BEIJING—Ofo Inc., the once high-flying Chinese bike-sharing venture known for its yellow bicycles, is crashing, after an exhausting battle with rivals.
Ofo’s cash-flow problems have spilled into the open, after warning signs that flashed for weeks. A flood of users, now numbering more than 10 million, have asked for refunds of the deposits ranging from $15 (U.S.) to $30, according to users of Ofo’s app. Hundreds of users descended this week on Ofo’s Beijing headquarters, seeking refunds.
A Beijing court placed Ofo’s founder on a government watch list for debtors that bans him from staying in upmarket hotels and riding first class on trains. A government spokesman on Friday urged Ofo to take care of those asking for refunds.
“Our company has faced an immense cash flow pressure throughout the year,” Dai Wei, the founder, said this week in an email to employees that was viewed by The Wall Street Journal. The company didn’t respond to requests for comment.
Ofo’s current crisis is typical of China’s tech startup scene, said Ben Cavender, an analyst at China Market Research Group in Shanghai. When a new idea emerges, large numbers of startups pour in, he said, until smaller players run out of cash and consolidation takes hold.
“We see Ofo now struggling because they never really defined a sustainable business model,” said Mr. Cavender.
Analysts like Mr. Cavender have been watching the unraveling in the shared-bike sector for months. And the same dynamics at work there—startups backed by investors subsidizing services in an unsustainable grab for market share—are also likely to apply to food delivery and other once-hot areas of China’s mobile internet services.
Ofo came out of nowhere a little more than three years ago along with several others with a fresh idea: offering shared bikes that didn’t need to be parked at docking stations. Users put down a deposit, then locate and unlock bikes with a smartphone app, leaving and locking them anywhere when done. Rental fees amounted to a few U.S. cents per hour.
Shared bikes took off in China, and by 2017, there were dozens of competitors. Many urban residents frustrated with traffic congestion shifted to the two-wheelers to get around. Pedestrians, however, grew angry at sidewalks crammed with bikes, both parked and being ridden. Vandalized bikes became common.
The startups—which also include Beijing Mobike Technology Co., with its orange bikes, and Bluegogo International Inc., whose bikes are blue—took in venture funding and heavily subsidized rides for users. Backers considered the bike services a wealth of data on user location and habits.
Ofo attracted billions of dollars in investment, including money from e-commerce giant Alibaba Group Holding Ltd. and ride-hailing firm Didi Chuxing Technology Co. In March, Ofo received $860 million in funding from Alibaba, its fintech affiliate Ant Financial Services Group and others, according to the bike-sharing company’s website.
Fast expansion to grab market share stretched resources. Ofo withdrew from the U.S. this year just a year after going in.
An economic slowdown and a government campaign to rein in risky financing also exacerbated cash-flow problems for the sector. Bluegogo collapsed late last year. In April, Mobike sold itself to Meituan Dianping, a startup that provides food-delivery, travel services, discount vouchers and other services.
Recent reports on mainstream and social media that Ofo couldn’t return users’ deposits snowballed in the past few weeks. On Friday, a dozen or so users were waiting inside Ofo’s headquarters in Beijing’s Zhongguancun tech district.
“If I do not ask the refund now, I don’t think I get it later. I just don’t believe this company can survive,” said Xu Tenggao, a 26-year-old electronic engineer, who had just spoken with Ofo’s customer service but was told he couldn’t immediately get back his 199 yuan ($28.86) deposit.
When he applied online for a refund, Mr. Xu said, there were already 10.6 million users ahead of him waiting for a payback.
A spokesman for China’s Ministry of Transport on Friday urged Ofo to optimize its refund procedure. He also asked the public to be more tolerant of new businesses whose models are still developing.
At Ofo, executives are considering various ways to refund deposits, including teaming up with an e-commerce platform to convert the deposit amounts into points that could be used for purchasing goods, according to a person familiar with the matter.
Other parts of the tech sector also are feeling a chill from the economic slowdown, as consumers and some financiers tighten their purse strings.
Didi, the ride-hailing firm, has cut in half its year-end bonus for employees, according to people familiar with the matter. Users of an online job-search platform commented this week that they had been laid off from Meituan Dianping. A spokesman for Meituan said layoffs are a normal part of business restructuring, and that less than 0.5% of its employees were affected; that is around 260, based on available figures from Meituan.
Mr. Cavender, the market researcher, said tougher economic times won’t stop new startups from emerging but will put pressure on them to show results. “They will have to work much harder to rationalize their business models,” he said.
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