A rider uses his smartphone to unlock a bicycle provided by Ofo on October 13 (CFP)

Chinese bicycle-sharing apps Mobike and Ofo have caused quite a stir recently. Tencent and private equity firms Warburg Pincus and Sequoia Capital participated in a $100-million funding round for Shanghai-based Mobike. And, Xiaomi, Citic PE and Coatue Management similarly pumped $130 million into Beijing-based Ofo, in which China's dominant ride-hailing service provider Didi Chuxing is also, reportedly, an investor.

Bike-sharing is being proclaimed as a new frontier for both Didi and China's sharing economy. But the reality is not what many suppose it to be. Basically, bike-sharing is nothing like Didi, Grab, Ola, Uber, AirBnb and the other sharing economy platforms. At this point, its economics are far more like those of the vending machine business.

That doesn't mean it isn't a really great, scalable business. It is, and I hope it enjoys explosive growth across China. But much of the current excitement seems to be because people think this business is like Didi. It's just not. It's a different thing.

Four points to consider

Here are four ways in which bike-sharing differs from ride-sharing.

To start with, bike-sharing is not really sharing; it's not part of the sharing economy.

Ride-sharing is about gathering a population of drivers who then provide and maintain their own cars. In AirBnb, people provide their homes. Essentially, the model revolves around using new technology to bring existing but unused supply into the market, which is a big deal.

For this type of platform, you don't have to own the assets or spend the capital expenditures to grow and maintain them. You can be the world's biggest car rental company without owning any cars. For the owners of these assets, they benefit from renting them out and dropping their effective cost. And for customers, they can cheaply utilize other people's assets—and theoretically avoid buying their own (in some cases).

Bicycle-sharing, however, really doesn't involve this type of sharing. Regardless of rider volume, the company must still buy and own all the bikes. And it must maintain them and replace them (say when they go missing). No assets are being shared.

So on the supply-side (over the long-term), this is a scalable, commodity service with no clear advantages as yet. Again, think of placing vending machines around town so that people can now buy cokes whenever they pass by.

Second, bicycle-sharing does not have a network effect.

Ride-sharing (i.e,. using cars) is awesome because it has a powerful competitive advantage via a two-sided network. Each additional passenger increases a network's value to the drivers as they can find customers more easily. And each new driver increases the value of the service to passengers as they can benefit from shorter waiting times. Thus, larger platforms offer a superior service to both sides simply by virtue of their size and can quickly corner the market (e.g. Uber and Lyft in the United States, Didi in China, Ola in India, Grab in Southeast Asia).

Additionally, once the market has matured, it is very difficult for a new entrant to break in. If you then want to launch a ride-sharing service, you will have to offer the same big driver network and short wait times as the dominant competitors from day one. But to get all those drivers, you have to offer them a big customer base. It's the "chicken-and-egg" problem but with entrenched competitors. This type of indirect two-sided network effect also happens in home-sharing (AirBnb), credit cards (Visa, MasterCard), app stores (Apple, Google Play), auction houses (Sotheby's, Christie's), and even shopping malls in a way.

However, none of this happens in bicycle-sharing. There is no second population of drivers using the platforms and providing the key assets—in this case, the bicycles. You just need to put lots of bicycles around town. Each new rider does not add any value to the other riders, nor to a population of drivers.

Bike-sharing is basically a business-to-customer (B2C) commodity service—a traditional merchant business. Being larger helps to some extent, but new players can still enter the market fairly easily; all they need is about 30,000 bicycles (Ofo currently has about 95,000), which would cost about $2.5 million. The sector's comparatively low barriers to entry, therefore, will undoubtedly impact the long-term profitability of its individual players.

Nonetheless, in the short-term, companies like Ofo and Mobike should do really well, as they are offering an innovative service and have first-mover advantage in a massive market.

Third, bicycle-sharing doesn't have economies of scale (yet).

Another issue is fixed costs and fixed assets, which can provide a different type of barrier to competition. In industries with high fixed costs, bigger competitors can often provide services more cheaply on a per unit basis, and the large initial or ongoing capital expenditure requirements can also deter new entrants, such as in the constantly upgrading cable companies.

But neither fixed costs nor fixed assets appear to matter much in bike-sharing. Placing bicycles around a city and maintaining them apparently doesn't cost exorbitant sums, and certainly not enough to deter a well-funded, well-run competitor.

Finally, questions exist about consumer demand.

During the past 15-plus years, bike-sharing services have been launched in over 600 cities around the world, mostly through local government initiatives. Although some have been rather successful, many have failed, usually due to a lack of demand or bad management.

The real demand for as-needed bicycle trips "under 3 km" is not totally clear yet. It could be limited—just acting as a replacement for owning your own bike—or it could induce lots of new and interesting uses. When you place bikes within arms' reach at negligible cost—1 yuan ($0.15) in China, people may start using them without thinking, and in lots of new ways. Vending machines didn't replace soda sales in supermarkets. People bought more because they passed the machines on the street and it cost basically nothing.

One place we can see lots of cool new usage is with Ofo at Peking University. Those yellow bikes are literally everywhere. Another example is the bikes sitting outside the subways. You get off the subway, pay 1 yuan, pedal the five blocks to your home and just drop the bike. That's pretty great. I think there are going to be lots of surprises in how people start to use these bikes in Chinese cities.

However, my biggest concern for the customer proposition of bike-sharing is that it doesn't save you money. Home-sharing and car ride-sharing are convenient, like as-needed bicycles. But they can also be much cheaper than hotels and sometimes taxis. And they are certainly cheaper than buying your own apartment or car. Bicycle-sharing, by contrast, doesn't offer this kind of cost saving.

There are unfortunately lots of cheap ways to get around town in China, including the metro, taxis, walking, moto-taxis, scooters and owning your own bicycles, many of which also cost next to nothing. And China is already over-run with bicycles, including mountain bikes, street bikes, fold-up bicycles and electric bikes. New bicycles start at about 399 yuan ($58.98) at reputable stores.

So the consumer proposition for bike-sharing is mostly convenience plus negligible cost, not saving money. And the convenience part is also sort of weaker. With ride-sharing, the cars come to you, and a platform's competitiveness is significantly determined by how long it takes cars to arrive. But, with bike-sharing, you have to locate and reach the bike. If a city has plenty of sharing bikes, this could be fairly convenient, but "as needed" bicycles don't come to you.

Comfort and safety issues are also worth keeping in mind. For instance, how many of the shared bikes are going to spend three to four months sitting unused during the adverse wintry conditions of Beijing? Furthermore, the bikes are not fitted with lights, so riding at night would be rather dangerous.

A look into the future

Most of the aforementioned could also apply to the iTunes store or the super-popular beauty photo app Meitu. They are also mostly B2C services operating as traditional merchants, not as multi-sided platforms (MSPs). And these services also did really well in the short-term by being first movers in a cool new service.

Eventually though, they need to partner up with other services that have stronger competitive advantages—the iTunes store is mostly a merchant but the App Store is an MSP.

Bicycle-sharing is a really nice business. But since China's tech-giant trio—Baidu, Alibaba and Tencent (BAT)—account for over 50 percent of all mobile Internet usage in China, bike-sharing services should team up with one of the BAT trio as soon as possible and integrate their service into their ecosystem.

Overall, bike-sharing seems a really interesting new service (so were vending machines). And they raise a neat question about what will people do with bicycles that are always within arm's reach at a negligible price.

By 2030, China's urban population is expected to top 1 billion people—larger than the entire populations of North and South America combined. So, watching how bicycle-sharing plays out in China's increasingly crowded cities is going to be fun.

The author is a professor of investment at Peking University's Guanghua School of Management

Copyedited by Chris Surtees

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