When most bike-sharing startups are facing difficulties on the capital market, the ones who had more prestigious backers seemed fine, namely ofo and mobike.
Series D
mobike raised $215 million Series D led by Tencent in January, with Ctrip and Huazhu joining as new investors; Foxconn and Temasek also came onboard later, adding at least another $85 million (the round aka “friends of Sequoia China and Hillhouse”)
This was the first time Ali officially invested in this field. I guess they felt the valuation was too high. While Tencent had mobike and Didi had ofo, Ali needed to find its unique angle and set its footprint in the space. Sesame scores is one of Ant Financial’s unique offering in the market place; yet ofo might be the first time users felt the tangible benefits of high Sesame scores.
Tencent had its unique angle as well: Mini-programs 小程序 in WeChat. mobike launched its mini-program in February 2017.
(Besides, there are battles between payments, cloud computing, data and traffic)
Series E
The crazy financing has made ofo and mobike the clear winners at that time. I guess most investors believed that who had the most money would win the game.
ofo has Didi which is big, but mobike’s Tencent is one of the deepest pockets in China. When Ant Financial only provided a minority funding to ofo (as Didi was the biggest investor), some may felt that Ali was still not determined to join the race – then mobike would win.
At first, nearly all bike-sharing startups take deposits, usually ranging from ¥99 to ¥299.
The deposits are hard cash for startups; they are like life-time membership fees if the companies survive and users keep using the apps.
To put it another way, deposits are indefinite free borrowings.
Deposits and investors’ money are fundamentally different (in accounting), but both are actually (viewed as) cash sitting in the bank for startups.
Some may compare this model with gym memberships. When users pay upfront, gyms use the cash in expansion and operation.
Just invest (or borrow) and open one gym first, then one can use the membership fees collected to subsidize the opening of the second gym.. bike-sharing companies can use the deposits collected in one city to subsidize the expansion into the next city, to pay back any loans, to pay employees’ salaries…
Then comes the problems… for those startups that are not well-funded.
Started in Chongqing, Wukong Bicycle has another layer of to collect operation cash – “operation partners” who would pay Wukong Bicycle an upfront fee to claim profits for a certain number of shared bikes. To be honest, “operation partners” are not treated as partners as Wukong can profit from selling bikes to them and management fees. Its “alternative fund raising” was a little concerning.
In November of 2017, it was reported that most of the bike-sharing startups have problems with their deposits. [60多家共享单车停运用户押金之痛难解 – 证券日报]
The largest of them (in 2017) was bluegogo 小蓝单车, which had raised ¥400 million. It started as a supplier for bike-sharing companies but then decided to enter the race. It had achieved a No.3 position in the space but things (financing) went south in June 2017.
As mentioned previously, it was acquired by Didi at the beginning of 2018.
The battle between 70+ bike-share startups (or the battle between their colors) could be traced back to the summer of 2014, when ofo (wikipedia) was started by students at the Peking University in Beijing.
Source: play.google.com
ofo initially focused on bicycle tourism before deciding on bicycle sharing. At first, it was only doing campus bike sharing. In May 2015, the team appropriated the investment fund for purchasing new bicycles and enticing PKU students to partake in bicycle sharing. [PKU news] [¥9 million seed/angel]
Two major differences were separating ofo and its main competitor mobike at the beginning stage: 1) mobike focused on cities from day 1 while ofo was for universities at first 2) the locks
mobike | Source: wikipedia
The first generation of ofo bikes has an unchanged passcode sent to users while mobike’s are unlocked by wireless communications between the phone, servers and the bike. mobike also uses GPS from the beginning.
ofo 1st Gen. | Source: tianjimedia.commobike 1st Gen. | Source: eastday.com
Nowadays, shared bike companies are using similar product (lock) strategies for safety, management and data. [read more about smart lock technologies involved]
mobike raised its Series A of $3 million in October 2015 led by Joy Capital 愉悦资本, Series B of $10 million in August 2016 led by Panda Capital 熊猫资本, Series C of $100 million in September led by Warburg Pincus and Hillhouse Capital.
At that time, another startup Hellobike 哈罗单车 which would be threatening to the first-movers, was also just preparing to launch its bikes (started with 2nd/3rd tier cities) and just finished its Series A with GGV.
Source: crunchbase
The frequency of fund raising is probably the most remarkable part of the history (to me).
I actually wish that something similar won’t be happening again…
Businesses, investors, users/citizens and regulators all need some time to really think over.
For bike-sharing startups, they were going to feel something different in 2017…
Formed in 2004, Hupu provides marketing planning, sports events marketing and management, as well as events management. It also operates businesses such as offline eSports events, e-commerce and gaming co-operation. It owns Hupu.com, the sports site with the most page views in China, a retail site for trending sports gear, and the app for Shihuo.cn. More than 30 million users had registered on its websites and apps as of March. [yicaiglobal]
A History
Hupu has been active in the capital market for a while.
It was pursuing an IPO in 2016 on the Chinese stock market with a revenue of ¥200 million in 2015.
ads – precisely targeting a community with above-average purchasing power and distinguished tastes & shopping categories/habits
video – Hupu’s sports video capabilities/rights/viewers will have synergies with Toutiao’s video infrastructure and recommendations; plus, Hupu will be one of Toutiao’s efforts to march into sporting business
e-commerce: direct sale, and with the help from ads and video; Douyin’s video can lead to shopping on Hupu’s e-commerce platforms
The two words that characterize the second (current) model is “front warehouse” (前置仓).
By managing more distributed front warehouses (mostly in cities), the fresh produces e-commerce companies can usually deliver within 2 hours after an order is placed.
The model could be exemplified by the current focus of Hema (盒马鲜生) and MissFresh (每日优鲜). The difference – Hema’s warehouses are also consumer-facing stores; MissFresh’s warehouses are expanding much faster and many have no “experience store” functions.
Hema is financed within Alibaba (consolidated in earnings reports) and MissFresh has raised several hundred millions from Tencent.
Hema
Hou Yi (侯毅), the CEO and founder of Hema, worked for JD.com and in charge of JD logistics, prior to joining Alibaba. He has rotated to the O2O (online to offline department) and was the founder of the predecessor of JD Daojia (京东到家), JD’s delivery team. It has been rumored that firstly HOU proposed to Richard Liu, the CEO and founder of JD.com, about the idea of Hema; unfortunately, LIU did not approve that idea at that time. Later HOU approached ZHANG You (张勇), the CEO of Alibaba Group, and get offered to join Alibaba and try out his idea. [equalocean]
Its core competitiveness lies in its front warehouse network, inventory management system and local community operation. MissFresh has an average duration of inventory of 2.5 days.
MissFresh is targeting gross margin at ~20% in the long-term while maintaining an operating margin at 10-15%.
So we can see that attempts are made to locate “warehouses” closer to consumers and to shorten the waiting time to ~30min.
Alongside the 1st and the 2nd rounds, there is another attempt – not necessarily new but will take some time to stabilize, if possible) – to combine 1) mainline logistics, 2) city delivery networks, 3) front-warehouses + community stores, all facilitated by digitalized and AI-driven systems.
Fresh produce has long been seen as an undeveloped area within e-commerce.
The penetration rate of e-commerce in the Chines apparel market is ~35% in 2017, while the fresh produce category’s is only in the single-digit range (but growing fast!).
The overall size of fresh produce market in China is around 5,000 billion RMB. So the online sales is ~1% in 2015 and ~4% in 2018.
First Round
The first wave of exploration is an extension of traditional e-commerce platform + specialized logistics (cold chain).
Miao Fresh (by Tmall, Alibaba) and JD Fresh (by JD) are the two examples (and first movers) in this round.
Self-built logistics has been one of JD’s core capabilities for a long time. And the war in fresh produces, requiring an upgrade in cold chain, has made JD Fresh a very competent player in this field (besides the upgraded potential in logistics-as-a-service) .
Meanwhile, Alibaba (Tmall) has been investing in Yiguo continuously. In March 2016, Yiguo raised ~$250 million Series C from Alibaba and KKR.
Yiguo’s subsidiary ExFresh (安鲜达), China’s largest cold-chain company established to serve the fresh food via e-commerce, according to a new release from KKR in 2016.
So, Alibaba is now a diversified tech/internet company that not only has the biggest e-commerce presence in China, but also leads the cloud computing commercialization there.
Alibaba separates its business into four categories:
Core commerce
Cloud computing
Digital media and entertainment
Innovation initiatives and others
And “Core commerce” could further be divided based on China/International, retail/wholesale, logistics and others.
China commerce retail
China commerce wholesale
International commerce retail
International commerce wholesale
Cainiao logistics services
Others
“China commerce retail” is where most of the Taobao and Tmall’s numbers are presented – $36.9 billion, two-thirds of Alibaba’s total revenue in fiscal year 2019 (ended on March 31, 2019).
The revenue is supported by the huge GMVs of these two platforms.
Consumers come to Taobao Marketplace to enjoy an engaging, personalized shopping experience, optimized by our big data analytics. Through highly relevant and engaging content and real-time updates from merchants, consumers can learn about products and new trends. They can also interact with each other and their favorite merchants and brands. With a broad offering of interactive features such as live broadcast, groups and short videos, Taobao Marketplace has become an established social commerce platform.
Taobao Marketplace is also the entry point to verticals, such as second-hand auctions, and online travel booking, which may also be accessed through their own independent mobile apps.
Merchants on Taobao Marketplace are primarily individuals and small businesses. Merchants can create storefronts and listings on Taobao Marketplace free of charge. The escrow payment services provided by Alipay are free of charge to consumers and merchants unless payment is funded through a credit product such as a credit card, in which case Alipay charges a fee to the merchant based on the related bank fees charged to Alipay. Taobao Marketplace merchants can purchase P4P and display marketing services to direct traffic to their storefronts. In addition, merchants can acquire additional traffic from third-party marketing affiliates. Taobao Marketplace merchants can also pay for advanced storefront software that helps to upgrade, decorate and manage their online storefronts.
The revenue model of our China commerce retail business is primarily performance-based and is typically set by market-based bidding systems. Revenue from this model consists primarily of customer management revenue, commissions and other revenue.
Monetization Methods
Customer management. (and I will call it ads or marketing services)
Alibaba says a substantial majority of our China commerce retail revenue from customer management, which primarily consists of:
P4P marketing services , where merchants primarily bid for keywords through our online auction system that match product or service listings appearing in search or browser results on a cost-per-click, or CPC, basis. Whether and where the listing will be displayed, and the corresponding prices for such display are determined by the algorithm of Alibaba’s online auction system based on a number of factors with various weights and through a market-based bidding mechanism.
Display marketing services , where merchants bid for display positions at fixed prices or prices established by a market-based bidding system on a cost-per-thousand impression, or CPM, basis.In addition to the above-mentioned P4P marketing services and display marketing services directly provided on our marketplaces, Alibaba also provides such services through collaboration with other third-party marketing affiliates. These third parties are primarily third-party online media, such as search engines, news feeds and video entertainment websites. These third-party online media enter into agreements with Alibaba to connect their designated online resources to our online auction system so that the merchants’ listings or other marketing information can be displayed on those third-party online media resources. Revenue from P4P and display marketing services provided through third-party marketing affiliates represented 3%, 3% and 2% of Alibaba’s total revenue in fiscal years 2016, 2017 and 2018, respectively.
Taobaoke program , where Alibaba collaborate with shopping guide platforms, medium- and small-sized websites, individuals and other third parties, collectively “Taobaokes,” to offer marketing services. Taobaokes display the marketing information of merchants on their media which facilitate our merchants to market and transact. Merchants pay commissions to such Taobaokes based on a percentage of transaction value generated from users under the Taobaoke program. Commissions on Taobaoke are set by the merchants. Revenue from the Taobaoke program represented 3%, 3% and 3% of Alibaba’s total revenue in fiscal years 2016, 2017 and 2018, respectively.
Commissions on transactions. In addition to purchasing customer management services, merchants also pay a commission based on a percentage of transaction value generated on Tmall and certain other marketplaces. The commission percentages typically range from 0.3% to 5.0% depending on the product category.Commission revenue increased by 37% from RMB34,066 million in fiscal year 2017 to RMB46,525 million (US$7,417 million) in fiscal year 2018, primarily due to the strong growth in physical goods GMV on Tmall.
Other. Other revenue from our China commerce retail is primarily generated by our New Retail business, mainly Intime, Tmall Imports and Hema, and primarily consists of revenue from product sales, commissions on transactions and software service fees.
Let’s do some calculation:
2018
revenue (customer management) – 114,285 million RMB
take rate: 2.3710% (of Taobao + Tmall GMV)
revenue (commission) – 46,525 million RMB
take rate: 2.1832% (of Tmall GMV)
2019
revenue (customer management) – 145,684 million RMB
take rate: 2.5438% (of Taobao + Tmall GMV)
revenue (commission) – 61,847 million RMB
take rate: 2.3678% (of Tmall GMV)
The higher take rates are generally good – it shows Alibaba’s market power and the value of its platform.
However, it also means selling on Alibaba’s platforms is becoming more expensive.
Meanwhile, it’s worth noting that when people use e-commerce to do searches, it’s not good to search engines like Baidu.
It is the same across China and US, where Amazon is growing its ads revenue in a market Google and Facebook dominate.
Actually, the value of Alibaba blocking Baidu’s search on Taobao pages in 2008 is a hundreds-of-billion-dollar action. (this didn’t happen in the US)
It has been a well-known fact that the global smartphone market is maturing and the shipment volume has found its turn.
The decline is real and accelerating.
…first quarter of 2019 (1Q19) with shipment volumes down 6.6% year over year…
Smartphone vendors shipped a total of 310.8 million units in 1Q19, which marked the sixth consecutive quarter of decline. In 2018, smartphone shipments dropped 4.1% over 2017, which was inclusive of a first quarter that was down 3.5% – just half of what the market experienced in 1Q19.
While top performers are still trying to grab market shares (some go for higher ASP targeting market shares in terms of revenue; others go for value targeting market shares in terms of shipments), they have designed their way to grow upon/out of smartphones.
Apple will go for services. [Read more from a previous post]
Meanwhile, Xiaomi, long being tagged as “the Apple of China”, is aiming the IoTs.
I would like to say the IoT focus is making Xiaomi more unique than its phone business.
As of March 2018, we (Xiaomi) had over 100 million connected devices (excluding smartphones and laptops)
…the largest consumer IoT platform globally according to iResearch
In January 2019, Xiaomi announced taking a 0.48% stake in TV manufacturer TCL, deepening an existing alliance that saw the two work together to integrate Xiaomi’s operating system into TCL products. [Techcrunch]
Another number – MIUI MAU is constantly adding ~17-19 million each quarter.
17Q1
17Q2
17Q3
17Q4
18Q1
18Q2
18Q3
18Q4
19Q1
MIUI MAU (millions)
138.3
146.0
156.5
170.8
190.0
206.9
224.4
242.1
260.9
incremental (millions)
7.7
10.5
14.3
19.2
16.9
17.5
17.7
18.8
Overall speaking, I think the IoT revenue should be around 30% for 2019 and may stay between 35-40% in the future.
At the same time, geographically speaking, Xiaomi is one of those companies that are benefitted the most from India’s growth.
So “dual pricing” sounds a little bit bizarre.. It’s not something like two menus, but it does exist in some way.
One example is the prices in restaurants/dining rooms affiliated with state-owned-enterprises (SOEs) or established traditional corporations. The price in restaurants in the same/nearby block would be 4-10 times more expansive (food quality and others things adjusted).
This is actually similar to what US tech companies provide – free lunch. The difference is that US tech companies actually pay a lot for those food as an employee benefit, while the cost for established/connected Chinese companies are very low.
Essentially, there are some places in China that are not affected by as much inflation as other parts are. And throughout the pat 10-20 years, the “dual pricing” has become increasingly evident. (US tech companies’ free lunch is actually on par with the inflation I think)
Another example is “friendship-based” transactions. It is more like the world in the “exchange economy” so that goods/services are not priced in numbers. Due to the nature of exchange, there will be no/little markup in “prices”.
Say Service A costs $100 and is usually priced for $1,000; good B costs $50 and is usually priced for $500. Then exchange based transaction would probably involve one A and two B (the value of which depends on people’s perceptions, say $300 but no money exchanged), while money-based normal business would involve two $1,000 transactions.
Friendship-based economy exists everywhere I believe and is a very natural/common development in history. Since China’s friendship-based transactions are more pervasive and maybe represents a higher percentage of the “economy”, it does create another “dual pricing” in China.
