E Umbrella lost nearly 300,000 umbrellas. The admittedly comical story raced around the world, with article after article chronicling the downpour on the beleaguered start-up. Undeterred, however, E Umbrella’s owner Zhao Shuping wants to release 14 million more umbrellas before the end of the year.
This laughable event offers a real business case study. While cars and bicycles are perfect for sharing start-ups, umbrellas are a step too far. This was a quick attempt to cash in on a trend without thinking about whether the market needed it. Umbrellas are needed until people get home, so they are unlikely to hang them up before getting there. Chinese start-ups need to take a step back and carry out proper market research before wasting millions.
The lack of such market research among Chinese small business is all too evident. If a hairdresser is seeing booming business on an affordable street, three hairdressers are likely to pop up nearby. Little thought may be given to the fact that the area does not have enough demand for four hairdressers or that the first one may have a truly skilled barber or offer better service.
This thinking has flowed over into the sharing economy, with successes such as Didi Dache and Tujia spawning countless spinoffs, sharing ever more incongruous objects. The concept of E Umbrella is a flawed one off the bat for reasons outlined above.
Zhulegeqiu is a similarly wacky idea on paper, sharing basketballs. However, it has found its niche, especially on university campuses. In Beijing, Shanghai or Hangzhou, East China’s Zhejiang Province, basketballs are dunked and put back in machines with not much evidence of theft, certainly not on a scale to disrupt the company. This is different from umbrellas, however, in that basketballs are not used by everybody and those renting them are likely to do so in a pinch.
Xiangshui Space, however, exemplifies a lack of research into demand and regulations before creating supply. The company provided napping pods for office workers to take a break. But instead of a controlled, progressive rollout, Xiangshui went for broke and ended up broke. It set up its unwieldy contraptions in 18 cities, including six in Beijing’s high-tech area of Zhongguancun. With a bed, disposable sheets, Wi-Fi, a fan and lighting, the overhead and maintenance could not have been small.
A month after setting the pods up, Xiangshui got shut down for lack of the proper licenses. Worse, interviews quickly sounded the death knell of any company: the public did not understand why it existed. Customers thought the pods to be the same as capsule pods, not temporary rest spaces for tired workers, an incredibly small niche.
The omnipresence of contactless payment options in Chinese cities makes sharing start-ups very tempting. China’s own State Information Center has suggested that the sharing economy could account for 10 percent of GDP as early as 2020.
The country is even resistant to foreign incursions. Uber entered China to great fanfare, was not able to fight off local competitors, and had to sell its operations to Didi in exchange for a minority stake after losing around $1 billion a year. Airbnb has managed to maintain a foothold, although it only has around 80,000 listings in China of 3 million worldwide. It is going all in, launching in China as offering its services through WeChat and Alipay.
However, the sheer volumes of investment Chinese rivals are pulling in make this a daunting task. In August 2015, Tujia raised $300 million and is backed by Ctrip, the country’s largest travel agency, putting Airbnb at a massive disadvantage. Bike-sharing options are seeing similar expansion. Mobike, based in Shanghai, closed on a $600 million round of funding in June although its international aspirations are not going well.
Perhaps uniquely in the world, the Asia-Pacific is ready to embrace sharing due to a specific sense of community, a desire to find cheaper mobility and travel solutions and a sense of real overcrowding in the likes of Beijing and Tokyo. In 2013, a survey by Statista and Nielsen found that 81 percent of people in the Asia-Pacific region were willing to take part in the sharing economy, with 78 percent willing to share their own property. In North America, the latter figure was just 52 percent and 54 percent in Europe.
However, no boom can survive without its busts. China’s graveyard of sharing-economy failures may continue to expand if market research is not done thoroughly.
Source: Global Times