellobike enjoys with its top investor.

She continues, “Alipay has an enormous user base and society-wide influence. For a new user, using Alipay [to access Hellobike] is more convenient. So when we enter a new city, we usually promote [using] Alipay first.”

Alipay’s 650 million users aren’t exclusive to Hellobike, however. Ofo and four other bike-sharers are also accessible through Alipay. Tencent-backed Mobike is available on its investor’s massively popular messaging app WeChat.

Speculations about Hellobike’s potential merger with Ofo have been circulating as the two increasingly find themselves vying for the same piece of small-city pie. Han said her company “has paid little attention to the rumor.” As she explains, “If your team and business are good enough, you have a bigger say in deciding these.”

Going deposit-free

In March, Hellobike took another aggressive step, again by teaming up with Ant. It did away with deposits for all users who score above 650 in Ant’s Sesame Credit system. Ant’s financial support ensures that Hellobike won’t be cash-strapped even without customer deposits.

The results were rosy. Within two months, Hellobike’s registered users jumped 70 percent. And while Ofo and Mobike still contributed 39.5 percent and 28.8 percent, respectively, of new users to the industry between January and May, Hellobike was close behind at 25.7 percent.

On Ant’s end, the move fits nicely with its larger push for a “deposit-free sharing economy” by deploying its Sesame Credit among consumers. Last November, the fintech firm announced a US$152 million fund to help companies waive customer deposits. Local regulators have also been calling a halt to deposits amid widespread misuse of user money.

See: What businesses can learn from China’s attempt to measure everyone

Hellobike’s deposit-free scheme is hardly unique. To win over users, Mobike canceled its US$45 deposits for all customers in China this month – with no conditions attached. By contrast, Ofo rescinded a deposit-free program in 20 cities last May and told media outlet Caixin that “ it doesn’t currently plan to do away with the 199 yuan [US$30] deposit.”

Ofo’s decision adds to mounting speculation about its cash crunch. But Mobike and Hellobike are under similar pressures. Like the old bike-share subsidy frenzy, deposit-free programs are capital-intensive. Mobike has yet to turn a profit, as Meituan’s IPO prospectus shows.

Chinese bike-sharing companies have started putting ads on bike frames as a new revenue sourec source of revenue. / Photo credit: Hellobike

Hellobike hasn’t revealed how close it is to profitability, but Han suggests that location-based advertising is a “very good revenue source.”

“For instance, if you’re 500 meters away from a bank, the nearby businesses will push coupons to you [through Hellobike’s app]. A lot of companies are willing to pay for this service because the targeting is very precise. The potential audience size is big and acquisition costs are low,” she adds.

Like Mobike and Ofo, Hellobike is also mulling electric bikes to diversify its income sources and complete its suite of commute options. Electric two-wheelers, GGV’s Foo contends, will “indirectly replace the need of Didi” in journeys between 5 km and 10 km.

“Didi will also have to figure out how to deal with this [rise of electric bikes],” he says.

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