Harvard Case - Mobike: A Worthy Bike-Sharing Unicorn?
"Mobike: A Worthy Bike-Sharing Unicorn?" Harvard business case study is written by Hao Liang, CW Chan. It deals with the challenges in the field of Finance. The case study is 9 page(s) long and it was first published on : May 2, 2019
At Fern Fort University, we recommend that Mobike pursue a strategic shift towards a more sustainable and profitable business model. This involves leveraging its existing infrastructure and user base to expand into new markets, diversify its revenue streams, and optimize its operations. We propose a multi-pronged approach that focuses on: (1) Expanding its presence in emerging markets, (2) Implementing a tiered pricing strategy, (3) Developing partnerships for value-added services, and (4) Investing in technology and analytics for improved efficiency and user experience.
2. Background
Mobike, a Chinese bike-sharing startup, experienced meteoric growth in its initial years, becoming a 'unicorn' with a valuation exceeding $3 billion. However, its rapid expansion came at a cost, leading to financial strain and fierce competition. The case study highlights Mobike's challenges:
- High operating costs: Mobike's business model relied heavily on subsidies and discounts, leading to unsustainable financial performance.
- Intense competition: The bike-sharing market became crowded with competitors, forcing Mobike to engage in price wars and costly marketing campaigns.
- Financial instability: Mobike's rapid growth led to a significant debt burden and limited profitability.
- Regulatory hurdles: Government regulations and restrictions posed challenges in certain markets.
The case study focuses on Mobike's strategic options in 2018, a crucial juncture where the company needed to find a path to profitability and sustainability.
3. Analysis of the Case Study
To analyze Mobike's situation, we utilize a framework that considers financial, operational, and strategic aspects:
Financial Analysis:
- Profitability: Mobike's aggressive growth strategy resulted in low profitability, with high operating costs, including maintenance, repairs, and theft.
- Cash Flow: Mobike's reliance on subsidies and discounts negatively impacted its cash flow, leading to a significant debt burden.
- Capital Structure: Mobike's high debt levels and limited equity financing raised concerns about its financial stability.
- Valuation: The case study highlights the challenges in accurately valuing Mobike due to its high growth rate, uncertain profitability, and competitive landscape.
Operational Analysis:
- Operations Strategy: Mobike's operations were heavily reliant on its ability to manage a large fleet of bikes efficiently and effectively.
- Activity-Based Costing: A detailed analysis of Mobike's cost structure revealed high operational costs, particularly in maintenance and repair.
- Technology and Analytics: Mobike's reliance on technology for bike tracking and user management presented opportunities for improvement and cost optimization.
Strategic Analysis:
- Business Model: Mobike's initial business model based on subsidies and discounts was unsustainable in the long term.
- Growth Strategy: Mobike's rapid expansion strategy led to challenges in managing its operations and ensuring profitability.
- Competitive Landscape: The bike-sharing market was fiercely competitive, with multiple players vying for market share.
- Pricing Strategy: Mobike's reliance on discounts and subsidies was unsustainable and lacked a long-term pricing strategy.
4. Recommendations
Mobike needs to adopt a multi-pronged approach to achieve sustainable growth and profitability. We recommend the following:
1. Expand into Emerging Markets:
- Target high-growth markets: Identify emerging markets with favorable demographics, infrastructure, and government regulations.
- Tailor operations: Adapt its operations to local conditions, including cultural preferences, language, and regulatory requirements.
- Strategic Partnerships: Collaborate with local businesses and government entities to gain access to resources and build brand awareness.
2. Implement a Tiered Pricing Strategy:
- Offer different pricing tiers: Introduce tiered pricing based on usage, time of day, or other factors.
- Incentivize long-term subscriptions: Encourage users to subscribe to monthly or annual plans for discounted rates.
- Dynamic pricing: Utilize data analytics to adjust pricing based on demand and availability.
3. Develop Partnerships for Value-Added Services:
- Integrate with public transportation: Partner with public transportation providers to offer seamless integration with bike-sharing services.
- Offer ancillary services: Expand into complementary services such as bike rentals, bike repairs, and bike accessories.
- Strategic alliances: Partner with other companies in related industries to create a broader ecosystem of services.
4. Invest in Technology and Analytics:
- Optimize bike fleet management: Utilize data analytics to optimize bike allocation, maintenance schedules, and repair processes.
- Improve user experience: Develop user-friendly mobile applications with advanced features such as navigation, route planning, and payment options.
- Data-driven decision making: Leverage data analytics to inform pricing strategies, marketing campaigns, and operational decisions.
5. Basis of Recommendations
These recommendations are based on the following considerations:
- Core Competencies: Mobike's core competencies lie in its technology platform, operational efficiency, and user base. These recommendations leverage these strengths to create a more sustainable business model.
- External Customers: The recommendations cater to the needs of diverse customer segments by offering flexible pricing options and value-added services.
- Competitors: The recommendations aim to differentiate Mobike from its competitors by focusing on emerging markets, value-added services, and technology-driven efficiency.
- Attractiveness: The recommendations are expected to improve Mobike's profitability and cash flow by reducing costs, increasing revenue, and expanding into new markets.
6. Conclusion
Mobike's future hinges on its ability to adapt its business model and embrace a more sustainable approach to growth. By expanding into emerging markets, implementing a tiered pricing strategy, developing partnerships for value-added services, and investing in technology and analytics, Mobike can position itself for long-term success in the competitive bike-sharing landscape.
7. Discussion
Alternatives:
- Mergers and Acquisitions: Mobike could consider merging with or acquiring smaller competitors to consolidate market share and gain access to new technologies.
- Focus on a single market: Mobike could focus on a single market with high growth potential and build a dominant position.
Risks:
- Competition: The bike-sharing market remains highly competitive, with new entrants and existing players constantly vying for market share.
- Regulatory changes: Government regulations and restrictions can impact the bike-sharing industry, potentially limiting growth and profitability.
- Technological disruptions: Emerging technologies such as e-bikes and self-driving vehicles could disrupt the bike-sharing market.
Key Assumptions:
- Mobike can successfully expand into emerging markets with favorable conditions.
- The tiered pricing strategy will be effective in attracting and retaining customers.
- Partnerships with other companies will be mutually beneficial and enhance value for customers.
- Investments in technology and analytics will lead to significant cost savings and revenue growth.
8. Next Steps
- Conduct market research: Identify potential emerging markets with favorable conditions for bike-sharing.
- Develop a detailed business plan: Outline the strategic plan for expanding into emerging markets, implementing tiered pricing, and developing partnerships.
- Secure funding: Raise capital to finance the expansion and technology investments.
- Pilot test new initiatives: Launch pilot programs in selected markets to test the effectiveness of new pricing strategies and partnerships.
- Monitor performance: Continuously monitor the performance of new initiatives and make adjustments as needed.
By taking these steps, Mobike can transform itself from a struggling unicorn to a sustainable and profitable leader in the global bike-sharing market.
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Case Description
In August 2018, Felicia Wong, Chief Investment Officer at 88 Capital, the investment arm of a Hong Kong family office, was considering investing in a bike-sharing company. The bike-sharing business was booming in China, with the two dominant players Mobike and ofo rapidly expanding. Mobike had been acquired for US$3.4 billion by Meituan Dianping, a food delivery company. ofo also had unicorn status with a roughly US$3 billion valuation. The bike-sharing industry could potentially disrupt the transportation industry. Bikes had the advantage of being able to bypass gridlocked streets and were more environmentally sustainable than private cars. In addition, the use of bikes promoted a healthier lifestyle and offered a prospective solution to the last mile problem for commuters who used public transport. But despite the many advantages of using dockless bikes, the practice brought about problems as these bikes were parked indiscriminately on pedestrian walkways and pedalled on busy roads. The industry also had too many players in China. In addition, bike-sharing companies were not yet profitable. Companies had prioritised gaining market share over making profits to increase the value of their respective platforms. It was expected that the industry would become more valuable should city planners approve plans to redesign transport networks to accommodate bikes. As at August 2018, the low rental fees and high capital expenditures were proving to be unsustainable. Mobike was the largest player in China and were likely to survive the industry's consolidation phase. The firm had strategic partnerships to help it reach critical mass and improve its service offerings. Wong wondered if it was worth investing in Mobike at this stage.
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