Five Questions for Understanding Didi, Mobike, and China’s New Micro-Rentals (Pt 2).


In Part 1, I argued that there is no new Chinese “sharing economy” – which is why new Chinese businesses like Didi, Mobike, and micro-rentals for basketballs, batteries and umbrellas are kind of confusing. What is really happening is something much more interesting: the emergence of new digital disruptors in access and convenience. The key points from Part 1 are:

  • Forget the term “sharing economy”.
  • Instead, think “access economy” vs. “ownership economy”.
  • New digital tools and processes (like smartphones) can disrupt demand, supply or both.
  • Most of what has been happening in China is classic disruption in access and convenience.

Based on this, here are my five key questions for understanding what has been happening with Didi, Tujia, ofo, Mobike and the new micro-rentals (umbrellas, batteries, etc.). I will discuss each of these businesses in the context of these five questions. The language here is specific and I will explain below.

Question 1: Is this an ownership or access business?

Question 2: On the demand side, are new digital tools and processes improving convenience and / or reducing price?

Question 3: On the supply side, are new digital tools and processes uncovering latent supply and / or making capacity available in smaller increments?

Question 4: On the supply side, is the business leveraging non-owned assets? Are these large or small assets?

Question 5: Is there a network effect or other competitive advantage such as switching costs or economies of scale? Is there a softer advantage such as multi-sided platform cross-selling or user subsidies, standardization of technology or other, or a data advantage?


Ok. Here is my breakdown of these businesses using these 5 questions.

Question 1: Is this an ownership or access business?

All these new Chinese companies (Didi, ofo, Mobike, Tujia, etc.) are access businesses. They all offer an alternative to ownership – and they are directly competing against existing access businesses. For example, Didi competes with taxis. Both are access businesses. Mobike is competing with more traditional bicycle rental businesses. Tujia and Airbnb China compete with hotels. And so on.

But these businesses also impact ownership businesses. Will fewer people buy apartments because they can now stay in hotels, Tujia and Airbnb? Probably not. Will Chinese buy fewer cars because of Didi? Possibly. Will Mobike have a major impact on bicycle ownership? Definitely.

And the newest of these businesses, the short-term rentals of umbrellas, batteries and basketballs, don’t even have existing competitors in the access economy. These are only competing with ownership of these products.

What is important is that these new access businesses are fundamentally changing consumer behavior with regard to some products (and probably soon for services, labor and intangible products like media). And they are changing the ownership vs. access make-up of these industries. I guarantee you Taiwanese Giant Bicycles is concerned about what is happening with Mobike.

Per my main point in Part 1 if you ask the right question with the right language these things become much clearer. My first question is access vs. ownership because that means very different consumer decision-making and very different business models. These new Chinese companies are all types of access businesses. The next question is if and how they are disrupting their markets.

Question 2: On the demand side, are new digital tools and processes improving convenience and / or reducing price?

To paraphrase McKinsey & Co (see Part 1), many of the digital disruptors we see globally are using new digital tools and processes to give consumers what they really want. Software and hardware innovations in cameras have made it so you can see your photos instantly, instead of waiting for film to be developed. Steve Jobs made it so you could buy just the one song you wanted on iTunes, instead of the entire CD. JD.com made it so you could buy office supplies on your PC without having to go to the store. Ctrip made it so you could buy a plane ticket without going to a travel agent or other retail intermediary.

Across the board on the demand side, digital disruptors “make it easy and make it now”. They unbundle. They remove the need to wait. They remove the need to go to a store. They let you buy in smaller increments. These are all forms of increased convenience. They can also decrease price, which is discussed below. When looking at disruption on the demand side, increased convenience and / or decreased price is a good framework.

Convenience is really where Mobike and Ofo have changed things dramatically. They have exposed how inconvenient owning and / or renting a bicycle has always been. People have discovered they really don’t want to store a bike in their apartment. They don’t want to have to lock it up around town when they use it. They don’t want to have to take it home later. They also certainly don’t want to have to go to the rental store, sign a little contract and take the bike for several hours or even a day.

Mobike and Ofo are giving consumers what they have always wanted, but didn’t know they wanted. They are letting consumers access a bike anytime and anywhere for as long or short a time as they want. And then just leave it when they get off, without worrying about locking it or returning. Per McKinsey, they “make it easy and make it now”. This has changed consumer expectations fundamentally. Try selling a traditional bike rental contract in Beijing now.

The digital tools and processes they are using to do this are smartphones plus mobile payment, GPS on bicycles and smart locks. Their model also requires them to blanket cities with bicycles.

In all the China cases cited (see the chart below), these are mostly disruptions resulting in increased convenience, and not decreased price. Taking a Didi or Uber vehicle is not usually cheaper than taking a taxi. In fact, when Didi and Kuaidi first launched they offered taxi hailing, which was a pure convenience offering. Similarly, Tujia and Airbnb are not actually cheaper in China as there are lots of low cost hotels.

However, in many cases decreased price is a big part of disruption on the demand side. Airbnb in San Francisco and Paris is a lot about being cheaper than hotels. These companies will often achieve this cost reduction by removing intermediaries (travel agents, apartment rental businesses, etc.) and by replacing overhead or other costs with technology.

This is also why the terms “on demand transportation” and “on demand services” are problematic. Mark Meeker of Kleiner Perkins describes Didi and Uber as “on demand” businesses. And while many of the disruptors on the demand side are about making something available “on demand” (transportation, bicycles) and hence more convenient, others are about making things cheaper or with greater selection, which is different.

Take a look at the below chart for Questions 1 and 2. I have listed five examples from China and all are definitely access businesses. And they are all about increasing convenience. Tujia and Airbnb are also about lower prices, but I would argue that is mostly outside of Mainland China at this point.


Question 3: On the supply side, are new digital tools and processes uncovering latent supply and / or making capacity available in smaller increments?

This question uses the language directly from McKiney’s report, which I think is really good. On the supply-side, digitization can make accessible supply that was previously impossible or uneconomic to provide. For example, Airbnb brought tons of apartments into the market that were too difficult and expensive to contract individually. Similarly, Amazon Web Services has made huge new storage capacity available to anyone who has any part of their business digitized (i.e., no more need to buy your own servers). The big red flag on the supply side is any time you see an asset that is only partially used, such as idle cars, empty bedrooms, half-full servers, empty parking spaces, and bicycles sitting in closets.

The supply side is where we see the big difference between Mobike / Ofo and Didi / Uber. And this is why I think they are such different businesses, something that gets lost when they are lumped under the term “sharing economy”.

Because Didi is seriously disrupting both the demand and the supply side. It is bringing private cars (i.e., underused assets) into the market in ride sharing (not in taxi hailing). And it is disrupting the demand side, as mentioned above. Plus it is then making an entirely new market between these supply and demand changes.

Mobike, Ofo and most of the micro-rentals (basketballs, batteries, etc.) are not bringing unused supply into the market. They are buying new bicycles themselves and making them available in smaller increments. They do this by focusing on smaller assets (you could never buy 10,000 cars and put them around Shanghai) and then using GPS, smartphones, smartlocks and kiosks. That is why these businesses look a lot more like rental businesses and vending machines. Most of the disruption is on the demand side. See the below chart.


Question 4: One the supply side, is the business leveraging non-owned assets? Are these large or small assets?

This is really a sub-point of Question 3. But on the supply side, does the company have to own the assets or can it just leverage them from others? Not having to own the assets is one of the reasons the asset-light economics of Uber, Airbnb and Didi are so powerful.

Mobike and the micro-rental businesses get around this problem to some degree by focusing on small, inexpensive assets. They can actually scale up pretty fast but placing bicycles, maintenance and theft are problems. See the chart above.

Question 5 (last one): Is there a network effect or other competitive advantage, such as switching costs or economies of scale? Is there a softer advantage such as multi-sided platform user subsidies or cross-selling, standardization of technology or other, or a data advantage?

This is the most important question for me. Over the longer-term (not in the early growth phase), competitive advantage (i.e., the ability to limit new competitors) means you can capture larger-than-normal economic profits, relative to capital deployed. Absent some barrier to protect a profitable business, competitors will inevitably come and whittle away marketshare or profits. A large ROIC is usually an indicator of a competitive advantage. So is stable market share. Although you can also have big or stable market share without a competitive advantage.

The competitive advantage most software companies and other platform-type businesses are usually going for a network effect. Most of the most ridiculously profitable companies have this (Tencent, Alibaba, Alipay, Airbnb outside of China, Uber, Microsoft, Google, Facebook, Match.com, Expedia and others). You also see network effects in more offline businesses, such as shopping malls (sort of), popular bars, credit cards, and matchmaking services.

Didi has a quasi-monopoly in China because it is creating a massive competitive advantage, by virtue of a network effect. It has other advantages, but it is the network effect that is the most interesting. At this point, Didi is mostly a two-sided network which means it has to have both drivers and rider populations. Capturing both groups is very hard for a new entrant against an entrenched player like Didi. Plus the larger the captured populations, the superior the service (to a point).

This is what Mobike, ofo and the new micro-rental businesses lack at this point. They are not multi-sided platforms and they do not have network effects. They are traditional rental businesses that have become much more convenient by virtue of new digital tools. So they are very disruptive to existing businesses (both ownership and access types), but they, as of yet, don’t have a clear competitive advantage. This is partly why we see a flurry of new competitors jumping into bicycle-sharing – but no new competitor for Didi in 2 years. One has a barrier to entry. The others don’t.

Mobike and others may create a competitive advantage or softer advantage in the future (probably based on switching costs and economies of scale). But today they are still in growth mode, focusing on getting scale and capturing uncontested market share. That is normal for a first mover in a new market (blue ocean vs. red ocean strategy). But right now I don’t see a competitive advantage. What is ultimately stopping me from launching a bicycle-sharing app and putting 30,000 bikes in Pudong next week?


Final Point: Forget the sharing economy. What we are seeing is digital disruption in the access economy – and mostly by increased convenience.

Take a last look at the chart above, especially Questions 1 and 2. All of these new China businesses are about digital disruption in the access economy – and most of it has been through increased convenience on the demand side. We are seeing a change in how people access cars, bicycles and other assets. These new disruptors are giving consumers what they have always wanted but have never been able to have. It is a purification of demand.

But when we look at supply, assets and competitive advantage (Questions 3, 4, and 5), we can see these are really different types of businesses. The companies on the left of the chart are disrupting both supply and demand and capturing powerful competitive advantages. But much of the press recently has been on the companies on the right, on bike sharing and other “micro-rentals” (umbrellas, batteries, basketballs, etc.). They are not as powerful business models and are mostly innovating in convenience right now.


Ok. I hope that was helpful. If nothing else, I think these five questions and the chart are a handy reference as more of these businesses pop up. For example, Wework is expanding in China. There are recent stories about companies like Mofang Apartment, a Shanghai-based apartment rental service. And so on.

Two final factoids. According to Mary Meeker’s new 2017 report:

  • China’s bike loan schemes had more trips than all on-demand transport in North America, Europe, Middle East, Africa and India combined.
  • Ofo is reported to now have 6 million yellow bikes in 100 cities.

This is all going to get a lot bigger. Thanks for reading, Jeff

Part 1 is located here.


I write (and speak) about how rising Chinese consumers are disrupting global markets. (#ConsumerChina). This also includes work on:

  • China 2025″ – what a region transformed by Chinese consumers, companies and capital is going to look like. (#China2025)

Photo by jeff Towson


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