The Tale of the Sharing Economy Is Nearing Its Conclusion

The myth of the sharing economy seems to be on the brink of collapse.

The leading company in the shared power bank industry, Laidian Technology, has recently been exposed by the media for the sudden disappearance of its founder. In addition, six other individuals associated with Laidian Technology have gone missing.

With the sudden changes in top companies, the once-booming shared power bank industry is once again under the spotlight. The controversy surrounding the founder of Laidian Technology is said to be related to capital operations during the expansion period, and the current issue is that the current state of the shared power bank industry can no longer support the initial valuation imagination.

When the story can no longer support the valuation, price increases become the last resort. Recently, media reports have indicated that in the past, renting a power bank for an hour cost one or two yuan, but now, the price has quietly risen to 3-6 yuan per hour. For the same brand, the price can be twice as high in different locations. In some popular tourist spots, it can even reach 8-10 yuan per hour, causing renters to hesitate.

However, it's not just the shared power banks that have chosen to raise prices to save themselves.

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Another key track in the sharing economy shared bicycles, has also recently been reported to have started a price increase. Recently, it has been reported that shared bicycles have increased prices in many places. Didi, Qingju, and Hello, among other shared bicycles, have raised prices in various cities, changing the charging standard from 1.5 yuan for the first 15 minutes on weekdays to 1.5 yuan for the first 10 minutes.

Although this price increase is not too high, it has still sparked controversy: the sharing economy, which once focused on cost-effectiveness, is no longer the first choice for taking advantage of the situation and has even suddenly become an unexpected "sharing assassin," that many people find hard to accept.

The story of the sharing economy seems to be about to be told.

The logic of price increases

The sharing economy model began with the rise of ride-hailing services, followed by the emergence of new industries such as shared power banks, shared umbrellas, and even shared spare rooms as homestays, all under the banner of the sharing economy, which quickly attracted the attention of capital.

The most symbolic track is shared bicycles.

The shared bicycle model first appeared in China around 2014, and between 2015 and 2017, with the establishment and expansion of companies such as Mobike and Ofo, a large amount of hot money from VCPE institutions flowed into this field, and shared bicycles began to be promoted on a large scale across the country, especially in first-tier cities, where streets were filled with bicycles of various colors almost overnight.

There are many reasons why shared bicycles are popular, but the rapid promotion of the money-burning model is indispensable. The money-burning model that was once used in the ride-hailing service field was also invincible in the shared bicycle field, with violent measures such as shearing sheep, grabbing red packets, and free rides, which quickly opened up the market.

However, as competition intensified, some problems also began to emerge. In the shared bicycle field, the first to be affected is the over-investment leading to urban space occupation, disorderly parking, and poor vehicle maintenance. To regulate market order, local governments have introduced a series of management measures, including restrictions on new investments and the formulation of parking rules.

But the constraints of rules mean that operating costs are beginning to rise sharply, coupled with market competition pressure, the tide of shared bicycle bankruptcies, and the major reshuffling of the entire industry began from then on.

Entering 2024, the shared bicycle market after the reshuffling has formed a stable "three-way" pattern: Meituan Bicycle and Didi's Qingju Bicycle, as well as Hello Bicycle, the last remaining startup company from the last round of competition. At this stage, the most intense era of competition has passed, the market has been divided, user habits have been formed, and there is indeed pressure from rising operating costs, so the price increase at this time is actually in line with the original business logic.

To this day, the approach of the sharing economy has become very clear: at the beginning, it is also to occupy the market and cultivate user habits with extremely low prices, and then start to raise prices later. It's just unexpected that people today are not willing to pay for this preset.

After Substantial capital investment

Since its inception in 2016, the price of bike-sharing services has increased by approximately five times compared to its initial rate. The bike-sharing industry's strategy of gradually and "tentatively" raising prices over the years remains uncertain in terms of determining user tolerance levels and market acceptance.

More unfortunately, these companies, which have endured intense competition in the early stages, have yet to achieve genuine profitability – the costs are simply too high.

Bike-sharing belongs to a capital-intensive and heavy-investment industry, with pricing largely influenced by operational inputs. The operational costs of bike-sharing include depreciation costs of vehicles, labor costs for maintenance and operation, warehousing management, etc. Furthermore, maintenance costs also constitute a significant expenditure, directly reflecting the cost pressures faced by bike-sharing companies.

As of 2023, Meituan's new business segment, which includes Meituan Bike, and Didi's other business segments, which include Didi Qingju Bike, are still incurring losses. This is despite being backed by "big tech" companies.

For startups in this sector, the situation is even more challenging. The prospectus submitted by Hello Inc. in 2021 for its IPO revealed that vehicle depreciation and renewal costs amounted to billions of yuan.

Between 2018 and 2020, Hello Inc.'s total depreciation expenses exceeded 6 billion yuan over three years. In addition, the company's expenses for purchasing new bike-sharing and electric bicycles totaled over 10 billion yuan.

Despite these heavy investments, the company's overall net losses amounted to 2.208 billion yuan, 1.505 billion yuan, and 1.134 billion yuan, respectively, over the three years. Even though the losses narrowed annually, the cumulative loss still approached 5 billion yuan.

Such financial reports raise a crucial question: After burning through cash, how to make money?

Non-Existent Sharing

Looking back, when the substantial capital investment model associated with the shared economy was prevalent, some believed that the demand fueled by cash-burning was pseudo-demand.

Today, many users are returning to subway and bus travel due to price sensitivity, reinforcing the initial question: Does the shared economy truly possess a viable business model?

Academically, the shared economy is considered an economic model based on the temporary transfer of the usage rights of idle resources through a platform to achieve efficient resource utilization and maximize social value. However, applying this academic standard to today's shared economy reveals a different reality.

Initially, shared economy platforms played the role of matching supply and demand, but now more and more platforms are directly involved in resource procurement, management, and maintenance. The current shared economy essentially remains a rental economy. Take bike-sharing as an example; platforms still provide transportation services to the public by deploying bicycles and earning revenue from them. So-called shared economies like shared power banks and umbrellas essentially follow the same rental model.

Certainly, platform companies have their own constraints. As the scale of the shared economy expands, governments and regulatory bodies have tightened their oversight of this industry. The introduction of policies and regulations requires shared economy enterprises to bear more responsibilities, such as ensuring user safety and maintaining public order. These measures prompt enterprises to adopt more traditional rental economy models to comply with regulatory requirements.

From the user perspective, the concept of sharing has also undergone alienation. The success of the shared economy largely depends on user participation and trust. However, as the market evolves, users prefer convenient and efficient services rather than engaging in genuine sharing activities. For instance, when using bike-sharing, most users are concerned with finding and using a bicycle quickly and conveniently, rather than whether the bicycle is truly being "shared."

Shared economy enterprises can attract users through cash subsidies in the initial stage, but this is not sustainable in the long run. To achieve profitability, some companies have shifted to a more stable rental model, ensuring revenue streams through fixed rental or usage fees. But this further confirms that the shared economy as a business model may only be small and beautiful, rather than scalable.

More bluntly, the myth of the shared economy has been shattered.

Rethinking the Future

If the underlying business logic of the shared economy does not hold, then the future strategies of enterprises positioned as a "shared economy" indeed need to be rethought.

The cash-burning model may have initial market development value, but true business long-term cannot be achieved solely through the "Substantial capital investment-scale-monopoly-price increase" model. Facts have proven that when it comes to price increases, the initial assumptions encounter numerous challenges – raising prices in the bottom-of-the-pyramid market is far more difficult than anticipated.

Nearly a decade later, the shared economy industry still has not found a path to profitability. Perhaps it is time for us to rethink what the fundamental laws of business truly are.

The latest list of the world's top 500 companies reveals that retail giant Walmart has consistently topped the list for several years, surpassing tech giants like Apple and Tesla. The retail model may not seem trendy, but Walmart's long-term success essentially stems from respecting its users and the laws of business.

Technological innovation is now highly valued, and the inherent scientific research threshold means it is a long-term conversion process. While business model innovation is faster and can more easily yield returns and outputs, understanding users' genuine needs and providing excellent customer service step by step are, paradoxically, the long-term "fast lanes" in the business world.