In comparison, Mobike hasn’t changed its strategy yet, which is enhance its production capacity to bring about more bikes with better quality. Unlike ofo, Mobike chose Foxconn as their main supplier, who is not a traditional bike maker. Mobike, who got Foxconn’s investment, would enjoy the OEM giant’s production capacity of five million bikes.

As more players enter the arena, new players care the most about how to spread more bikes in the market. In the aspect of bikes, the priority would be increasing the production capacity, and therefore no player will choose to develop and produce their bikes. There is little time to do all that.

However, some Taiwaness companies like Giant believe that this industry would not be able to maintain the rapid growth for long, and thus aren’t willing to invest too much in increasing the production capacity.

The surge in orders also brings up the cost of components and labor. In the past, hiring a worker only cost ￥3000, but now it’s around 4k to 5k. According to statistics, the cost of a bike with mechanical lock is around ￥300-￥500, while the cost of a bike with smart lock is around ￥1000-￥2000. These are the numbers after the component cost has risen.

To have more advantages after the cost surge, many bike makers that got a mass amount of orders started to purchase components in cash. Shared bike makers would pay a 30% deposit to the assemblers. After the transaction is completed, they would pay up the rest. This no doubt generate more risks for many bike makers.

Some manufacturers want to boost the production efficiency by importing more advanced equipment. However, nobody really had the gut the do so since they are not sure when this bubble will burst eventually. Once the production capacity surpasses the demand, chances are the new equipment will be left unused.

Zhang Xiangdong, the founder of 700bike, a bike making company started from manufacturing high-quality bikes, believes that it’s unwise for traditional manufacturing companies to increase their production capacity to acquire more orders from shared bike companies as they lack design capability and would find it hard to transit to mid and high-end upstream. That said, it would result in a massive wave of bankruptcy. One example is FlyingPigeon, who has been trying out high-end product lines while manufacturing for ofo.

There are also unconventional players in the traditional bike manufacturing industry. Let’s look at bike maker Forever for example. Forever poured in to make Ubike, which is less risky since they have the supply chain in their own disposal. They have their own bike making business aside from making shared bikes.

In this shared bike wave, shared bike platforms like Mobike and ofo have become traditional bike makers’ major clients. If they couldn’t find a new direction and adjust themselves in time, they would end up to be big brands’ OEMs. In other words, they might go out of business once the bubble bursts.

Chinese innovation has to become more independent from capital

Chinese people are probably the best players with projects that emerge frequently, take off fast, and fade out quick. It only takes the cab hailing industry five years to become truly mainstream in China. While the bike sharing industry only spent one year to achieve similar status. Even so, this also generates great uncertainties.

One uncertainty comes from the bilateral Internet effect. The bilateral sides, which are the supply and demand, come from different sources. In C2C sharing model, Airbnb connects the house owners and renters. In the B2C rental sharing economy model, shared bike platforms connect bike companies and users.

The Internet effect becomes active when in a bilateral market, both sides have a cost as well as income, and that a platform provides services, in other words, cost, and generate income as well. Both sides rely on each other to survive.

In C2C sharing model, such effect is more obvious. More users will stimulate more suppliers to provide service. More service providers will make user experience better.

That said, when the supply and demand of both sides are in a balance, the value would be greater.

The bike sharing industry, grown from the B2C rental model, doesn’t have such strong bilateral Internet effect. Although you might emphasize on the user experience, and that if you could find a car more easily, these factors don’t necessarily construct Mobike and ofo’s competence. Today’s new players in the arena are choosing to work with WeChat and Alipay. They don’t require users to put a guarantee deposit or demand them to install an app. This enables them find replacement easily. The bike sharing industry is not a tech-driven industry, and therefore local companies in a prefecture city can easily dominate the local market once they acquire thousands of bikes.