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Chinese state media hailed it as one of China's four great inventions of modern times. Today, what most people remember are the graveyards or the thousands of bikes left on streets and public areas. In less than a year, 70 plus bike share startups in China burned billions of dollars to put 20 plus million bikes on Chinese streets. It was insane. It was unsustainable. Oh boy. In this video, we dive into the bonkers Chinese bike share bubble of 2017-2018. This video is brought to you by the Asianometry Patreon. Bike share as we know it dates to a social experiment in the 1960s. In 1965, a Dutch industrial designer and engineer named Lud Schimmelpennick peddled out a scheme called the White Bicycle Plan. Schimmelpennick was part of a countercultural anarchist social movement called Provo. They liked to do these public provocations to confuse the authorities, while also offering action oriented solutions to social problems. Car ownership rates in Amsterdam were rising, bringing along with it serious traffic congestion, pollution and fatal accidents. Provo hated cars. They called them steel boxes of poisoned gas and found them asocial and isolating. The bicycle, on the other hand, was minimalist, vulnerable, green and countercultural. They liked it. So for the White bicycle plan, Schimmelpennnick painted a number of bikes white and left them on the streets of Amsterdam without locks, free to use. We call it the first generation of bike share. No docks, user registration or electronic tracking or government approval. The first white bike was immediately impounded by the police for not having a lock. The scheme was not particularly large. Schimmelpennick later said that no more than 10 bikes had been placed on the streets. He attempted a larger sanctioned version, but was rebuffed by the city council. But the idea stuck. The first sanctioned bike share programs began in Denmark in the 1990s and they quickly became popular. We consider these second generation systems. Users picked up and dropped off their bike at a special dock, paying a small coin deposit to unlock them. The bicycling program, as it was called. The name, means city bicycles expanded to Denmark's largest City, Copenhagen, in 1995. To survive heavy use and stave off theft. The 500 custom bikes had no gears or parts that can be reused in other bikes. In 1998, the City of Rennes in France launched a fully computerized bike share. The bikes fitted with electronic locks and smart cards and a truck carted bikes between docks to keep them all stocked. This third generation of bike share system worked and more improvements arrived. In 2000, Munich introduced its call, a bike service which pioneered mobile phone based services. You unlock the bike with a code sent to your mobile phone via SMS text. Bikeshare helped make bikes a legitimate form of public transit, particularly for that last mile. By the end of 2008, Paul DeMaio of Metro Bike LLC estimated that there were nearly 100 third generation programs around the world, including in mainland China. In the 1970s and 1980s, there were so many bikes in mainland China cities that visiting journalists nicknamed it the Kingdom of the Bikes. That is no longer the case. According to the Ministry of Transport, the number of bikes in mainland China peaked in 1995 at 670 million units. And then the cars took over. The first notable third generation bike share in mainland China was established by the Beijing city government back in 2005. But it was during the lead up to the 2008 Beijing Olympics that the program became prominent. Mainland China wanted to show its best face to the world. But Beijing in those days had a serious traffic congestion, an air pollution problem. So to improve the air, the city government from July 20 to September 20 banned cars from the road on alternating days based on their license plate numbers. But people still needed to get to where they were going. So the government encouraged cycling, partnering with companies to deploy thousands of bicycles for use. The Transportation Bureau estimated that 4 million Beijing people switched to cycling during this period. Unfortunately, the bike rush was not sustainable. First, the setup for renting a bike cost too much. You had to put down a deposit of 400 RMB and pay rental costs of about 5 RMB an hour or 20 per day. Too high for 2000s era Beijing, where the average per capita disposable income was 24,725 RMB. A bus ticket, to compare, cost just 1 RMB. Another major issue were the docks. The rental partner companies did not cooperate. So cyclists can only rent and return at a company's dock. And this effectively doubled the distances between docks. The docks locations were problematic too. Real world Czechs found them sited in impractical or even unsafe places, like between two automobile thruways. The bikes were also poorly maintained, sitting outside in the elements. After a while, they rust or lose bells, handles and grips. Such things aren't safe to ride. In the year after the Beijing Olympics ended, the market dried up. Beijing's largest bike rental shop, Fangzhou, which once had over 10,000 bikes and 575 docks, collapsed, returning user deposits and selling excess bicycles. Nevertheless, other Chinese cities like Guangzhou, Shanghai and Hangzhou started their own private public bike share programs. And some got quite large Wuhan's, for instance, started in 2009 and eventually grow to 700 docks and 90,000 bikes. Now it is time to introduce the first of our private bike share companies, Ofo, led by Dai Wei. Dai was born in 1991. His father had once been the Party Secretary of China National Chemical Engineering Group, a major state owned enterprise. He attended the top school in Beijing, and in 2009 entered the prestigious Peking University to study finance. After undergrad, he volunteered to teach at a school in the isolated western province of Qinghai. The daily commute was about 17 km, which took 50 minutes via bus. Dai has long been passionate about biking, joining the University Cycling Club at Peking University. So he and the other volunteers bought bikes and cycled to work. And that experience convinced him that biking was the best way to get to know the world. So he thought to start an Internet business involving bicycles. In February 2014, while still teaching in Qinghai, he registered the ofo domain name ofo because the three letters together look like someone riding a bicycle. After his gap year, Dai started a master's degree at the Guanghua School of Management at Peking University. There, he and four classmates, mostly from the cycling club, formally began the OFO startup. Now they just have to do something. In the first year, OFO tried many things, all related to biking. They tried organizing cycling vacation trips in Hainan and Taiwan, a website for swapping second hand bikes, and a bike health service. Nothing caught on. Then in May 2015, Dai reportedly saw a student looking for a lost bike and had an epiphany. During a strategy and game theory class, he and his co founders mulled over having lost over a dozen bikes to theft. Dye himself personally lost five. So they brainstormed countermeasures like anti theft controls. And they came up with a very literal bike share. A hundred people pooling together their bikes for shared use. The idea being that even even if the thieves stole 50 of the bikes out of the pool, the remaining would still be enough for everyone to use. This was what Ofo originally launched, and they marketed it with WeChat articles titled we have a dream to enable PKU people to use a bike anytime, anywhere and these 2000 PKU people will do something great, asking university members to contribute their bike for access to the bull. Badai and others quickly realized the flaws of the approach. Users had trouble locating a shared bike, and the lack of branding made it harder to promote the service. So Oppo decided to supply the bikes themselves. And then, in a moment of brilliance, they created an app to facilitate the bike rental process. You scanned bike's QR code and got back a password to unlock it. No need for docks. The bikes themselves were cheap. Each cost about 2,700 RMB or $30 USD. A little more for licensing and other prep. They charged about 0.5 to 1 RMB per ride, depending on the length, so about 8 to 15 cents. The new AUFO service launched in either June or September 2015 on the Peking University campus with its 30,000 students. Sources differ as to when was the pilot or official launch. Nobody believed that the yellow bikes wouldn't just get stolen. One co founder recalled in a now deleted Xinhua interview that they pulled an all nighter the evening before the launch. We were extremely tired but but kept looking closely at our backend numbers throughout the day. We had 500 registered users and 200 rides in the older model. We had to beg and beg for even 10 users. That was the first time we felt like we created a product with its own vitality, one that can grow. As mentioned, Oppo did 200 brides its first day. They did 300 the next and 500 the third. By the end of October, Oppo users were doing 4,000 rides a day on 1,000 bikes. By December, 20,000 daily rides and 100,000 users prodded market fit. Now secured, the company raised a Series a round of 15 million RMB, or $2.3 million from GSR Ventures, an early investor in rideshare giant Dede. They used the money to expand to 20 university campuses across the country. Now let us introduce the second company, Mobike, founded by Hu Weiwei Hu Weiwei was born in the city of Dongyang in the Zhejiang province in 1982. She graduated from Zhejiang University City College with a degree in journalism and moved to Beijing with nothing but a suitcase. Over the next decade, she wrote for business and car oriented magazines like Daily Economic News, Business Value and geek park. In mid 2014, she left and used her life savings to start her own media website, Geek Car, covering entrepreneurs and all the latest trends in the world of transportation. She hired a few journalists and set up shop in a small courtyard space that moonlighted as a bar. One day in late November 2014, she brought some student designers and entrepreneurs to meet William Lee, founder of the EV company nio. They came to talk about smart bikes that can capture riders health data, but Lee did not think that would work. As a car guy, he thought cars would do that better than bikes. He instead suggested an app that let you rent a bike and then leave it without needing a Stationary dock. He later recalls the idea coming from trying to rent a bike at bike shares in Shanghai and Beijing, but finding the user experience horrendous. He had to apply for a card to start, and docks were few and far between. The other guys were not really interested. But who was? Over the next two weeks, the two talked through the unit economics and implementation. They also came up with the venture's name, Mobike, which just combines mobile and bike. Lee provided $230,000 in angel funding to get the company started, which it officially did in January 2015. Despite him providing the idea and initial investment, William Li has made it clear in interviews that Hu was no puppet. She, not him, was the company's early driving force. Li insisted that each ride be priced at just one rmb if in Europe, one euro in the US one dollar. To make those unit economics work, the bike had to last four years, which meant a custom design, and Hu found a designer named Wang Chao. He designed a sturdy, chainless bike with solid tires and hidden brake cables. Hu produced the bikes on her own dime, at a cost of about $300 to $450 each. A former Motorola engineer returning to China from Japan helped make a GPS tracking system that synced with a mobile app. This also helped as a theft prevention measure. All throughout the process, people doubted her. How can a former journalist ever raise enough money to build a shared bicycle network at scale? She herself later said that had she known what it took, she probably wouldn't have done it. But she focused on executing and kept moving forward. When things got a bit dodgy financially, Hu took out a personal loan to keep it afloat. However, she soon recognized that she needed more experience management. In December 2015, she poached the general manager of Uber's Shanghai operations, Wang Shaofeng or Davis Wang, to join Mobike as its CEO. Wang is a formidable executive, having before worked at P and G, Google China and Tencent. After Tencent, he joined Uber China as general manager of his Shanghai operations, ferociously competing in the rideshare wars for two years. And he would bring a similar ambition to Mobike. Mobike did their official launch on April 22, 2016, bringing their orange bikes to the streets of Shanghai. The Mobike marketing team included founder Hu Weiwei herself on site at the Damuchao Road subway station in Shanghai to sign people up and demonstrate the service. Only a few elderly people paid attention, and that first day, Mobike did just 17 rides. One employee recalled being concerned and remembers Hu telling him at the beginning, you might think 17 is a small number, but in a few months, you will see millions, even tens of millions of rides per day. At that point, those rides will just become data. Only now, at the very beginning, can you truly experience the joy of winning over users one by one. Fortunately, growth quickly followed. And four months later, in August 2016, they had over 10,000 bikes in Shanghai alone, en route to 100,000 by the end of the year. CEO Davis Wang ran the Uber Playbook, planning a lightning expansion across mainland China's biggest cities in attempt to build an unassailable network. And this eventually put them head to head against ofo. At the start, OFO focused on providing bike share services only to university campuses. This became somewhat of a problem. Riders kept taking the bikes off campus and leaving them there. Now new customers had no bikes to ride, hurting growth. OFO hired trucks to bring bikes back. But this failed to stem the tide. After a debate, CEO Dai initially decided that the company should focus on just university campuses. He felt that this was a protected niche. If you can call 2 million users in 200 universities in 20 cities a niche that OFO can dominate. Bike share customers are price sensitive, but not overly so. What matters most is that they can find an OFFO bike not too far away, be able to unlock it with ease, and have a comfortable and safe journey. That means having a dense network of high quality bikes. Far easier to do on a small college campus than the urban core of a tier one Chinese city. Just imagine the work and logistics it will take to handle and maintain such a massive network. OFO must forecast demand, deter theft, distribute bikes to handle spikes, deal with the weather and more. They were having enough trouble expanding to universities. Going to the cities can all quickly get out of hand. So in May 2016, OFAL prevented the bikes from being ridden off campus. A few customers complained, but the restrictions raised spike network density and utilization, and ofo's monthly revenue run rate rose to $1.5 million. And on the campuses, the unit economics looked amazing. Each bike was used about 10 times a day. At about 0.5 RMB per ride. The bike breaks even in just 3 to 4 months. There are some maintenance costs, but that was then about one RMB a day. So the campus business basically broke even. But a few Months later, in August 2016, Mobike entered the Beijing market and started competing with OFO on the campuses. Founder Hu Weiwei told media that this wasn't intentional. In the beginning, Mobike did not intend to enter colleges, but there's a lot of demand in colleges. Some college students rode the Mobike cycles into the campus and universities like Peking University want to cooperate with Mobike to create a campus free of motor vehicles. That might be true, but once it started working, Mobike certainly leaned into it. They flooded the campuses with their orange bikes and sent promotional rent envelopes of cash or coupons to students and staff. It quickly became clear to ofo's management that they had to leave the school campus and take Mobike on in the city streets. Co founder Austin Zhang later looking back two years ago, we should have gone straight into the cities and not wasted our time. During the time we were developing our service on the campuses, we had already lost some of our speed. CEO Dai himself echoed this, saying, if we had entered the cities directly in May, the competitive landscape would have developed completely differently. The biggest regret I had about 2016 was entering cities too late. People are accustomed to staying in their comfort zones. Despite that realization, OFO brimmed with confidence about their prospects. This was because they believed that their unit economics were superior. Mobike's bikes, with their digital smart locks, complicated GPS and custom designs, cost five to seven times more than Oppho's cheaper bikes. And the campus data told them that they were already at break even after three to five months. So for every bike Mobike deploys, ofo can do 10. So ofo can raise a boatload of cash and flood China's urban areas with bikes. And larger network always wins, right? In September 2016, Ofo closed a Series B round for tens of millions of dollars. At the press conference announcement, OFO investor Zhu Shaohu of GSR Capital boldly declared that this bike share war will be over within 90 days. But Mobike refused to back down. That same month, Mobike announced a $100 million Series CE round. Investors Warburg Pincus and Hillhouse Capital Group were amongst those involved. And then on October 10th, ofo announced a $130 million Series C round a month after closing their Series B. The big new investor this time around was Didi Chuxing, the Chinese taxi hailing giant. Didi had recently concluded a long, brutal battle against Uber China that they won by absorbing the smaller competitor. But then Mobike hit back with yet another $55 million Series C round. And this one was led by the messaging and gaming giant Tencent. So by the end of 2016, Mobike and Ofo had pulled in over $300 million of funds, aligning themselves with big, rich tech giants. Suddenly, the bike share war didn't seem so easy to win. Mobike CEO Davis Wang admitted in a December 2016 interview that the bike share business does not have a high barrier of entry. He then added that such moats would make their workers lazy anyway, which sounds like something my father would say. Once a guy hits on something, within a few months you have dozens of that thing. That's how fads are. When Groupon got big in the early 2010s, you had a thousand Chinese Groupon wannabes. And the same happened for Bikeshare. In 2016 alone, 25 bike sharing companies entered the market. We will meet some of these guys later in the video. By June 2017, you had 70 bikeshare startups in China painting their numbers a rainbow of different colors. Zhang, the OFO co founder, joked that they might run out of colors. Interestingly enough, the big bike share leaders argued that all this new competition was actually good. In one NBER paper, OFO provided data for dozens of Chinese cities and it seemed to show that whenever mobike entered an ofel only city, ofo's signups, ride volumes and revenues actually grew. Signups by 65%, rides by 40.8% and average revenue per ride by 0.041 RMB. So yeah, sure, competitors might steal customers from each other, but but that was more than compensated for by the overall expansion of the pie. Not an uncommon argument to make during bubbly periods of expansion. Harder to make though, if things descend into zero dollar price wars. The obvious thing would be for Ofo and Mobike to merge and consolidate the market without excessive competition. There was precedent in Chinese Internet history for this. Taxi hailing apps Didi Daze and Kuaidi Z merged in early 2015 to create the aforementioned Didi Chuxing and food delivery apps Meituan and Dianping merged to create Meituan Dianping. In both cases, the mergers calmed excessive competition and prevented social disorder. Why not do the same in bike sharing? My guess is that you do a merger when the companies are deadlocked. But Mobike and OFO both still believe then that they can win the whole market. So as 2017 opened, the two prepared for battle, filling their war chests with titanic funding rounds. In January 2017, Mobike closed a $215 million investment round from Tencent, Warburg, Pincus and new strategic investors Ctrip and Huazhou Hotels. They then augmented that with a strategic investment from Foxconn. A few weeks later, the two announced a partnership to produce 10 million new Internet enabled bikes. Then in February 2017, Oppo launched a price war. From the 24th to the 26th, Oppo entirely waived the one RMB ride fee, literally letting customers ride for free. They also issued generous rebates, giving people two RMB of credits for every RMB they put in. Mobike decided to follow and and then on March 3rd, they hit back with another nationwide free ride campaign. Ofo quickly matched that with the promotional slogan, you ride, I pay, sending mass SMS texts to customers to announce the flash promotions. Ofo then rearmed their wallets by raising $450 million at a $1 billion valuation from the American investment fund DSD Global, with participation from Didi and others. Flush with cash, the bike share companies immediately launch another salvo of aggressive promotions during the qingming Festival break April 2nd. 4 if you're not familiar with Qingming Festival, it's the time of year when Chinese head back home to their home villages to visit and clean the graveyards of their ancestors. It's a big holiday in both mainland China and Taiwan. For the bike share companies, it meant lots of people out and about. So Ofo launched another marketing campaign of red envelopes and free rides. Mobike, hello. And all the other bike shares followed suit. None of this made sense. Why sell your service for free during the time when people are most likely to use it? And people both in and outside the industry recognized that this was all very dumb and economically unsustainable. Yet the company's leadership seemed to feel that they had no choice. In late November or December 2016, Davis Wang was asked in an interview about profits, and he replied with some tongue in cheek, if I had 30% profit margin, why would I seek investors? Why would I let them share in our profits? The reason we keep seeking investors is precisely because we don't have a clear profit model yet. We hope others will give us money to keep us alive, to keep us growing, to let us run faster than others, and then together we can find that profit model. So when it comes to startup projects, it's still too early to talk about profits. Note he said this in late 2016, before the February 2017 price wars. The whole thing was a land grab. Profits we can figure out later, but how long can it last? The price wars continued into the summer. In June 2017, Mobike and OFA raised even more money, literally less than half a year after the last fundraising rounds. Mobike with a stunning $600 million Series E LED by Tencent and Oval with a monster $700 million Series E. This round was led by Tencent's economic rival Alibaba, reportedly at a valuation of $3 billion. This officially positioned Ofo and Mobike on opposite sides of the long running Alibaba tencent feud. So in little over a year, the two companies have raised over $2 billion. And like as before, another round means another wave of promotions. In late June 2017, Mobike offered 20 million free ride monthly cards for just 20 RMB. Basically pay 20 RMB and get 30 days of free rides anywhere. They gave 10 million more cards just like for free. Oppo and others like hellobike matched oppo. One upped mobike by literally giving people up to 20 free rides a day for 30 days. Didn't need to do anything, just claim the promotion right inside the app. The big economic thing about this June 2017 round of financings, however, was going overseas. The narrative was that now that China has mastered the innovative bike sharing model, they can now go and export it overseas to the United States, Australia, United Kingdom and more. One of the first Chinese bike share companies to go overseas wasn't Mobike or Ofo, but Bluegogo. You can probably call them the third largest of the era. They raised $90 million, including 58 million at the start of 2017, and had about 700,000 bikes across mainland China. Their blue bikes are particularly known for their higher quality, including the ability to switch gears. In January 2017, they announced a move to San Francisco as well as Seattle that they would be dropping hundreds of blue bikes onto the SF streets right out of the blue. Now, SF already had a regional bike share scheme called Bay Share done in exclusive partnership with a company called Motivate. Moreover, city officials freaked out at the prospects of having all those bikes on the street, blocking San Francisco's iconic views of the homeless. Letters of anger flew. Motivate lobbied hard to maintain their monopoly. Blue Go Go attempted to salvage the effort and continue their US expansion, but failed when the necessary permits could not be secured. Mobike and Ofo's international rollouts went much slower. The two companies first started with trials in Singapore, a market with a business friendly government and good bike paths in March 2017. Then after that they expanded to Japan as well as Europe, the United Kingdom and the United States. Mobike did a decent rollout in the British city of Manchester, making a flashy video promoting the benefits of cycling and bike shares. But ultimately those plans ambitions far exceeded their substance. Most were small pilots of just a few dozen or so bikes, and few got very large before things started to go bad in the second half of the year. During an April 2017 Bloomberg interview, Austin Zhang said that there indeed was a bubble in Berkshire, but it's okay, there will be a bubble for the industry, but as long as we continue to do practical things, then there won't be a bubble. I'm skeptical that we can call subsidies and zero dollar marketing promotions practical things, but beyond even those, the two businesses faced serious problems. OFO in particular first were the bike's attrition rates. There isn't much official information, but estimates exist. Ofos smaller and lighter bikes were more pleasant to ride but particularly susceptible to damage. One mid-2017 estimate found that 20% of Ofo's bikes disappear or are damaged each month. OFO also underestimated the logistics cash burn Cargo vans in Beijing cost about 650 to 750rmb per trip. Ofo needed about 100 vans to service the city, so that is about 6 million RMB each month. Part time labor means another 1 million RMB. So all in all, 7 million RMB or a million bucks a month just for vans trucking bikes around in Beijing. So and then there was the lavish spending. Internally, the company fell prey to the chaos of unrestrained growth. OFO financial staff reported feeling immersed in ecstasy and feeling crazy at spending a continuous flow of investments and customer deposits. They expanded from 800 to 3,000 employees, paying salaries way higher than the average. They rented four floors in one of the priciest buildings within Beijing's major tech hub of Zhongguanchun. CEO Dai Wei personally had the cafeteria done to look like Google's. Recall that Dai had no serious job before starting ofo. He was known to be a generous Boss, once awarding 10,000 RMB to an employee on the spot for reciting a classical poem. The wild environment led to financial mismanagement and outright scams. One of the latter centered on ofo's regional managers who had hiring responsibility for repair and placement workers. They report five to six ghost workers and pocket their salaries an easy extra 20 to 30,000 RMB monthly. Now, to be clear, Mobike had issues too. Sure, their heavier, sturdier bikes had lower total cost of ownership than ofo's bikes, but deploying them also cost a lot more cash and allowing themselves to be dragged into price wars annihilated the supposedly superior unit economics underpinning their whole business model. During the peak of the bubble, ofo's monthly operating expenses were estimated at 300 million RMB or 43 million USD. Mobanks were similarly high, which combined with their higher cost meant that by December 2017 they were losing an eye popping 680 million RMB or 95 million USD each month. So despite all the money raised, it was not enough to pay for all the aggressive promotions, ambitious expansions and lavish spending. So at some point in 2017, many of the bike share companies started dipping into their customers deposits. To sign up for the service, you first had to pay a deposit to protect the company against loss, theft or potential damage to the bikes. The promise then was that if the customer is to ever close the account, then the deposit is returned. Mobike charged a deposit of 299rmb, about 42 USD, while ofo charged just 99rmb or 14 bucks. They later raised that to 199rmb. It's not a lot of money by itself, but when multiplied over tens of millions of users, the money suddenly becomes very significant. Theoretically, the whole deposit is supposed to be placed in the custody of a third party bank or something and never touched. But back then there were no government regulations requiring this. So the money just sits there. And naturally companies get tempted to stick their hands into the cookie jar and use that deposit money for operations or buying new bikes for expansion. The thinking was that if the company pulled out a small portion of the deposits, the rest should be enough to handle any refunds requested during normal course of operations. But what happens when things aren't normal? Then it is like a run on the bank, rumors on the Internet that this or that company is in trouble and deposits won't be refunded. Suddenly everyone rushes for refunds and collapses the company. In the beginning, the Chinese government supported bikeshare. And they agreed with the companies that bikes were addressing the last mile problem with a green solution. Mobike reported in early 2017 that in cities with their bikes there were 3% less car rides. Bluegogo said that bikes have reduced the number of car rides under 5km by 3%. Look at all the carbon savings. Never mind the trucks carting the bikes around. But whatever. State media saw the bike share companies going abroad as yet another sign of China's unending technology successes. State media hailed bikeshare as one of China's great modern achievements alongside high speed rail, Alipay and E commerce. Yet before long, attitudes began to sour. By mid-2017, the companies had scattered over 16 million shared bikes across mainland China. Bikes were being left haphazardly on footpaths, between buildings or highways and in public areas. Many were broken and essentially abandoned as trash. The turning point was arguably that Qingming festival period. In early April 2017, in the midst of a price war, media outlets reported over 10,000 bikes had been Left. In Shenzhen's Bay park scenic areas, police called up the various bike chair companies to order them to clean up the mess. And they did. But pictures of the bike clogged past had already circulated around the Internet and the mood had turned. In late April, Shanghai began soliciting opinions on new rules for the previously unregulated bike share companies. 30 other cities and the national government did the same. Under these new rules, bikes have to be registered and in good condition. Businesses must remove any broken bikes from the field. And Bluetooth based geofencing was mandated to guide people to designated parking spots. Some of the larger cities, like Shanghai, also impose caps on the total number of bikes. A survey from the Shanghai Bicycle association indicated that the city needed about 500,000 good bikes for daily needs. Yet by mid 2017, it had over a million provided by 11 enterprises. So they capped the total number of shared bikes in the city, distributing quotas to various operators based on factors like capacity and user demand. Furthermore, entrants cannot now simply buy 10,000 bikes and drop them onto the streets overnight. Instead, they must ramp up slowly a thousand or so at a time. They cannot deploy more bikes until they can prove to the authorities that they are following the rules. These rules essentially ended the blitzscaling and imposed a ceiling on the market's total value. The growth was over like a rocket starting to fall back towards the ground. Bike share companies started closing down in the second half of 2017. I mean, startups had been failing all throughout. One pretender called Kalabike deployed 667 bikes in the city of Nanning in Guangxi Province in January and February 2017. They promptly lost all but 157 of their bikes and dematerialized. But now the failures were fairly large. A notable one was Wukong Bike. Like the video game Black Wukong, it takes its name from the Monkey King character in the book Journey to the West. Never played that game Anyway, Wukong Bike dropped 1,200 bikes in the city of Chongqing. If you are familiar with Chongqing, like from TikTok or something, you might recall that the city is hilly. It's literally nicknamed the mountain city. Why will people ride bikes there? Founder Le Houy, a former loan shark, said that the city's terrain would actually get more people to use the bikes because, yeah, publicity or something. Oh. They also lowered their rental prices to 0 RMB, which was not conducive to generating revenue. And their bikes did not have gps, so thousands were stolen or lost. Upon noticing this, the company tried to raise more money, but failed. In June 2017, they said we deployed over a thousand bikes, but only managed to recover a few dozen. In the end, we didn't bother searching for the rest either. The project was shut down. What's the point of retrieving them now? Just consider it a public service. Ha ha. How was that a public service anyway? Eight days later, another company called 3V Bike blew up too. They did so just a few months after their founding. Talk about a fast turnaround. The founder had spent 600,000 RMB of his own money to launch 1,000 bikes in four cities, and almost all of them were stolen or hidden by users. The first flashy failure was Cool Chi. They are a far smaller player, having peaked at around 1.5 million users in total. Founded in November 2016, their bikes are normally fluorescent Lime. But then in June 2017, they gained a modicum of notoriety when they started promoting these gold plated bikes equipped with fancy phone holders and charging cables. Garish, but it did seem to work. A few months later. In August, customers noted that they were unable to get their bike security deposits back. Employees and former employees reported getting their salaries delayed. Phone numbers and support channels went dark. By September, people were piling up at the company's empty headquarters to get their deposit money back. Thousands of complaints were sent to the government and local consumer associations. In a later interview, Cold Qi founder Gao Weiwei blamed Col Chi's collapse on technology troubles and rumors spread by malicious forces. Tired and exhausted, he said that he will not start another business and and sought a quiet life, saying entrepreneurship is too exhausting, too heartbreaking. It's no way to live. It feels meaningless, lacking any purpose or value in striving. Wow. Bleak. And then, in November 2017, third ranked player Bluegogo filed for bankruptcy. You might remember these guys from the time they tried to blitzscale San Francisco. In China, they tried to lean on having high quality bikes and a good riding experience. But when Mobike and Ofo launched their price wars in the first half of 2017, people stopped caring about that. And after their botched US expansion, their cash, including an estimated 2 billion RMB or 250 million USD of customer deposits, ran out. Rumors swirled that the managers had fled the country. People can no longer unlock the bikes using the app. The app itself was removed from the app stores and requests for refunds of deposits and prepaid cards were ignored. The collapse was the first major indication that the bubble had popped and deflation was underway. Didi would later buy Bluegogo's assets. In December 2017. Oh wait, isn't Didi Ofo's big backer? Why would they do that? Well, funny you asked. After a bloody year of battle, a stalemate, Mobaik and Ofo cannot dislodge each other and no longer had the money to do more. Moreover, their combat had disrupted Chinese social order and brought unwanted government attention and regulation. Parties began calling for a merger, including investor Du Shaohu, the guy who said a year ago that it would be over in 90 days. But for whatever reason, the two companies still refused to head to the wedding altar. Perhaps it had to do with their different approaches to the bike share market. Mobike with their high tech infused bikes, and Ofo, the low cost provider. In late November 2017, Davis Wong is asked whether a merger is possible. He answers with a resolute no, saying that Mobike intended to expand into and build mountain more differentiated products in the future. Or perhaps it had to do with Ofo's complicated situation and his strained relationship with its investors. What follows is a bit of speculation, but it's been reported in a few sites. After three consecutive rounds of financing, Didi had become Ofo's largest investor, with 30% share of the company, a seat on the board, and veto power over corporate matters. Didi, like the investor Zhu, supported the merger with Mobike, but co founder Dai Wei publicly refused because he felt he and his team would be sidelined and then run out of their own company. Frustrated, Zhu eventually sold his shares. Relations between the OFO management team and Didi had deteriorated. In 2017, Didi grew increasingly concerned about Ofo's rampant spending. So in mid-2017, Didi supposedly helped secure a $1 billion financial lifeline for Ofo from the Japanese investment fund SoftBank. The condition, however, was that Dai accept two or three DD executives to oversee finance and operations. Dai ended up nixing this, putting the DD executives on forced vacation. The DD relationship was burned and those guys have some sharp elbows. You don't beat down Uber in China by being a pushover. They start using their board veto power to nix potential financing deals and other mergers. Then in December 2017, they acquire Bluegogo's assets. A month later, they launch their own bike sharing brand, Qingju. Yes, they are now directly competing with their own investment while simultaneously blocking it from saving itself. So in March 2018, Dai turns to shareholder Alibaba and their loan subsidiary Ant for a combined asset backed loan and Fundraise. The series E2.1 round raises $866 million. The next month, April 2018, Mobike sells to the food delivery giant Meituan for $2.7 billion and the assumption of Mobike's hundreds of millions of dollars of debt. The valuation had declined from 3 billion in the latest round. William Lee, the Neo guy, later said that the time was finally right. CEO Davis Wang and reportedly Hu Weiwei did not agree or want to sell, but the investors had the final word. Both left shortly afterwards. Mobike eventually gets merged into the app and just rebranded to Meituan Bike and that is where it is now. Ofo is Left alone throughout 2018, the company tries to save itself. They rolled back their international efforts, laid off thousands of workers and moved out of their fancy Beijing office. Occasional hopes of softbank saving the day lingered. None of this turns the company around. Finally, in December, the end comes and the company files for bankruptcy. Thousands wait in line to get their deposit money back. They probably never will. A Beijing court puts Dai Wei on a financial blacklist which prevents him from buying excessive goods or taking fancy transportation. After the bankruptcy, Ofo tries to sell adverts on the bikes, but the bikes are now in graveyards. They pivot to becoming an e commerce and cash backed service and then finally just selling Sponsored posts on their WeChat public account an interesting survivor of the bike share wars was a little player. Hello bike or just hello. They avoided the bloodiest battles by building their strengths in lesser known tier 3 and 4 cities before going to the major cities. Cities such tier 3 and 4 cities have different needs with worse public transportation systems. Cyclists rent for longer and travel further. You also benefit however from overall cheaper cost of labor. It's a similar market strategy practiced by the BBK smartphone brands Oppo, Oneplus, Realme and Vivo against Xiaomi. Hello also spend more time diversifying their lineup, investing in electric bike and scooter sharing. CFO Fisher Chen later said in an interview that the competition in those spaces was more rational. Hello Bike survived the roughest bubble years as an independent player, though not without turning massive losses of their own, losing 5 billion RMB between 2018 and 2020. Today Hellorides, as it's now called, has cemented itself as a medium tier Chinese tech company specializing in local transportation and e bike sharing services alongside Meituan Bike and Didi's QJ bikes. This all took place over the short span of three years. Yet the craziest thing about the bike share bubble is that it was not all that unusual. Just before it we had the aforementioned taxi hailing wars between Didi and Uber and then after it we would have the group buying and food delivery bubbles, the latter still ongoing as of this writing. Everyone agrees that subsidizing $0 bubble teas is stupid, but consumers seem to like it, so whatever. After the bubble popped, bikeshare was fully incorporated into the big tech giants, features a tab in an app, and with the subsidies drying up, prices increased and expansion slowed. But the messes still happened. And so cities continued to take hundreds of thousands of bikes off the streets, consigning them to the graveyard. Alright everyone, that's it for tonight. Thanks for watching. Subscribe to the channel, sign up for the Patreon and I'll see you guys next time.