Why did OFO, a bicycle-sharing company fail? lessons to learn from the failure story of OFO before going for e-scooter app development.
Ofo, an Alibaba-backed bicycle-sharing company failed because of its 3 major mistakes. Know the failure story of Ofo before going for e-scooter app development.
You often get inspired by the success of the company. But today, get inspired by the failure of the company!
Micro-mobility businesses such as bicycle sharing and e-scooter sharing are sought after and can make you rich way before than you think. But that doesn’t mean that you ignore to follow the universally proven business practices for keeping the business alive.
Ofo, a leading bicycle-sharing company from China is a perfect example of how by not paying heed at the core business practices, your business can be the victim of the snowball effect and meet the dead endpoint before you even realize.
In this blog, we will study the failure story of Ofo and pick out top lessons from it. We will also discuss how with the use of technology and expert advice, you can actually avoid the business path Ofo used or business decisions Ofo made?
Ofo’s hijacked by finance – a failure story!
According to Forbes, Ofo which was once considered as the tech darling, today lying on the verge of bankruptcy. In an internal letter, Ofo’s founder and CEO Dai Wei admitted that the company had been going through the severe financial problems as it couldn’t raise any further funding. He was also blacklisted by a Beijing Court for not meeting his debt obligations.
Founded in 2014 as the University project, Ofo did quite well between 2014-2016. By 2016, Ofo had successfully expanded its business in other cities of China and owned a fleet of 85,000 bicycles. By 2017, Ofo earned the status of unicorn after bagging millions of dollars in several funding rounds led by top-notch investors like Xiaomi, Didi Chuxing, and even Alibaba. During the last few months of 2017, Ofo expanded its business internationally and launched its services in the USA, UK, and Australia.
But the business crisis started hitting Ofo in 2018 when they misfired the opportunity to merge with Mobike and fail to reach an acquisition deal with Didi. Ofo even failed to raise additional funding. Due to a lack of reserved funds, Ofo only ordered 80,000 bicycles against the requirement of 5 million bicycles. Things got worse for Ofo when same service providers popped up in the market and Ofo’s biggest rival Mobike raised a whopping $2.7 billion.
Ofo then decided to entirely leave several countries and to lay off 70% of its employees. In 2018, users started requesting Ofo to pay back the deposit amount. As of 3 January 2019, it’s website has become defunct. During the same period of time, Singapore’s Land Transport Authority canceled Ofo’s operational license and asked Ofo to remove all bicycles within one month from the streets of Singapore.
So, now when you believe that Ofo is the failed mobility startup, let’s move ahead and discuss the reasons behind the Ofo’s failure, comprehensively.
Tips for E scooter sharing business owners from Ofo’s Failure:
Why did Ofo bike sharing company fail?
The reason why Ofo’s failure matters to your e-scooter rental business is because of the fact that the business model and business processes of Ofo’s bicycle-sharing business have a lot of parities with e-scooter sharing business. So, by knowing the factors that caused the failure, you can prevent those, entering into your business processes.
Reason 1: Failed to win against price-cutting competitors
When Ofo launched a bike-sharing program with a mobile app, it was the sole operator. But soon the market became crowded with the advent of many similar companies. Those companies were offering the same service at a much affordable fare price than Ofo. To compete against such price-cutting competitors, Ofo decided to reduce the profit margin and so, they lowered the fare. But in the absence of a new funding round, they soon ran out of money.
The micro-mobility market is an intensified market and you are not a sole operator. Meaning, you will surely get the experience to deal with price-cutting competitors. However, this business problem is solvable. If ever such a situation arises, you need to follow a few simple business practices, such as,
Introduce a premium service and stand by your premium pricing while keep running your economy service.
Find the ‘areas of improvement’ of your competitors and accommodate their missing features into your solution.
Master product and service delivery. And make sure the user satisfaction rate is always high, even when you have fewer users than your competitors.
Add value in your product and service in a way that it goes beyond price. Users who understand the value are never driven by the price!
Coruscate is the leading e-scooter app development company that brings this market survival theory into a practical solution. Our developers develop an e-scooter app with the help of our research team to make your app unique which won’t make you scratch your head when your competitors lower the e-scooter riding price!
Reason 2: Failed to satisfy the local legal norms
Ofo had been earning a very good amount of money from Singapore. But in January 2019, Singapore authorities suspended the business operational license of the Ofo as Ofo didn’t satisfy the two local legal terms such as QR code-based parking and a fixed number of bicycles. The government also warned Ofo to be ready to pay fine up to $10000 or a jail term of up to six months if they overrule the government.
In almost all cities, the micro-mobility business is restricted with the laws and the only way to loosen up the restriction is to do business in a way the government wants you to do. For that, you first need to wrap your mind around the rules and regulations of your desired business location and then find the least painful way to satisfy each of those rules and regulations. One such way is, integrate the dedicated features in your e-scooter app to not disobey the government. For instance, a module developed to store user data & usage data and to share that data with the government can be your least painful way of satisfying the legal norms ( if you are operating a business in a city where local authorities want you to share everyday usage data with them).
Coruscate understands the gravity of developing an e-scooter app which does not work beyond the government’s expectations.
Reason 3: Unplanned business expansion
Ofo was a success in China, but they spoiled that earned success by taking their bicycle sharing business internationally. Here is how:
Ofo went international in 2017. That business expansion took a lot of money and time of Ofo. They bought a lot of bicycles and placed them all over the world, totally unplanned. They didn’t tie up with local companies of their international locations to taste the new markets. They failed to keep the usage rate of a bicycle high. They implemented the same China business model to other countries. Overall, they didn’t take the calculated risks.
If you look at the market scenario, almost all e-scooter sharing companies are operating their business in less than 10 to 15 cities of a single continent. This clearly depicts that for a single company, the e-scooter rental business is not feasible enough to take globally. Even though, if you want to expand your e-scooter rental business after running it successfully into your local market, you can derive many benefits from us as we do not only develop apps but we become a business strategic partner with our clients and help them throughout their business journey.
In the nutshell
The outcome of the blog can be summed up in just one sentence: Ofo could have been saved by using technology!
So, if you are looking for a reliable technology partner, we as a top e-scooter app development company can never make you regret your decision. Our data scientists, research fellows, developers, and designers always keep an eagle eye on market trends, local authorities, and big players to make sure you will be rewarded with best possible e-scooter app solution.
Thanks to our rapid mobile app development technology, we can develop and deliver your e-scooter app within 45-55 days and under $10k.
To know more about the app features and ask for a free demo of the e-scooter app, please contact our app scientist and business expert.