The "Tragedy of the Commons" Trap and the "Doomsday Twilight" of Shared Bikes

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In January 2013, Michelle Walker, author of the best-selling book "Grey Rhinoceros: How to Deal with a High Probability Crisis," first publicly proposed the concept of "grey rhinoceros" at the Davos Global Forum, a metaphor for potential crises with high probability and impact – such as the gray rhinoceros growing on the African savannah, which is large, weak in vision, and seemingly bulky, and if you provoke it, its huge and strong body will rush towards you with great consequences.

The "grey rhinoceros" seems out of reach, but it is actually all around us, but we have not yet noticed or deliberately ignored it. Looking back at the past 2018, "gray rhinoceros" events such as private enterprise debt defaults, stock pledge explosions, P2P explosions, and Bitcoin price slashes have begun to appear in various fields.

The once-beautiful shared bicycle field is no exception, and the "gray rhinoceros" has already quietly arrived. Recently, ofo funds are in a hurry, deposits are difficult to refund affected more than 12 million ordinary people, no one has ever thought that sharing bicycles, one of China's "new four major inventions" that was once as famous as high-speed rail, mobile payment, and online shopping, has quickly evolved into a farce in just two years, which is lamentable.

<h2>The failure of the "color revolution"</h2>

The evolutionary history of mankind is like a reincarnation. Europeans invented the bicycle, but China is the veritable "bicycle kingdom". Photographer Wang Wenlan once described the bicycle flow that appeared in Chinese cities in the 80s and 90s as "the Great Wall of Flow" in "The Day of the Bicycle", jokingly saying that "if you want to surprise people, the best way is to say that you can't ride a bicycle." The emergence of shared bicycles has brought the former "bicycle kingdom" grand scene back into the public eye.

In August 2014, ofo was established, in January 2015, Mobike was established, and in May 2015, the first domestic shared bicycle ofo was launched on the campus of Peking University, officially opening the crazy prelude to the development of the shared bicycle industry. Subsequently, under the catalysis of the outlet and capital, all kinds of shared bicycles have sprung up, and a vigorous "color revolution" has been staged nationwide, and for a time the jianghu laughed that "the color of the shared bicycle body is not enough."

According to public reports, as of 2017, the cumulative volume of shared bicycles in China reached 23 million, covering more than 200 cities. At the same time, according to the monitoring data of the E-commerce Research Center, the financing amount in the field of shared bicycles reached 25.8 billion yuan in 2017. The speed of sharing bicycles and the huge amount of capital financing are staggering.

What starts out of madness will end with madness, and bike-sharing is no exception. In the second half of 2017, without too many signs, shared bicycles quickly fell into the edge of the cliff, and the tide of closures rose and fell, and Wukong Bicycles, Xiaoming Bicycles, Cool Cycling Bicycles, And Little Blue Bicycles announced their closures. According to data from the Ministry of Transport, there were 77 shared bicycle companies in China in 2017, of which more than 20 went out of business or stopped operating, accounting for more than 25%.

In 2018, the external economic environment has plummeted, the primary market is becoming more and more difficult to raise funds, the shared bicycles continue to accelerate their death, and the capital darling and the industry's top brand Ofo are also doomed. At the end of 2018, ofo was exposed to the fact that the deposit was difficult to refund, but this is only the tip of the iceberg. Under the predicament of the capital chain, ofo frequently spreads the news of stagnant operations, shrinking fronts, poor financing, etc., and this star company is obviously entering the countdown to death in advance, and the twilight of the end is no longer far away.

The outlet is always short-lived, the bubble will always pass, and after the failure of the "color revolution", the bicycles everywhere are the only traces left. And these traces have become scrap copper and rotten iron, precipitating tens of billions of funds, and dissipating huge wealth out of thin air.

<h2>Common sense in economics – "The Tragedy of the Commons"</h2>

In 1968, Professor Garrett Hardin of England published an article in the journal Science entitled "The Tragedy of the Commons", which first proposed the theory of the "tragedy of the commons", in which the British feudal lords set aside an uncultivated piece of land in their territory as pasture (called "commons"), which was opened to herders free of charge. This is supposed to be a good thing for the people, but because it is free of charge, every herder wants to raise as many cattle and sheep as possible. As the number of cattle and sheep increased uncontrollably, the commons pastures eventually became barren due to "overloading", and eventually tragedy occurred, the grasslands were deserted, and all the cattle and sheep starved to death.

The "tragedy of the commons", also known as the catastrophe of public resources. In public pastures, each additional sheep for the herder means an increase in income, but there is no need to bear the cost of grazing on any pasture, and as a rational person, the best choice must be to domesticate enough sheep within their own ability. When everyone does this, public resources are overused and eventually all people can no longer enjoy a "free lunch."

How to solve the "tragedy of the commons"? So far, there has been no one-size-fits-all solution. There are generally two solutions or measures, one is to define property rights, let the private person be responsible for managing, operating and maintaining the public pasture, and levy a fee corresponding to the number of sheep on the herders; the other is the government's intervention in the management of the public pasture, and the government imposes corresponding restrictions on the number of sheep grazed by each household to maintain the self-recycling of the pasture.

Private capital is profit-seeking, and many public goods with welfare nature, such as public bicycles, buses, subways, parks, etc., often have the characteristics of low profit margins and long profit cycles, it is difficult to meet the requirements of private capital for profits and time, making the first one by defining property rights, and by private management and operation of the program becomes unfeasible, so the provider of public goods is generally a government department, and by the state finance or local finance to ultimately pay the bill.

<h2>A "trap" that is difficult to cross by shared bicycles</h2>

The "tragedy of the commons" is easy to occur in the field of public goods, and in essence, shared bicycles are a kind of "public goods". Looking back at economic theory, public goods usually have two basic characteristics, one is low or no fees, the other is non-exclusivity, and non-exclusivity means that a public good cannot be artificially excluded from others. For example, the benches in the park can be used by everyone and are not exclusive. Shared bicycles also have the above characteristics, one is the low fee, a single ride charges 1 yuan; the other is not exclusive, after the user pays, only to obtain the right to use for a certain period of time, rather than ownership, so after the delivery of the car, it is impossible to prevent others from continuing to use.

The nature of shared bicycles, the low cost of use, coupled with the lack of supervision in the use and delivery of bicycles, make the cost of occupation and destruction of bicycles extremely low, resulting in the "tragedy of the commons" is easy to occur. Public pastures are easily swallowed up by overgrazing, and in the same way, shared bicycles are similar to public pastures, users are similar to sheep, and shared bicycles are also easy to be overused, damaged and put into operational difficulties.

Human nature is rational, greedy and selfish, after the sharing of bicycle users pay, the first choice must be as much as possible to facilitate themselves, do not love bicycles, park cars at will, and even take possession of their own behavior is not uncommon, the wear and tear of bicycles is constantly released over time, and soon, the phenomenon of bad cars appears on a large scale, and the "tragedy of the commons" becomes more and more intense.

Before the first half of 2017, there was no such obvious "tragedy of the commons" of shared bicycles, and a very important factor was that the supply of the entire market was constantly expanding, and the major shared bicycle manufacturers were racing and carrying out large-scale bicycle launches in major cities across the country. Entering 2018, due to the exhaustion of funds caused by the capital winter, many manufacturers have no money to continue to put bicycles on the market, due to encroachment, damage, natural depreciation and other factors, the number of available bicycles on the market has declined rapidly, and the contradiction of "the tragedy of the commons" has become more prominent.

Therefore, the problem of the shared bicycle model now seems inevitable, because it violates the basic common sense of economics and the basic law of market economic development, ignores the weakness of human nature is greedy and selfish, and in the absence of effective supervision, it is doomed to run aground in the quagmire of "the tragedy of the commons". It can be said that the collapse of shared bicycles is the most vivid and vivid case of the "tragedy of the commons" in today's business practice.

<h2>Three specific reasons for overwhelming bike sharing</h2>

Looking at the essence through the phenomenon, the core of the collapse of shared bicycles lies in the three fundamental reasons that must be derived from the "tragedy of the commons", rather than the factors that the public likes, such as Vote Right (one-vote veto), founder Dai Wei is too young, and there is more competition for shared bicycles than fierce.

First, the profit model is not clear.

At the peak of shared bicycles, some people carefully calculated that a bicycle could return the cost within three months, and then entered the stage of pure profit, which seemed perfect, but now it seems that the calculation at that time was too ideal.

(1) Overestimating the number of cycling cycles. Cycling is cyclical throughout the year, with a large number of cyclists in the spring and autumn quarters due to cool weather, and a small number of cyclists in summer and winter due to overheating or cold. In China, the length of summer and winter is much higher than that of spring and autumn, so on average, the number of cycling cycles per day is at least half lower than previous forecasts. The Beijing Municipal Transportation Commission has revealed that the total number of shared bicycles in Beijing has been controlled at about 1.9 million, but the idle rate of bicycles in some areas is as high as 50%, which shows that the number of bicycles riding is not as high as previously thought.

(2) The integrity rate of the bicycle is overestimated, and the loss rate is estimated too low. Under the "tragedy of the commons", the bicycle wear and tear rate will be much higher than previously estimated. After most people pay a small part of the royalties, the instinctive reaction is to maximize their utility as much as possible, arbitrarily damage the car body, park the car at will, paste small advertisements on the car, paste two-dimensional code fraud on the car and other behaviors are repeatedly prohibited, and the number of bad cars will only increase. At the same time, due to the increase in bad cars, maintenance costs are much higher than previous estimates, and maintenance costs continue to be generated in large quantities, becoming an unbearable burden for shared bicycles.

In the face of the difficulty of sharing bicycles to make a profit, industry experts have also given many suggestions, but similar to "castles in the sky", basically not feasible.

(1) It is obviously difficult to achieve a proposal to increase the single use fee of bicycles. Didi can unscrupulously raise prices, because their reference coordinates are taxis, and the reference coordinates of shared bicycles are buses or subways, making there is very little room for shared bicycles to increase charges. Once the price rises, many users immediately "vote with their feet", may not choose to travel by bicycle, may either simply walk more, or choose to take a bus stop.

(2) It is proposed to earn more advertising revenue on the body, which is also difficult to achieve. Because the body is narrow, most people can't see small advertisements, and the grade is low, while the wind and the sun are raining, the maintenance cost is also very high, most well-known companies will not choose to put ads on shared bicycles, and the advertisements are often some small companies, which greatly limits the possibility of sharing bicycles to charge high advertising costs.

(3) Propose to make a fuss about the deposit and squeeze out the income from the deposit. Legally speaking, the deposit income belongs to the customer, and the embezzlement of the deposit is illegal, which is not feasible in law; from the practical point of view, the deposit income is only a dime for the huge cost of delivery and maintenance, far from covering the huge cost of sharing bicycles. In the long run, for any enterprise, self-hematopoietic, income from the main business is the safest and most durable, similarly, for shared bicycles, the income generated from the direct use of bicycles by users is the most important.

The second is the vicious circle of the asset-heavy model.

Shared bicycles have the characteristics of large investment in public goods, and large investment refers to the need to invest thousands of bicycles in major cities in the early stage, and a steady stream of bicycles to replace bad cars or further seize the remaining market in the middle and late stages. Therefore, from a financial point of view, all vehicles are fixed assets of shared bicycle companies, the faster the expansion, the more invested, the heavier the fixed assets, and eventually a large number of funds are precipitated in these assets. Funds are reflected in the number of bicycle assets, with the rapid depreciation of bicycles, funds are also rapidly lost, so shared bicycles need to continue to carry out follow-up financing to alleviate the "hunger and thirst" of funds.

The initiators of the Internet economy and the sharing economy should have operated lightly. Although the shared bicycle is known as sharing, but it is firmly following the old road of a traditional industry company, which is not much different from a bicycle manufacturer in essence, if it must be classified by the company, the shared bicycle can be directly classified into the manufacturing industry. This is also the essential difference between shared bicycles and other sharing models such as Didi and Airbnb. Shared bicycles are a must-do thing, Didi, Airbnb is asset-light operation, itself positioned as a platform for integrating external assets and resources, as long as the platform is built, you can lie down and make money, there is no need to spend so much manpower, material resources and financial resources to do asset investment and follow-up maintenance.

The third is the restriction on the quality of the people.

The prosperity of shared bicycles is closely related to the stage of economic development and the quality of the population, the level of economic development is high, the quality of the population is high, the artificial wear and tear of bicycles and the cost of maintenance will be much lower, and the phenomenon of "tragedy of the commons" will be greatly alleviated. At present, the overall quality of our people is still in a stage of climbing, and it is far from meeting the requirements of sharing bicycles without any supervision and punishment. The quality of residents in core cities such as Beijing, Shanghai, Guangzhou, and Shenzhen is relatively high, and the number of relatively bad cars is much lower than that of other cities in China, which shows that the quality of regional residents is closely related to the number of bad cars. There was once an article that said, "Sharing bicycles is really a good national mirror", which may be a bit exaggerated, but at least let us see how far we are from civilization.

<h2>Under the cold winter, where to survive? </h2>

In 2018, the "capital winter" that has been shouted for many years has finally arrived, which is unexpected. Ofo, the leader of sharing bicycles, did not hold on in the end, and it became more and more unable to sustain itself in the "cold winter". The run it faces is worse than the bank run, the former is a real capital crisis, most of the funds have long been deposited on that small yellow car, and dissipated in a pile of scrap copper and rotten iron, and the latter is just a term mismatch.

In 2019, the venture capital industry is expected to collectively enter the "extreme cold". Therefore, it is obviously not feasible for shared bicycles to support themselves by the development idea of "laying out more cars - encircling more users - brushing out a good amount of orders - getting more financing", and transformation is imminent.

In my opinion, under the cold winter, if shared bicycles want to avoid the trap of "tragedy of the commons" and live safely, there are only three ways to go.

First, the "small fish" should selectively let the "big fish" eat it, and return the shared bicycle industry to the oligopolistic competition pattern through mergers and acquisitions.

After the monopoly, increase the fee and control the cost, so as to continuously improve profitability and achieve self-hematopoiesis. For the shared bicycle brands that have problems in their current operation, don't try to struggle, either merge and form alliances with industry leaders as soon as possible and seek common development, or liquidate as soon as possible, cut meat and stop losses, and quickly withdraw from the market.

The second is to refine operations and reduce barbaric, nationwide disorderly expansion.

The quality of Chinese people is uneven, large, medium, and small cities vary greatly, and as far as sharing bicycles is concerned, only some large cities may be the target market that can be profitable. Therefore, achieving refined operations in some major cities and serving this part of the population well may be the best countermeasure for sharing bicycles in the past two or three years. According to public reports, at the end of 2018, the operation area of Mobike in Beijing was reduced from the sixth ring road to the fifth ring road, indicating that Mobike has recognized this in operation. In the future, it is also imperative for shared bicycle companies to shrink and put them into cities.

The third is that the whole industry and government departments work together to strengthen the supervision and punishment of damaged shared bicycles.

Comparing shared bicycles to the mirror of human nature seems a bit too much, because the low supervision and low punishment characteristics of shared bicycles themselves artificially build a moral trap to lure the public to jump in, but human nature cannot withstand the test, and sharing bicycles is wrong in testing human nature.

Under the nest, Ann has finished eggs. Reducing fearless competition, working together, and working with government departments to strengthen the supervision and punishment of damaged shared bicycles, punishing evil and promoting good, making the wrongdoers pay corresponding costs, shaping and improving the overall business environment of the industry, is the solution to the current problem. Shared taxi Didi, shared rental airbnb, etc., will not easily appear similar to the "tragedy of the commons" similar to shared bicycles, in addition to the assets are not heavy, the profit is clear, the very important reason is that the management and supervision is better than the shared bicycle, can be more stringent management and behavior constraints on users, once the damage to the goods occurs, you can ask the user to make corresponding compensation, so that the cost of goods encroachment and damage becomes very high.

In the past two years, the development of shared bicycles has benefited from the praise of government officials, economists and the public, and has also benefited from the promotion of capital. Looking at the list of investment institutions behind shared bicycles, none of them are the best in the industry. But why is it that in the face of such a simple common sense, "the tragedy of the commons", everyone turns a blind eye? Is it unawareness, or selective neglect, or is it because of overconfidence? The answer is unknown.

Through the tragedy of this shared bicycle, one thing that reminds us is that we should never ignore the objective laws of economic development and the basic theory of economics, and many entrepreneurial failures are likely to fail in the most basic and superficial logic.

In the glitzy wave of entrepreneurship. Returning to real business logic and common sense is not a kind of wisdom? (This article was first published by Titanium Media)

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