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Disruptive innovation, business Disruptive

innovation and
model and sharing economy: the sharing
economy
bike-sharing cases in China
Steven Si, Hui Chen, Wan Liu and Yushan Yan
School of Management, Zhejiang University, Hangzhou, China
Received 23 June 2019
Revised 24 November 2019
Abstract Accepted 4 January 2020
Purpose – The purpose of this study is to connect disruptive innovation and sharing economy by exploring
the underlying mechanisms of how a disruptive innovation–based business project creates, delivers and
captures value in sharing economy through analyzing the case of bike sharing in China.
Design/methodology/approach – An elaborate case study is used to unfold the process as well as the
underlying mechanism and relationships among disruptive innovation, business model, bike-sharing business
and value creation in sharing economy.
Findings – Bike sharing case fits well in disruptive innovation theory. Its low price and great convenience
have led to rapid development in China. However, failures to improve their products and services and build an
effective business model which can create, deliver and capture value have caused the failure of many bike-
sharing companies. Other factors such as strategic decision-making, internal management problems, external
conflicts as well as uncivilized consumer behaviors have also inhibited the sustainable development of bike-
sharing companies.
Originality/value – The theoretical contributions of this study include the following: to explore how a
disruptive innovation–based business creates, delivers and captures value successfully in sharing economy.
This study contributes to both research and practice on disruptive innovation and sharing economy.
Keywords Disruptive innovation, Bike sharing, Business model, Sharing economy, China
Paper type Case study

1. Introduction
The creation of new businesses through disruptive innovation has occurred over the past
years and has led to the establishment of a range of sharing businesses. The concept of
“sharing economy” dates back to 1980s. It is generally believed that its predecessor was
“collaborative consumption”, which was proposed by Felson and Spaeth (1978). They
suggested that what consumers need was the use value of a product rather than the product
itself. Accordingly, it contends that it is more beneficial to lease than to buy. Through sharing
economy, firms can gain certain market shares while at the same time enabling consumers to
have access to the products or services with lower costs. Thus, since 2015, the sharing
economy has gained its popularity worldwide. In some emerging economies such as China,
tens of thousands of sharing economy projects appeared in the past five years. These
products can be shown from small commodity-like sharing umbrellas or sharing portable
batteries to durable consumer goods such as sharing bikes or cars. Therefore, sharing
economy has become a hot topic in both academia and practical usage recently.
People are increasingly interested in understanding the role of sharing economy as
platforms to provide new opportunities for entrepreneurship. The two driving factors of this
phenomenon are new network technology and innovative application, especially disruptive
innovation application due to the consistency of its basic connotation with that of sharing
economy. Such disruptive innovation seeks to identify potential low-end or niche markets
with advantages in subordinated attributes (e.g. cheaper, simpler or more convenience)
which are not valued by mainstream consumers (Govindarajan and Kopalle, 2006b; Management Decision
Govindarajan et al., 2011) but are highly relevant to the value objectives of the sharing © Emerald Publishing Limited
0025-1747
economy. It is a new stream of research with a lot of questions to be explored. Although DOI 10.1108/MD-06-2019-0818
MD there are some scholars who have noticed this connection and made their efforts on it (e.g.
there have been popular discussions on disruptive innovation and Airbnb) (Dogru et al.,
2019; Guttentag, 2015; Guttentag and Smith, 2017; Lorde and Joseph, 2019), there are few
studies exploring the link between disruptive innovation and bike sharing. Our study
adopts the case of bike sharing in China as an example to explore how enterprises create,
deliver and capture value in sharing economy through disruptive innovation. We address
the following questions: How did bike sharing successfully enter the urban transportation
market in a short time? Why then did so many bike-sharing companies become broke or are
stuck in predicament soon after the prosperity of the industry? We choose this case because
it is an extreme case; the bike-sharing industry has shifted from prosperity to a surprising
predicament in just a few years. Numerous bike-sharing companies have become broke or
stuck in financial difficulties, which can best illustrate challenges faced by entrepreneurs
and their firms in sharing economy. Second, it is a disruptive innovation–based sharing
business model which aims to create and deliver both economic and social benefits. It
represents a kind of social innovation with the duality of the sharing economy and
disruptive innovation. This duality adds to the complexity of the case and makes our
research more comprehensive, which can help people to better understand how disruptive
innovation–based business projects create, deliver and capture value in sharing economy
and to learn lessons from the failure of some bike-sharing companies. From the analysis of
the relevant literature and case study, we have identified the main factors that caused the
failures of the bike-sharing companies in China that include the following: 1) the failure of
continuously improving and delivering high-quality products and services and ineffective
operation as well as financial management; 2) Lack of an appropriate business model; 3) The
impact of some strategic and social factors such as strategic decision-making, internal
management problems, external condition constraints, suboptimal social system with
underdeveloped social maturity and irresponsible user behaviors (see Figure 1). This study
aims to deepen the understanding of both disruptive innovation and sharing economy by
connecting the relevant new businesses within the Chinese context.
The rest of paper is organized as follows. Section 2 reviews related literature on disruptive
innovation and illustrates why bike sharing can be regarded as a disruptive innovation–
based business. Section 3 introduces the case of bike sharing in China and discusses the
failure issues and problems. Section 4 discusses key issues that can be learned from this case
study. The main conclusions are summarized in Section 5.

2. Theoretical background
2.1 Disruptive innovation
Disruptive innovation is an important strategy and is widely used in different industries
after it has gained attention in both academic and practical domains (Christensen et al.,
2018). This innovation refers to a process in which startups or small new entrants invade the
established markets by providing products or services that are inferior to those provided by
incumbents in the attributes that mainstream customers value but with advantages in other
subordinate attributes which are appreciated by the neglected customers of incumbents
from low-end markets or new markets (e.g. Adner, 2002; Christensen et al., 2015; Danneels,
2004; Govindarajan and Kopalle, 2006a, b). The disruptive innovation process emphasizes
several key points. First, it is a process rather than a mere outcome (e.g. Ansari et al., 2016;
Christensen, 2006). Second, it initially focuses on the low-end markets or the new markets
(e.g. Christensen et al., 2004; Christensen et al., 2015). Third, its products or services are
usually inferior to those of incumbents in attributes that consumers in the mainstream
market are more interested in and value, but they still can meet the needs of consumers from
the low-end or new markets in the attributes that these consumers value (e.g. Bower and
 Disruptive
innovation and
sharing
economy

Figure 1.
Developing process
and consequences of
sharing bikes from the
perspective of
disruptive innovation
MD Christensen, 1995; Christensen, 1997; Huesig et al., 2014). Fourth, its products or services do
not develop along existing technological trajectories (e.g. Bower and Christensen, 1995;
Christensen et al., 2000; K€onig et al., 2012). Finally, the mainstream and subordinated
attributes of products or services provided by disruptive innovation will continue to
improve until they meet the needs of consumers in mainstream market and gradually
penetrate into the mainstream market (e.g. Bower and Christensen, 1995; Christensen
et al., 2015).
According to its definition and connotation, the developing process of disruptive
innovation involves two stages (see Figure 2).
In the entry stage, disruptive innovation positions in the low-end markets or new markets
ignored by incumbents. It attracts underserved consumers from these markets toward
products or services which have comparative advantages in subordinated attributes, so as to
avoid the competition with incumbents while gaining market space (Huesig et al., 2014;
Pinkse et al., 2014). In the transformation stage, the mainstream attributes of its products or
services will gradually improve through continuously improving technology or process until
they attract mainstream consumers and win a certain market share of the mainstream
market. Based on the literature on disruptive innovation, the success of a disruptive
innovation–based business project largely depends on whether the attributes of the
mainstream products or services are improved in the transformation stage (Bower and
Christensen, 1995; Christensen et al., 2015; Crockett et al., 2013; Govindarajan and Kopalle,
2006a). It also depends on whether an effective business model is built to create, deliver and
capture value so as to successfully commercialize the outcome of disruptive innovation
(Chesbrough, 2007, 2010; Cozzolino et al., 2018; DaSilva et al., 2013; Groen et al., 2008; Hwang
and Christensen, 2008; Wu et al., 2010). The business model should carefully adjust to
integrate advantages in both mainstream attributes and distinct attributes in order to build
up the competitive advantages of the disruptive innovation–based business project.

Phase 1: Entry stage Phase 2: Transformation stage

- Inferior in mainstream attributes - Improve attributes especially mainstream

- Strong in subordinated attributes such as attributes until they meet the requirement of
lower price, higher accessibility or more mainstream consumers
convenience - Invade mainstream markets from low-end or new
- Position in low-end markets or new markets and gain market share
markets neglected by incumbents - Build a business model integrating advantages in
both mainstream attributes and distinguished
competitive advantages
- Gain market space for early development
- Competitive advantage
Transfer into commercialization and development

Figure 2. foundation Key successful factor

The two stages of the
development of
disruptive innovation Getting the disruptive innovation project successful
The notion of business models has been closely related to disruptive phenomena. Disruptive
Christensen (2006) has emphasized the importance of business models for incumbents innovation and
facing technological disruption. He argued that disruptive innovation was more about a
disruptive business model that paralyzes the current market leader rather than about the
sharing
pure use of technology. He also stressed that “disruption” was not an intrinsic phenomenon economy
and could only be measured relative to another company’s business model. In other words, an
innovation which was disruptive to one company might be sustaining to another, depending
on their current business model. Commercialization of disruptive technologies is more
important than ever today (Wu et al., 2010). The economic value of any invention (including
new technologies) can only be realized through commercialization by business models
(Chesbrough, 2010). Pure new technologies can be commercialized in different ways through
different business models (Chesbrough, 2007). Therefore, the understanding of innovation
must be expanded to include new business models accompanied by pure new technologies or
R&D processes (Chesbrough, 2007). Flexible and dynamic business models will greatly
contribute to value creation and sustainable competitive advantage, thereby allowing
disruption to be managed (Alberti-Alhtaybat et al., 2019; Bohnsack and Pinkse, 2017).
However, it is important to note that disruptive innovations usually adopt completely
different business models that are not only economically sustainable but also consistent with
existing market realities, customer expectations and competitive pressures (Chesbrough and
Rosenbloom, 2002; Christensen, 2006; Cozzolino et al., 2018; DaSilva et al., 2013; Markides,
2006; Sandstr€om, 2011). This requires a new approach to converting value into profits,
particularly in terms of revenue and pricing structures (Kammerlander et al., 2018).

2.2 Disruptive innovation and bike-sharing

From literature, it can be seen that sharing economy shares some theoretical foundation
with disruptive innovation. First, both sharing economy and disruptive innovation focus on
low-end segments of the mainstream markets or nonconsumers of mainstream products
and services. Second, both sharing economy and disruptive innovation reduce transaction
costs (Guttentag, 2015; Schwalbe, 2018), allowing small startups and new entrants of a
market to do business with fewer resources, so as to gain opportunities to invade the
market. Sharing economy proposes new and highly flexible business models to acquire idle
resources at a very low cost (Widtfeldt Meged and Zillinger, 2018). The basic notion of
sharing economy is that idle resources, such as physical assets or services underutilized by
individuals, can be mobilized through networks and platforms, as well as can be directly
connected to the market, where these resources will be exchanged for free or at a lower cost
than regular transactions. Third, according to the core connotation of disruptive
innovation, many projects of sharing economy are in line with the characteristics of
disruptive innovation and therefore can be regarded as disruptive innovation projects
(Dogru et al., 2019; Guttentag & Smith, 2017). For example, bike sharing can be regarded as
disruptive innovation. As a new business of sharing economy, bike sharing targets low-end
and niche markets of transportation by its free-floating bike renting services with low price
and great convenience. It initially focuses on the low-end markets or the nonconsumers
through low-cost bike renting services. Bikes are simpler and slower than other vehicles,
and the bike-renting services are simpler than those of incumbents. They still can meet the
needs of consumers from the low-end markets and the previous nonconsumers of public
transportation in the attributes that these consumers value, especially for the need of
solving the point-to-point commute problem in short distance (the so-called “the last
kilometer” problem). What is more, it does not develop along existing technological
trajectories of other vehicles. Finally, the surviving bike-sharing companies (such as
Hellobike) have continued to improve the mainstream and subordinated attributes of their
MD products or services and attracted consumers in mainstream market; they have gradually
penetrated into the urban transportation market and become indispensable.

3. The bike-sharing cases in China

3.1 The emergence of bike sharing
The sharing economy has become very popular in China since 2015, with hundreds of
thousands of sharing projects launched in various industries. According to the annual report
on the development of China’s sharing economy in 2018[1], the transaction volume of China’s
sharing economy market was about 4920.5bn RMB in 2017 (about 728.77bn USD[2]), an
increase of 47.2 percent over 2016 that was jointly released by the Sharing Economy Research
Center of the State Information Center of China and the Sharing Economy Committee of the
internet Association of China. Of this, the nonfinancial sharing sector accounted for 2094.1bn
RMB (about 316.45bn USD), an increase of 66.8 percent over the previous year. In the past five
years, China’s sharing economy has penetrated into many segments such as transportation,
accommodation, catering, cultural creativity, education and training, medical diagnosis and
manufacturing services. Financing in the sharing economy totaled about 216bn RMB (about
32.64bn USD) in 2017, up 25.7 percent from the previous year.
In 2015, under the wave of sharing economy, sharing bikes emerged in the urban
transportation market and were quickly promoted nationwide. The first domestic bike-
sharing brand is ofo, marked by its striking yellow bikes. It first appeared on the campus of
Peking University in 2015 as a “sharing scheme” project in which 200 students’ bikes are
recycled and converted to sharing bikes. The different users can share the right to use of a
bike at different time of a day at a very low price. This bike-sharing model was quickly
appreciated by the investors, and this business model was immediately imitated by various
followers. This new type of bike-sharing business was different from the early generation
of designated docking public bicycles and traditional bike rental services. The internet-
based “dockless” sharing bikes were randomly placed everywhere, and they did not need to
get access or return at designated spots with fixed piles. Wherever people saw these
sharing bikes, they could scan the QR code printed on the bikes to unlock them with the
downloaded app on their smartphones or use a third party payment app such as Alipay or
Wechat.
The finish of the rental service was also very convenient. People just needed to find a place
to park the bikes and lock them; after this, the apps would automatically count the price and
then offer several ways of payment to choose from. People could either choose to replenish
their accounts of the brand or just use the third-party payment apps to pay the bill on their
smart phones. With the deposit, one can pay through the electronic account and can
withdraw any time, and some companies had some preferential policies to exempt deposit for
particular customer groups. Moreover, any problems with the bikes or services could be
reported through the apps immediately. Any unsuccessful service caused by problems of the
bikes would not be charged. The low price and convenience have led to rapid development of
this bike-sharing business.

3.2 The development of bike sharing

According to the Statistical Report on the Development of Internet in China, as of June
2017, the number of users of sharing bikes has reached 106 million, and the volume of
sharing bikes launched onto the market has reached 16 million. Moreover, as of July 2017,
nearly 70 enterprises have entered the bike-sharing industry in less than two years. The
data from China Bike-sharing Industry Research Report 2018 further showed that in 2017,
China’s bike sharing companies have put 23 million bikes into the market in total, covering
200 cities. This indicated that 7 million bikes were launched into the market in just Disruptive
5 months. innovation and
Because of its attractive potential of benefits, the bike-sharing business model has quickly
gained popularity among investors after it was promoted to the urban market, among which
sharing
the two most notable ones were ofo and Mobike. According to its public data, ofo has economy
completed 10 rounds of financing from December 2014 to March 2018, the total amount
exceeding 2.1bn USD. On the other hand, the financing amount disclosed by Mobike during
the same period was more than 915 million USD (see Table I).
The rapid influx of capital has accelerated the expansion of enterprises and industry
development. But the intervention of these capitals also influenced the development of the
bike-sharing business models. The expectations of investors affected the strategic decision of
the bike sharing enterprises, leading to the start of a subsidy war in the industry. Subsidy war
is a form of price war, and it is one of the most common tactics used by Internet technology
companies in China and has already emerged in the e-commerce, group buying and ride-
hailing sectors. In this competitive mode, companies try to grab market shares as soon as
possible through spending huge amounts of money to compensate for the cost of consumers
so that consumers can use the service in incredibly low prices, or even for free at
the beginning. It is only after beating most of the competitors in the industry do they raise the
prices to run their business in a normal way. In the case of bike-sharing industry,
the participation of ofo and Mobike, who have received the most financing, has intensified the
subsidy war.
Consequently, those small bike-sharing enterprises with little capital support went broke
and exited the competition in a very short time. Eventually, most of the previous 70 bike-
sharing companies were shut down by the end of 2018; only a handful of large firms survived,
such as Mobike, ofo and Hellobike. But they also had different outcomes of development. Ofo,
as the pioneer of the industry and one of the giants of bike-sharing market, failed, as it almost
went broke and owed large amounts of money to suppliers and user deposits. Mobike, the

Ofo Mobike
Time Round Amount Time Round Amount

2014.12 Angel 1,500,000 RMB yuan (about 2015.3 Angel 1,460,000 RMB yuan (about
219,102 USD) 216,239 USD)
2015.10 Pre-A 9,000,000 RMB yuan (about 2015.10 A 3,000,000 USD
1,314,617 USD)
2016.2 A 15,000,000 RMB yuan 2016.8 B Tens of millions of dollars
(about 2,191,028 (No exact figures were
USD) disclosed)
2016.4 Aþ 10,000,000 RMB yuan 2016.8 Bþ Tens of millions of dollars
(about 1,460,685 (No exact figures were
USD) disclosed)
2016.9 B Tens of millions of dollars 2016.9 C 100,000,000 USD
(No exact figures were
disclosed
2016.10 C 130,000,000 USD 2016.10 Cþ 55,000,000 USD
2017.3 D 450,000,000 USD 2017.1 D 200,000,000 USD
2017.4 Strategic No exact figures were 2017.1 Strategic A hundred million yuan
financing disclosed financing level (No exact figures were
disclosed)
2017.7 E Over 700,000,000 USD 2017.6 E 600,000,000 USD Table I.
2018.3 Eþ 866,000,000 USD (equity – – – Financing history of
and debt) ofo and Mobike
MD main rival of ofo, was acquired by Meituan, while the latecomer Hellobike surprisingly
became the leader of the industry.

3.3 Failure issue and problems

As showed above, the bike-sharing business in China has succeeded to some extent in the
entry stage because they successfully construct their competitive advantage of low cost and
great convenience. However, a lot of problems have emerged in the transformation phase in
their developing process (see Figure 3), leading to the failure of many bike-sharing companies
and the rapid decline of the bike-sharing industry.
We class them into three primary categories.
The first is strategic decision making. It is important for companies to make appropriate
strategic choices (Kim & Min, 2015). For example, ofo initially chose to only concentrate on
the campus markets; this was its first big mistake. The delay of entering the large urban
market has provided time and space for its imitators to preempt the market. When ofo
realized this and rushed into the urban market, one of its main rivals, Mobike, has already
taken large market share and became a giant of the industry. The subsidy war has caused
almost all the bike-sharing companies to spend too much money to attract users and grab
market shares regardless of the cost and profit. But they neglected the importance of
building business models for sustainable development. The heavy reliance on capital has
also led to the risk of huge pressure on capital if investors cash out and leave the market.
However, Hellobike did not participate in the subsidy war, but it chose to go back to the
nature of disruptive innovation by focusing on improving the attributes of its products and
services and refining its business model so as to gain market share and make profits. As a
result, ofo and Mobike were stuck in a predicament, but Hellobike became the leader in the
industry. On the other hand, without supervision and regulation, the huge amount of
deposit has been misappropriated randomly by many bike-sharing enterprises, and we
cannot verify the exact amount of money being used. This problem has destroyed the trust
of users on these bike-sharing companies. Once there are problems, the panic users would
scramble to ask for the refund of the deposit, which will greatly increase the pressure on the
capital chain of the enterprises. This was exactly what several bike-sharing companies
have experienced. For example, it has been reported by the media that as of the first half of
2018, more than 50 percent of ofo’s liabilities come from users’ deposits. At the end of 2018,
above 10 million users rushed to apply for the return of their deposits after the exposure of
the deposit problems of ofo by media. It was because of the frequent exposure of the news
about the misappropriation and arrears of users’ deposits that many users dared not to use
the bike-sharing services any more even though they had needs. There are also other
strategic problems related to the failure of bike-sharing companies. For instance, many
companies such as ofo chose to launch bikes as many as possible regardless of the quality of
bikes and users’ experience. The managers purchased cheap bikes which were easily
damaged; they did not exert much effort to maintain their bikes. As a result, a lot of sharing
bikes had long been unregulated, with the rate of loss, damage and abandonment
remaining high.
These problems and the poor cycling experience have led to many consumers gradually
losing confidence in these companies. Strategic adjustment also plays an important role in the
success or failure of the bike-sharing companies. For example, it is very important to choose
the right time to exit. Mobike agreed to be acquired by Meituan at an appropriate moment and
its founders left the company with money to start their new business. However, the founder of
ofo refused the proposal of acquisition, although he did not have the ability to help the
company deal with the dilemma they faced; therefore, the company was stuck in a
predicament with a very short amount of time.
 Time of entry Participate in the subsidy war and neglect the
Merger and acquisition substantial development
Developing strategy
Strategic adjustment Compromise for number of launching bikes with
Refine the business model
quality

Misappropriate users’ deposit

Strategic
decision
making

Ex
al
ern nt co terna
Int eme nd
g itio l
n
na Imperfect regulation
ma
A chaotic corporate structure Intervention of investors
Internal management problems Lagging of development of society
Inability of entrepreneurs and quality of citizens
economy
sharing
innovation and
Disruptive

companies in
Problems faced by
Figure 3.

bike-sharing

transformation phase
MD The second category of problems we suggest is the inner management problems. The
rapid expansion has also brought many problems regarding the internal management of
bike-sharing companies. Take ofo as an example. First, the game between entrepreneurs,
management and investors has led to a management problem of factions. The intervention
of different investors has brought about continuous changes of power in ofo. According to
the media reports, new management joined the company every time after a new round of
financing; almost all departments changed leaders constantly. All too often, when a new
leader came along, he/she would hire his/her own team and marginalized the existing
employees, which has created great redundancy in the organization. From 2016 to 2017,
ofo has had management changes three times, and each management change has brought
huge impacts to the company. Second, the lack of a sound management system gave rise to
ofo’s problems such as concealment, false reporting and corruption. Third, young
entrepreneurs fell short in professional management. The quality of management is key
because they determine the success of the business model through their ability to acquire,
combine and utilize valuable resources in a way that delivers value propositions to
customers (Bocken et al., 2014). The management of an enterprise needs to constantly
evaluate, measure and reconfigure its resource portfolio to respond to market and social
needs, social changes and technological progress (Lahti et al., 2018). Unlike the traditional
Internet entrepreneurship, the bike-sharing companies were growing too fast, and they
had to face very high market complexity and uncertainty. However, many young founders
of bike-sharing enterprises failed to handle. If the founders do not have the ability and
experience to deal with the complex situation of entrepreneurship, professional managers
can be introduced to reduce conflicts as much as possible through construction of
management system. This is the basic requirement for the healthy development of the
company. However, due to the rapid and blind expansion, the bike-sharing enterprises
failed to have enough time and patience to establish a benign corporate culture and
system, as well as business models.
Third, problems from external conditions have great impact on the performance of bike-
sharing companies. As mentioned above, the strategic decision of large bike-sharing
companies were deeply influenced by investors. The nature of capital requests that money
should give priority to seek increase, as well as to obtain benefits and profits as soon as
possible. In this regard, they seldom consider the sustainability of the business in the long
run. The transition to a more sustainable business model requires a high upfront
investment and a long time horizon. For these requirements, it may be difficult to obtain the
approval of investors because this approach does not meet their short-term investment
objectives (Lahti et al., 2018). For bike-sharing companies, the impact from investors on
their strategic decision-making drove them to start price wars to gain market shares as
much as possible in a short time, regardless of whether it was sustainable or not. This has
directly led to the failure of many bike-sharing companies because their business models
lack sustainability.
Another problem was supervision and regulation. Because sharing bikes were new
inventions and their development advanced the formulation of policy, the supervision and
regulation problems were quite serious in the first two years after their introduction. For
example, bikes were randomly placed on sidewalks or streets because they were dockless,
causing disorder in cities, especially in downtown areas. Another problem was that in order to
achieve rapid expansion, many bike-sharing companies put as many bikes as possible into
the cities, regardless of public benefits, which seriously occupied public space and disrupted
public order. For example, by the end of 2017, the number of sharing bikes has reached 2.35
million in Beijing, but the capacity of docking system was only 1.2 million. This extremely
saturated state of sharing bikes quickly spread from first-tier cities to second-tier cities
in China.
 Sharing bikes have occupied public space, sidewalks, blind lanes and nonmotorized lanes, Disruptive
and they are often parked disorderly, which has become a serious problem for urban innovation and
management in many cities. Some cities even experienced extreme situation, with bike-
sharing companies putting their bikes into the city without permission from the government.
sharing
On the other hand, the degree of development of society and quality of people have not coped economy
with the development of sharing economy, which is in need of better self-regulation of all
stakeholders (e.g. bike-sharing companies and users).

4. Key issues for bike-sharing business in China

There are lessons that can be learned from the different developing trajectories of bike-
sharing companies and the rapid decline of bike-sharing industry.

4.1 Business models and value creation

The importance of business models to disruptive innovation projects has been discussed in
the literature (Bocken et al., 2014). The case of bike-sharing companies has also illustrated
that the continuous improvement of mainstream and subordinated attributes of products/
services and the establishment of an effective and dynamic business model in the
transformation stage are critical to their sustainable development.
Take the development of the three industry leaders, ofo, Mobike and Hellobike, as a
comparison. As discussed above, ofo and Mobike participated in the subsidy war and
invested a lot of money to fight for users and market share regardless of costs and profits, but
they failed to establish a mature and effective business model and keep improving. Ofo’s
performance was the least unsatisfactory. In order to significantly increase the number of
vehicles on the markets, it chose to sacrifice the quality and purchased low-cost bicycles in
bulk. This led to a high damage rate of ofo bikes, which actually increased the maintenance
cost. In addition, this caused ofo’s user experience to become worse and user viscosity to
decrease. Mobike has done relatively better because of its emphasis on investing in high-end
bikes, and the quality of its vehicles was much better than that of other bike-sharing
companies. However, due to its participation in the subsidy war, Mobike also inevitably fell
into the dilemma of loss and it was difficult to achieve sustainable development. According to
IPO prospectus of Meituan in 2018, Mobike has been losing money since it was acquired. The
gross loss was 407 million RMB (about 61.5 million USD) from April 4, 2018 to April 30, 2018,
equivalent to a daily loss of about 15 million RMB (about 2.3 million USD). This will be
difficult to change in the short term, as Mobike has not yet been able to establish an
appropriate business model to achieve sustainable development. On the other hand, as can be
seen from the official websites of the two bike-sharing companies[3], there is no mature
business model in operation.
In contrast, Hellobike was not involved in the price subsidy war, but it steadily explored
and established an effective and dynamic business model to achieve its sustainable
development. There were several main initiatives. First, based on the correlation to personal
credit system of Alipay, Hellobike promoted the deposit exemption nationwide, avoiding the
risk of deposit misappropriation faced by other bike-sharing companies. This makes
Hellobike to avoid the risk of too much pressure on its capital chain so as to achieve a stable
development. Second, after gaining a certain market share, Hellobike began to focus on
improving product quality and seeking diversified development. According to the media[4],
at an industrial-level conference hosted by Hellobike on December 20, 2018, the company
announced that it attempted to achieve the goal of cost leadership by simplifying products,
ensuring quality, improving and maintaining efficiency of operation and maintenance,
implementing lean production and optimizing design in the future. The general manager of
MD supply management center of Hellobike further revealed that “The major business strategy of
Hellobike in the next 3–5 years is to comprehensively upgrade the cooperation with suppliers
through cost leadership, technological innovation, product experience and efficiency
improvement.” In addition, Hellobike co-operated with a number of partners in the
industrial chain to promise the quality of service in the future. According to the official
website of Hellobike[5], their new generation of bicycles have been improved in the various
aspects such as vehicle design, positioning, intelligent parking regulation technology,
intelligent background planning scheduling, operation and maintenance personnel
intelligent port refinement operation. By September 2019, Hellobike has entered more than
360 cities, 350 universities and 340 scenic spots, with 280 million registered users and the first
market share.
Third, Hellobike has evolved from the original single bike-sharing service to a
comprehensive business professional mobile travel platform including Hello bike, Hello
moped, Hello electric vehicle service platform, Hello electric facility and Hello ride sharing.
Hellobike states that its vision is to provide users with convenient, efficient and comfortable
vehicles and professional mobile travel platform to provide travel services. In the process, it
attempts to build an integrated ecosystem around the “two wheels”. In addition, Hellobike
has formed a set of industry-leading intelligent system called the Hello Brain, which is
applied to the large amount of interconnected sharing travel equipment, to realize the
intelligent decision of the entire business ecosystem of Hellobike. Based on big data,
artificial intelligence (AI), cloud computing and other aspects, it attempts to realize the
intelligentized decision-making of whole-chain operation of business, so as to achieve the
optimal matching of transportation capacity, space and demand, as well as and to provide
users with more efficient and high-quality travel experience, which is conductive to
improve the overall traffic efficiency. Through the continuous improvement of products
and services, and through an effective and dynamic business model to successfully
commercialize its products and services, Hellobike, the latecomer, gradually became the
industry leader.
Hellobike’s development is in line with the characteristics that a successful disruptive
innovation project needs to meet in the transformation phase. Thus, from the comparison of
the development of ofo, Mobike and Hellobike, it can be seen that continuous improvement of
products or services and the establishment of effective and dynamic business models are key
factors for the success of disruptive innovation project.
However, as bike sharing is a new practice, they face high uncertainty. In such an
industry, customer preferences and behaviors are unknown or undefined, and the needs for
product attributes are uncertain. In addition, early business models have not yet developed
clear or established value chains or value delivery mechanisms based on extensive research
and dissemination (Lahti et al., 2018).
When bike sharing was first launched, its business logic was that the enterprises provided
customers with cheap and convenient bicycle rental service through purchasing and offering
bikes uniformly. Fees were charged based on the time of use. This rental service seemed to be
of high frequency and could create a very strong cash flow. But such a business model was
yet immature, with many problems and lack of a stable and effective developing path.
However, under such conditions, there was a large number of capital rushed into the industry
crazily, leading to its explosive growth. The investors also brought the popular mode of
“using money to attract users” in e-business industry to the bike-sharing industry. Therefore,
offering large amounts of subsidies and benefits to customers has become a common practice
in the competition for market share. Under the boost of capital, those bike-sharing companies
started to crazily purchase and launch bikes, spend huge amount of money on subsidies for
users and participate in price wars with each other. The influx of capital has made bike-
sharing companies to no longer think about how to compete with its competitors through
continuous improvement. They even did not consider making profits. All they do was to Disruptive
constantly spend money and subsidize because it seemed that there would always be innovation and
investment to cover the costs. At that time, the recognized competitive mode of the bike-
sharing industry was expansion of financing and a broad bicycle launch. In this case, the
sharing
bike-sharing projects have deviated from normal business logic and have virtually become a economy
financing tool. It is not a real business model when running business is not for profit but for
financing and beating competitors regardless of costs.
How does one define and find an effective and appropriate business model?
Based on our literature review and case study, we propose that the future development of
the business model of bike sharing needs to grasp three key elements, which are value
creation, value delivery and value capture (Teece, 2010; Wang et al., 2017) (see Figure 4).
First of all, bike-sharing companies need to make use of their competitive advantage as a
disruptive innovation–based new sharing business to create value for consumers. The value
of bike sharing lies in it providing low price, great convenience and effective solution to the
point-to-point demand in short distance commute. This is also the key factor for the rapid
development of bike-sharing business in the past and the basis for the bike-sharing
companies to enter the urban transportation market and gain a certain market share. On this
basis, how to design a clear and effective value chain or value delivery mechanism is the key
to its business model transformation. We suggest that there are four main aspects to consider.
First, bike-sharing companies should improve the quality of their bikes and continuously
improve attributes of their products. For example, a new generation of sharing mopeds has
already been launched into the market, making cycling more effortless so as to improve users’
riding experience. Second, bike-sharing companies should keep the low price of sharing bikes
through reducing costs by improving technology and operation or other aspects. Third, bike-

Cheap

Value creation Convenient

Effective point-to-point commute in

short distance

Quality improvement of the bikes

Cost leadership through technology/

Value delivery process improvement

Cooperating with government to

reduce negative impact on the order
of the society

Improve service content and value

Value capture personalization a closed-loop process asset sharing

Figure 4.
usage-based pricing an agile and adaptive organization
Transformative
business model of bike-
a collaborative ecosystem sharing companies
MD sharing companies should solve the conflict with the government and collectively improve
the management of sharing bikes. Such management could include controlling the number of
sharing bikes launched in the cities and regulating the areas of launching and parking the
sharing bikes, so as to reduce the negative impact of sharing bikes on the order of the urban
public management. Fourth, bike-sharing companies should improve the content and value of
their services, such as collecting, analyzing and sharing the big data of consumer cycling
behaviour based on its platform, assisting the government in formulating relevant policies
and urban development plans and providing information of its users’ commuting behaviour
for enterprises in other industries. In addition to establishing a clear and effective value
delivery mechanism, an effective value capture mechanism should also be designed. Based on
the research of Kavadias et al. (2016), a transformative business model usually represents the
following three or more features: (1) personalization, (2) a closed-loop process, (3) asset
sharing, (4) usage-based pricing, (5) a collaborative ecosystem and (6) an agile and adaptive
organization. Although no company can exhibit all of these characteristics, the more of them
a company has, the better its chances of a successful transformation. This gives us some
implications. First, bike-sharing companies can enhance their competitive advantage by
providing more personalized products or services that are more suitable to the personal and
immediate needs of customers than dominant enterprises or business models. Second, bike-
sharing companies can replace the linear consumption process (in which the product is
manufactured, used and then discarded) with a cycle mode, in which the used products are
recycled and the overall resource costs are reduced. Third, bike-sharing companies can share
expensive assets to reduce costs. The asset sharing can be accomplished even across the
supply chain. Fourth, bike-sharing companies should continue to improve the charging
mechanism based on usage. Customers are charged only after they used a product or service,
rather than requiring them to buy it outright. This would benefit customers because it
eliminates unnecessary costs of customers as they pay only after the use of the product/
service’s value. This also benefits bike-sharing companies because the number of customers
may grow. Fifth, bike-sharing companies can build a more collaborative ecosystem so as to
improve collaborations with supply chain partners, which helps these bike-sharing
companies to reduce business risks and costs. Sixth, bike-sharing companies should build
a more flexible and adaptable organization. If necessary, they should move away the
traditional decision hierarchy model so that the decision-making better reflects the market
demand and adapts to the market demands, as sell as realizes real-time adaptation to the
changes of these demands. The result of doing this can provide more value for customers with
lower costs for the companies.
Through the improvement of these aspects, bike-sharing companies can establish a more
effective value capture mechanism or profit model, thus getting a better chance of achieving
the maximization of value.

4.2 Conflict management in several aspects

Besides the business model, poor management of conflicts in several aspects also contributed
to failure of bike-sharing companies. From our investigations of the case of bike-sharing
business, four main conflicts that significantly impact the performance of bike-sharing
companies can be identified.
(1) Conflict between the rising cost and maintenance of low price.
As bike-sharing companies should unremittingly improve their products and services, the
costs would inevitably rise as well. In addition, the subsidy campaigns in the early stage have
led to a large amount of spending, which aggravated the pressure on the capital chain of these
bike-sharing enterprises. Therefore, companies need to find ways to increase their profits in
order to survive. However, because bicycles are the most simple vehicles, the threshold of Disruptive
accepted price of consumers is quite low. If the fees are as expensive as other public innovation and
transportation approaches, sharing bikes would be not so attractive to consumers and may
face huge reduction in their orders.
sharing
Therefore, the conflict between the rising cost and maintaining low price is one of the most economy
challenging conflicts for bike-sharing companies. Companies have to figure out how to
balance the rising cost and low price through innovation of technology and business model.
(2). Conflict with the government and other transportation participants.
As discussed above, the fierce competition for the parking area of bicycles has resulted in the
siege of bicycles in cities and the disruption of the order of urban roads, which creates serious
social problems. Therefore, a lot of cities have stopped issuing permissions for new bike
launching. However, due to the poor quality and high damage rate of their bikes, many bike-
sharing companies still launched new bicycles in Shanghai, Beijing and other cities, in
violation of regulations in order to maintain their market share. That is, these bike-sharing
companies did not choose to address the conflict through negotiation but tried to conquer the
government. This has led to further intensification of the conflict between the bike-sharing
companies and the governments. Such practice is not conducive to the development of the
bike-sharing industry. On the other hand, the rapid development of sharing bikes is also
harmful to the interest of other participants in the transportation system. Due to the low price
and great convenience, sharing bikes have become a priority choice for many consumers.
This has led to the deliberate damage of the bikes by some angry employees from other
participants in the urban transportation market. As the bikes are randomly placed
everywhere with low level of security protection, the bike-sharing companies still cannot
figure out effective ways to protect their vehicles but have to only bear the damage.
(3). Conflict with investors and other stakeholders.
There are different participants in the market playing as partners to provide resources,
knowledge and capabilities for bike-sharing enterprises. When these external resources are
properly integrated into the enterprise, they will improve the key activities and product
design of the enterprise, make it more sustainable and increase the total value which
eventually flows to the society (Biloslavo et al., 2018). The core of value creation has shifted
from a company to a network of different markets and social participants who participate in
codesigning, cocreating and codelivering of a company’s value proposition (Biloslavo et al.,
2018). Stakeholders are the core of the three-dimensional explanation of sustainable
development (Birkin et al., 2010).
Because of its heavy reliance on capital, bike-sharing companies have one of the most
intertwined stakeholder relationships. Especially for ofo and Mobike, who have received the
most amount of financing, their strategic decisions are deeply influenced by investors. As
discussed in previous sections, the intervention of investors has led to several problems. First,
the intrinsic need of pursuing benefits of investors has forced the bike-sharing companies to
participate in the subsidy war to gain users and market share as much as possible, regardless
of whether they can sustain development in the future. Second, under the guidance of
investors, the bike-sharing companies with immature business models did not focus on
seeking sustainable development. Third, excessive dependence on capital also made the bike-
sharing enterprises more vulnerable.
(4). Conflicts of management from inside the company.
As discussed before, the rapid expansion has also brought many problems for the internal
management of bike-sharing companies. First, the game between entrepreneurs, management
MD and investors has led to a management problem of factions. The intervention of different
investors has brought about continuous changes of power in bike-sharing companies because
they wanted a further control of these companies. Second, the lack of effective management
system has caused management problems such as concealment, false reporting and corruption
in the company. Third, young entrepreneurs were usually lacking experience and fell short in
knowledge and capability of professional management, making them failing to address various
problems in the developing process of their companies and to balance the tension between
different stakeholders. Fourth, due to the rapid and blind expansion, most of the bike-sharing
companies do not pay attention to establish an initial organizational culture and system.

4.3 Low social maturity and low matured user behavior

Despite many existing problems, the idea of bike sharing is advanced and the benefit of the
bike-sharing project itself is obvious. For example, it can effectively solve the problem of “the
last kilometer”. It has made the city governments to re-examine and even adjust the
redistribution of rights of using urban roads. Moreover, this green way of commute has eased
the congestion level of cities and reduced emissions and pollution, at the same time. But how
to develop the sharing business project and how to sustain its competitive advantage remains
unresolved in the Chinese context. The investigation of this study indicates that it is
particularly important that the government strictly implements rules and regulations to
improve the social maturity and consumers’ maturity. In addition, social entrepreneurship is
another approach to improve the Chinese market, social maturity and consumers’ maturity.
In that case, besides the consumers’ attitudes and behavior changes, the dignity and
legitimacy of many sharing economy companies and entrepreneurs will be largely satisfied
by the legitimacy-building activities in China.

5. Conclusion and implication

As a disruptive innovation–based business in sharing economy, bike-sharing business has
experienced huge ups and downs in the past four years. Because sharing bike is an effective
solution to the point-to-point commute problem in “the last kilometer”, with low price and
great convenience, the bike-sharing companies have obtained a large amount of financing in a
short time and expanded at an incredible speed. The new innovation has substantially
changed the structure of the urban transportation market and the way in which people
commute. However, a large number of bike-sharing enterprises went bankrupt in a short
period of one or two years after the prosperity of the industry. This is a representative case
with many extreme phenomena for us to analyze. From the perspective of disruptive
innovation, we suggest that two main reasons can explain the failures of so many bike-
sharing companies. First, they mistakenly chose to participate in a subsidy war rather than to
continuously develop and improve the attributes of their products and services under the
intervention of capital. Second, they failed to establish a mature and effective business model
that can help them to create, deliver and capture value in the transformation stage. In
addition, there were several factors, such as the strategic decision-making problem, internal
management problem, external inhibitors, conflicts existing in different aspects, the lagging
development of Chinese society and uncivilized consumer behaviors, inhibiting the
developing process of bike-sharing companies. These are key factors to be considered in
the future development of bike-sharing business in the Chinese context.

Notes
1. “Report of China’s sharing economic development in 2018”. http://gjss.ndrc.gov.cn/zttp/gxjjfzbg/,
2019-5-13.
2. All the amounts of money showed in RMB in this article are converted to US dollar based on the Disruptive
average exchange rate of RMB against US dollar in that year, i.e. 6.7518 in 2017 and 6.61741 in 2018.
innovation and
3. Ofo, http://www.ofo.so/#/, 2019-11-19. Mobike, https://mobike.com/global/, 2019-11-19. sharing
4. Sohu news, http://m.sohu.com/a/283277458_184641, 2019-11-19. economy
5. Hellobike, https://www.hellobike.com/index.html, 2019-11-19.

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Corresponding author
Hui Chen can be contacted at: summerchen86@163.com

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