Sep 9th, 2021| DataSeries
China is a mysterious land with some truly astonishing tech startups. A few years ago, Sharing Economy was unstoppable in China. *I could even rent myself a girlfriend on one of the apps. (seems totally legit)* By the way, sharing economy in China just means any form of short-term rental service.
While some of the brightest entrepreneurs are leveraging shared economy to solve real-world issues, like the last mile problem, one fresh university grad decided to just rent out some batteries (portable chargers).People laughed at the idea. Sicong Wang (basically a mini Donald Trump) even said something along the lines of “I will literally eat my own poops if this shared power bank venture turns a profit.”
Earlier this year, the sharing economy bubble went BOOOOOOOOOOOM in China. Ofo, the sharing economy unicorn, went from nothing to $2Billion, to the founder losing his underwear in Chapter 7, all in less than 4 years. On the other hand, shared power bank startups were quietly chewing bubble gum and kicking ass. Over 150 million power banks have been rented out in 2019, and this number has come to double in 2020.
This shared power bank idea completely bamboozled Chinese investors. It shouldn’t have worked……. But it did and the whole industry raised over 150 million USD in 40 days! But, it’s quite obvious how they have managed to achieve that. If you think about it, shared power banks: 1) are not solving a customer pain point, 2) don’t have a proven demand, 3) are capital intensive……….Wait….
Okay…. So that makes zero sense…. There had to be something that made it work. Time to put my detective hat on and do some research.And…. Holy cash cow, renting out batteries makes so much sense!
1. A Surprisingly Balanced Unit Economic
The cost for a shared power bank station (with 10–20 power banks) is generally between $100-$200. Research from Tencent suggested that the industry has an average $0.2/hour rental rate, 2.4 hours/day/charger utilization, and roughly 50% margin.
$0.2/hour x 2.4 hours/day x 30 days x10 chargers/station x50% margin= $72/month!
So, an average station can break-even in as quickly as just 1–2 months! Shared power bank Startups have also employed a revenue-sharing model to aid growth. They would set up charging stations at restaurants, shopping centers, etc. for free and share 50% of the revenue with their “landlords.”
It’s a win-win-win scenario where the startups can scale rapidly and not worry about utility bills. Business owners get a new toy to attract more customers, and customers get to charge their phones! (it’s almost like free WIFI. Customers wouldn’t die without it, but they would love to have it)
2. Amazing Grip on Customer Psychology
Most VCs rejected the idea initially. They think that most people don’t need to charge their phones that often. If an individual has a battery-life problem, they probably have a portable charger with them already. It’s not a pain point! That’s what the VCs said.
But they were wrong about customers. It costs $0.2/hour to rent a charger. That’s nothing. Even if charging your phone on the go isn’t a pain point, the low cost of doing so still hooked tons of new customers to give this novelty idea a try. As it turns out, it is hard for people to turn back once they become used to the convenience of renting power banks.
If you are at a restaurant with 50% battery left and I offer you a charger, it is pretty likely that you would charge your phone. When you have more battery, you are more likely to use your phone more intensely. Maybe you will watch a video or play some games. It forms an “addiction loop” where you use your phone more, then your battery runs low, and you need to seek out chargers, and repeat. *You could say that you have made them drunk with power.
Lastly, you can’t do anything without your phone in China. Your ID, credit cards, bus pass, etc. are all on mobile. So, running out of battery is actually SCARY! *Imagine losing your wallet*
3. CAUTION from the Investors
Because the idea of renting out batteries sounded absurd, the few VCs who had initially invested in shared power banks were extra cautious. They didn’t push startups to focus solely on scaling, and instead, urged them to focus on refining their business models and improving core technology.
However, it’s not all sunshine and rainbows. More competitors are entering the market and causing an oversupply, and established startups are jacking up prices to drive more growth. But as the industry matures and consolidates, it is likely that shared power banks are here to stay as one of the winners of the sharing economy boom.