An $866 million investment in Ofo, led by e-commerce titan Alibaba, has breathed new life into China's bike-sharing sector, just as it seemed the heat was going out of a sector that roared its way into the headlines last year.
In the largest single investment in the bike-sharing sector so far, Alibaba joined its financial affiliate Ant Financial, as well as Chinese private equity funds Haofeng Group, Tianhe Capital and Junli Capital, to back Ofo. The deal, announced in a statement on Tuesday, came just nine months after Alibaba's first investment in Ofo, whose bright yellow bikes are an increasingly familiar site in China's cities.
The latest round of funding means Ofo has now raised more than $1.56 billion in just the last nine months, taking the lead over its closest rival Mobike which has raised about $900 million in public funding rounds over the last two years from backers including another tech giant, Tencent. Ofo said the current round involved both equity and debt financing, but has not disclosed the split.
The question for investors now is why Alibaba decided to hand over a big cheque at a time when the bike-sharing market seems to have gone stale, if not into decline, over the past few months. Could it be that Alibaba eventually plans to take full control? Doing so would certainly be in line with its past strategy.
Bluegogo, China's third-largest bike-sharing start-up, declared bankruptcy in November last year after it failed to pay its outstanding debt of over Rmb200 million ($31.5 million). That was after smaller companies such as Wukong, Dingding and Kala went burst earlier last year.
However, some industry experts believe continuing consolidation could strengthen the position of Ofo and Mobike, effectively a duopoly which control over 95% of China’s bike-sharing market.
It was not immediately clear how large a stake Alibaba owned in Ofo after the current round of funding. However, industry experts estimate that the e-commerce giant could command a board seat in Ofo after pouring millions of dollars into the company, suggesting it can now influence the company’s strategy.
TAKING FULL CONTROL
Alibaba has a track record of taking full control of the companies it invests in, indicating senior management prefers setting the tone for businesses that fit into its e-commerce system rather than owning a passive stake.
Alibaba invested $692 million in shopping mall operator Intime Retail Group in 2014. Two years later, it decided to take full control by buying out the company for $2.6 billion.
Ele.me, a food delivery platform which received $1.25 billion of funding from Alibaba and Ant Financial in 2016, said last month it was in advanced talks to sell its entire stake to the e-commerce giant.
It is a similar story for Ofo.
By taking a bigger stake in the bike-sharing app, Alibaba could potentially integrate Ofo into its e-commerce ecosystem that encompasses online platforms like Taobao, Ele.me and Koubei, as well as physical store operators like Intime Retail and Sun Art.
Ofo could be an important addition to Alibaba’s online-to-offline strategy because it generates massive data about users’ location. This would allow Alibaba’s online retailers to provide location-specific advertisements on users' mobile devices.
In a similar push to develop location-based ads for its clients, Alibaba bought web mapping and navigation company AutoNavi for $1.5 billion in 2014. It also has a stake in China’s biggest ride-hailing app Didi Chuxing, which also has bike-sharing ambitions of its own.
It is also worth noting that the latest funding round further intensifies the battle between Alibaba and Tencent, a major investor in Mobike.
Alibaba and Tencent are competing across various industries such as food delivery (Ele.me vs Meituan-Dianping), digital payment (Alipay vs Tencent Pay) and internet browsing (Youku-Tudou vs QQ).