HONG KONG (Reuters Breakingviews) - Jack Ma is pedaling headlong into China’s troubled bicycle-sharing sector. Alibaba affiliate Ant Financial just hedged its investment in Ofo with a $300 million stake in Shanghai-listed Youon. That’s another 80 million potential users for its Alipay system. The move reflects rising stakes in a cutthroat battle with Mobike, backed by payments rival Tencent.
Many two-wheeled startups have crashed of late. Too many tried to capitalize on the popularity of bicycles for hire that don’t require a dock. At one point there were at least 40 companies in the mix. Bluegogo and Mingbike are among those now toppled. Most ran out of cash, but another now-defunct operator, Wukong, had 90 percent of its vehicles stolen. Worries about the industry’s future have hurt Youon’s share price, which is down 28 percent over the last three months.
A consolidating industry is of great importance to Ant and Tencent. Most bikes must be unlocked with mobile apps, and marrying these payment records with the movement patterns of hundreds of millions of riders is an information gold mine. According to iMedia Research, startups are adding an average of 200,000 new shared-bike users on Chinese roads each month. Mobike claims over 100 million registered users, and is planning to produce 5.6 million GPS-enabled bicycles annually in partnership with Apple supplier Foxconn. It has backing from Singaporean sovereign wealth fund Temasek. Ofo is fighting to keep up.
Alipay can currently be used with over 10 bike-sharing enterprises. But many of them also accept Tencent’s ubiquitous Wechat. If Mobike winds up dominant, that could erode Alipay’s ability to woo new users.
Buying into $860 million Youon thus makes sense. As the only listed competitor, it has a certain permanence that rivals lack. Its Hellobike subsidiary also operates in lower-tier cities where Ofo and Mobike have yet to make significant inroads. It could be folded into Ofo, creating an even more substantial rival to Mobike. More importantly, Ant’s investment keeps Alipay in the payments race.
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