Sharing economy rides into bumpy future

Focus shifts from rapid expansion to refined management, operations

Thousands of angry users of bike-sharing giant Ofo have been lining up at its Beijing headquarters over the past few days to seek refunds for deposits paid, as the company faces accusations from netizens and the media that it is dragging its feet on the paybacks.

Once touted as a symbol of China's emerging sharing economy, cash-strapped Ofo is now struggling financially.

As of Saturday, the bike-sharing pioneer had received nearly 13 million online applications for deposit refunds.

Initially, users of the service were asked to pay a 99 yuan ($14) fee before they could use shared bikes, which was later increased to 199 yuan.

Based on this, the company needs to return at least 1.3 billion yuan to its customers.

Dai Wei, Ofo founder and CEO, said in an internal letter that the company had been under intense cash flow pressure throughout this year, and had even considered filing for bankruptcy.

"As we return deposits, pay off debts to suppliers and maintain daily operations, we have to turn every 1 yuan into 3 yuan," Dai wrote in the letter.

A Beijing court has barred Dai from high-end consumption and "nonnecessities of life and work" due to both his and the company's failure to repay debts.

Ofo has also been urged to refund users' deposits smoothly and quickly, according to the Ministry of Transport.

Chen Yinjiang, deputy secretary-general of the China Consumer Protection Law Society, cited regulations that cover non-motorized vehicles in Beijing. These state that bike-sharing platforms are required to put deposits into a designated bank account and refund the money on time.

Chen said, "I would suggest that the related departments investigate Ofo's current situation, inform consumers and make moves to protect users' legal rights."

According to Chen, if handled inappropriately, the Ofo case will represent "an extraordinary attack on the credibility of the whole industry". He added, "Then, it will be difficult to regain consumers' trust.

"The crisis at Ofo is a lesson, especially for companies taking part in the sharing economy. After reaping the benefits brought by these blossoming new shared models, companies need to shift their focus from rapid market expansion to improving their functionality and customer experience across all their offerings," Chen said.

Raymond Wang, a partner at the consultancy Roland Berger, said: "Ofo's case will be a warning to other internet startups. Ofo has invested heavily in rapid market expansion at home and abroad, leaving less room for refined management and maintenance."

He said that without sufficient venture capital investment, the company will struggle to stay afloat "via its unclear profit model".

Ofo is just one of the startups that have emerged in recent years that are part of the nation's sharing economy boom. Fueled by several rounds of venture capital investment, they usually offer smartphone apps to enable customers to rent various services.

The sharing economy includes bicycles, homes, car rides, high fashion, everyday clothing and portable power banks.

By simply scanning a QR code via their phones or logging on to the apps or sites on the WeChat messaging platform, users can conveniently access these services in major cities.

The country's sharing economy has expanded far beyond the original definition of consumer-to-consumer exchanges of underutilized products or services, and has entered far more areas than its foreign counterparts.

According to a report released by the State Information Center in the first half of this year, the sharing economy generated 4.92 trillion yuan in transaction volume last year, up by 47 percent year-on-year.

The report said the sharing economy has entered a new stage where quality matters more than the speed at which it expands. In the next five years, its growth rate is expected to remain steady at 30 percent, slower than previously but signaling more sustainable development, it said.

After the booming development of the emerging sharing economy, new problems are gradually surfacing. With increasing public concern over issues such as safety and unreturned deposits, many companies may face challenges in winning customers' trust.

Earlier this year, two female passengers were killed in separate incidents involving Didi Chuxing drivers, which thrust the safety issue into the spotlight. Both passengers were using Didi's Hitch service, which allows people heading to the same destinations to take rides together.

In late November, the Ministry of Transport said Hitch would remain offline until it corrected safety problems.

This requirement was announced after a joint safety inspection of eight major players in the ride-hailing industry by 10 government departments in September, including ride-hailing giant Didi.

The inspectors said Didi had several safety hazards such as security risks. They also said it had not conducted effective checks on drivers' qualifications and backgrounds. And the company's management of people and vehicles was "out of control".

This month, Didi announced a restructuring plan to improve safety and efficiency.

The company said in a statement posted on its WeChat account it had appointed a chief information safety officer and a chief security officer as part of its wider efforts to protect both drivers and passengers.

The move also includes new enlarged units for emergency response and local government coordination, as well as an external advisory group, Didi said.

Chen, from the China Consumer Protection Law Society, said the action taken by Didi to ensure safety is a good sign, as it shows "a new trend emerging from the simple pursuit of fast market expansion to quality growth".

"Generally speaking, I take a rosy view of the sharing economy's future growth," Chen said. "Companies should take on their social responsibility and implement effective measures to protect consumers from the very beginning. And the regulatory authorities need to guide the companies to a healthy growth path."

April Rinne, independent adviser to the National Committee on the Sharing Economy, said in a recent interview with the Asia Society Policy Institute that more people will be using sharing platforms, "and we will also witness multiple rounds of ebbs and flows, or boom and bust, amid hot competition".

Rinne said China's sharing economy can be compared with a combination of business models that use new technologies to create platforms that help people to share what they have, which will bring economic, environmental and community benefits.

Wang, from Roland Berger, said: "Peer-to-peer sharing of idle resources only accounts for a small part of the sharing economy in China. More important, the new sharing model enabled by new technologies helps to transform traditional businesses, making them operate in a more innovative and efficient way."

He said the new models will help companies gain key momentum among consumers, especially catering to tech-savvy millennials with increasing purchasing power.

YCloset is one of the many new platforms on which clothes-sharing is available.

Founded in 2015, the Beijing startup allows users to pay a subscription fee to rent clothes and accessories. The platform targets female users, especially those ages 22 to 35 living in first-and second-tier cities, and meets demand for office, party, travel and dating attire.

"It's a huge market," said Liu Mengyuan, founder and CEO of YCloset. "The retail market for womenswear in China is worth more than 2 trillion yuan, and the women's clothes sharing market is estimated to reach more than 100 billion yuan in the country.

"Compared with buying items in a store, clothing rental services allow women to update their look more frequently and wear more dresses that they could not normally afford to buy. So it is truly a business opportunity," she added.

Investors have been quick to embrace the new sharing economy model. In September, YCloset completed an undisclosed strategic fundraising round from e-commerce giant Alibaba Group Holding. It also secured a US$50 million fundraising round in September last year, led by Alibaba Innovation Ventures, Soft-Bank China Capital and Sequoia Capital China.

YCloset said it has more than 15 million registered users and a different subscription strategy. It provides more than 1 million clothing items and covers 500 brands, including luxury dresses, high street names and designer items.

A wide range of third-party clothing brands provide outfits to YCloset, comprising 90 percent of the items on the platform. The remaining 10 percent comes from individual buyers.

To better serve users, the company has set up four cleaning and storage facilities in Beijing, Nantong in Jiangsu province, Chengdu in Sichuan province and Guangzhou in Guangdong province. And it updates stock by season and by trends

"In future, our platform will become a one-stop shop," Liu said. "We will continue to step up the offerings to include more services, including diversifying the product portfolio and improving our laundry services and delivery efficiency."

Hu Jing has also noticed the rise of millennials. Seeing the huge potential in innovating away from traditional working offices, Hu established his co-working startup Distrii in 2016.

The Shanghai company has set up more than 30,000 working spaces in seven cities in China, including Beijing, Shanghai, Hangzhou, capital of Zhejiang province, and Nanjing, capital of Jiangsu province, and also in Singapore. Serving more than 2,000 companies, Distrii said it saw revenue of more than 150 million yuan this year.

Hu, former executive vice-president of property developer Greenland Holding Group, aims to build a community that allows employees to work in the offices nearest to them, instead of spending hours on commuting to distant workplaces.

"Our co-working mode is more than simply renting offices. We aim to connect people with the facilities via the internet, making them part of the smart city plan," Hu added.

Once users sign up to enter a co-working building, they will be able to gain access via smartphone and check in automatically through the internet.

The serviced office will also provide various functions, such as video conferencing.

Hu's company will not only offer co-working space couples online office solutions, but also provide customized office design services, smart working answers and advisory services.

"As the sharing economy has shifted from rapid expansion to focusing on refined management and operation, it will gradually play an increasing role in transforming and innovating traditional industries," Wang said.

"We will witness a new round of sharing economy companies with healthier business models in the future."