Care to return an umbrella?

About a month ago, we wrote about the latest fad in China, umbrella sharing. Today, the Chinese press provided an update on how that venture has gone. I’m not making this stuff up.

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About a month or so ago, I wrote about the latest fad in China’s shared economy – Sharing umbrellas (link here).

There’s been an update. According to the Hong Kong Economic Journal, one of these umbrella sharing companies started operations in April and had rolled out its sharing service in 12 cities including Beijing, Shanghai, Nanjing and Guangzhou. It invested in 300,000 umbrellas with a “no fixed-base” approach. At Rmb60 per umbrella, its initial outlay was Rmb18mn.

Under this system, the umbrellas have a lock on it and in order to use it, you have to pay a Rmb19 deposit and would be charged 50 cents for every 30 minutes of usage. Once the deposit is paid, the renter would receive a four digit code to unlock the umbrella. This is how many of the bike sharing systems are set up.

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That was the theory. In the real world, what wound up happening was that after a few months, most of the umbrellas have disappeared, rendering the initial Rmb18mn a complete loss.

The real winner? The umbrella makers

Normally, one would have thought that a Rmb18mn loss would have kicked some sense into investors but in the current easy money environment where profits don’t matter, the company is doubling down. The umbrella sharing start-up is now saying that the real money is in advertising. You see, there are eight sides to an umbrella and surely someone would be willing to give them money so that they can advertise some dot-com venture on the umbrella. That’s not the end, The company’s ambition have grown, it is now targeting to buy another 30mn umbrellas (i.e. stepping up its initial investment 100x), some with night glow feature and some with a GPS so that they will at least know where the umbrellas have gone.

I imagine that the GPS will show many of the umbrellas in the closest dumpster.

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Care to share an umbrella?

Much has changed in the past 17 years. Amazon has just hit US$1,000 and now boast a market cap which is double that of Walmart. While much has changed, one hasn’t and it is human nature. The fear of missing out is a huge motivator and has historically led to all sort of silly investments. Care to share an umbrella?

Overnight, Amazon’s share price rose above $1,000 for the first time. It now sports a market cap of US$476bn, which is roughly double that of Walmart (US$237bn). The Nasdaq at 6,203 is now also 24% higher than the 2000 bubble peak.

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(Source: Google finance)

Much has changed except one thing – Human Nature

Although much has changed over the past two decades with many of the internet companies now generating very strong cash flows, there is one aspect that hasn’t – human nature. Greed and fear are two powerful drivers for human behaviour. I don’t know which one is the stronger motivator but I would reckon that “Greed” and the “Fear of Missing Out” trumps the “Fear of Loss”.

While the market is not as crazy as 1999 when anything with a “.com” had money being thrown at it, there are some signs that money has once again become too loose and investors are making all sorts of investments that make very little sense to me. To begin, let’s talk about what are the latest fads. While some would suggest that it is “streaming”, “AI”, “VR”, “IoT”, I would argue that it is the idea of the “sharing economy”.

Does it make sense to share?

Now, I am not knocking the sharing economy. I think in many cases, it makes a lot of sense. For services like Uber and AirBnB, the sharing bit helps to increase productivity for an asset which is otherwise being left idle. So if one can increase the usage rate from say 10% to 25%, you have increased the productivity by a factor of 1.5x, which makes perfect sense.

But what about umbrellas?

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Umbrellas do not strike me as something that makes sense for sharing. Unless you are the type who avoids getting a tan on a sunny day, the time when most umbrellas tend to come out is when it rains. And when it rains, that’s when everyone needs an umbrella. There is no sharing unless you want to get wet.

Although that might sound intuitive enough, I am apparently very wrong to the tune of a couple of million dollars. According to an article in today’s HKEJ, umbrella sharing in China has been attracting a massive amount of venture capital money. Two types of umbrella sharing business have emerged in China. In the first type, there are fixed points where the umbrellas are stored or fixed. In the second case, there are no fixed points. In either cases, these start-ups rely on the internet and apps to take deposit and rent out the umbrellas.

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On reading this news story, the first thing I had to check was the date. I had to make sure that it was not April 1st. For me, if I happen to get caught without an umbrella when it rains, the first thing I will do is to dive into a convenience store and buy one for about US$10. I don’t think I would pull out my mobile phone, launch an app, check the closest rental point, walk there, get wet, then rent an umbrella for something I hope is well below US$10, but that is just me.

But regardless of my views, I think you got to give a lot of kudos to the guys who came up with the umbrella-sharing idea. If anything, they are now millions of dollars richer, thanks to the generosity of the venture capital guys.

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