Just two months in, stationless bike share is clearly resonating with Seattle riders. Ridership is far higher than previous efforts, bikes are making their way to underserved communities, and more companies are jumping into the fray with brightly colored rides.
The city is on the one hand promoting it as a key part of urban mobility (Pronto 3.0!), while on the other making it clear that this is just a pilot. Bike friendly Councilmember Mike O’Brien has said he’s “skeptical” of the business model.
So what is the business model? The Pronto debacle seems to have made it clear that the city has no appetite for publicly-subsidized bike share in the near future, so it’s on Ofo, LimeBike, Spin and the rest to make it pencil on their own.
This is not a business blog and I don’t care where venture capitalists spend their money, but since bike share is evolving into a key part of our transit infrastructure, it’s worth thinking about whether they’re on solid ground. Are bike shares the fidget spinners of urban transportation? Or will they be here for the long haul? Here’s Bloomberg on the state of the business in China, where bike share is a full-on fad:
“It’s like a trophy to own a big sharing internet company in China,” said Mark Tanner, founder of China Skinny, a Shanghai-based consultancy. “From a business point of view it makes no sense.”
For now, profit remains elusive. Despite the uncertainty around the bottom line, all are spending heavily on promotions and discounts in a race to build scale. And things may soon get crazier.
The most basic question is whether the underlying economics are solid. Promotions and discounts aside, my understanding is that the bikes cost a few hundred dollars to make and generally recoup those costs in Seattle with a few months of usage. That doesn’t include operations (rebalancing, repairs, etc.) but it seems like the basic math might work out, assuming ridership stays constant as the volume of bikes ramps up.
But a business that grows organically and makes a little bit of profit is what the tech folks dismiss as a “lifestyle” business. Venture capitalists generally want to gamble on potentially transformative companies (see Google, Uber), knowing that most will fail. And there’s plenty of venture capital in bike share. So what makes for success on venture capital terms? How might these companies generate profits on a large enough scale to pay back their investors?
One way would be to have some sort of transformational technology that rivals can’t match. That seems unlikely. Bikes are commodities, as are apps and GPS sensors. Any small technology advancement that one company offers, others can and will match. Data mining might be relevant here (and more advanced sensors on the bikes open up some interesting possibilities), but it’s hard to see how that turns into a sustainable advantage.
Another way to achieve profitability would be via network effects. Facebook and Uber both connect people (Facebook connects your friends, Uber connects drivers and riders) in a way that’s hard for a new market entrant to match. But again, there’s no real network effect in bike share.
The final way – mentioned in the Bloomberg article above – is through scale. By focusing relentlessly on the customer experience and leveraging lots of VC money, a company might grow so big that it starts to have marketing and operational advantages, to the extent that the bike manufacturers start building the bikes to the company’s specifications (Think Walmart). If one company’s bikes are everywhere, it’s not even worth installing another app. You’ll just sign up for an unlimited plan and be done with it.
In the meantime companies will continue to add new features to make us happy. It’s remarkable how fast both Spin and Limebike started offering cash-only options, for example. They’ll also sign up businesses who want to offer employee perks. Who knows, bike share might one day come free with your gym or Amazon Prime membership.
At some point, however, the market will saturate and consolidation will begin. The smaller players will probably push for some kind of open standard so that bikes can be discovered and rented in a single app. The bigger players will probably resist (think Kindle vs. ePub).
Eventually, mergers will happen. Car2Go is apparently in merger talks with ReachNow, and I wouldn’t be surprised if a similar consolidation happened in bike share soon.
In the meantime, enjoy the ride.
I love the concept, and I hope that bike sharing will remain a viable business here and elsewhere. I am concerned that the mandatory helmet law is a serious impediment. I am not gonna drag a helmet around with me on the chance there is a bike available close enough that it makes more sense to ride than walk. For longer trips, maybe.
Shh…don’t tell anyone, but when I tried LimeBike recently I simply didn’t use a helmet. I’ve lived in Seattle for eight years and this was the first time I’ve used a bike in city limits. It was the best option for getting me from Point A to Point B at the time, and it worked great!
In my case, the bike ride was but one step of a multi-stop journey that took the whole day. I’m not going to carry around a bulky helmet for a whole day just so that I comply with a rarely-enforced paternalistic law for the 10 minutes that I happen to be on a bike. Sorry, but I’m just not.
My sampling of riders spotted over the past week: 49 bikeshare riders, 8 had helmets.
I don’t use helmets when I ride bikeshare, for the same reason. The flip side, of course, is I won’t take a helmetless bikeshare ride in many places where I would take my own bike (with a helmet, of course). In particular, I won’t ride the bikeshare bikes down steep slopes, I won’t ride them in the rain, and I won’t ride them at night. My use for helmetless riding is basically confined to the Burke-Gilman trail during the daytime.
Let’s see what happens in the rainy season. Assuming bike use is way down (similar to commute cyclist patterns) I’m guessing they will pull quite a few bikes out of service to avoid the maintenance costs, but how do you deal with your fixed overhead operating costs?
It will be interesting to see who makes it to next June.
Lizz, how do you know these are VC-funded?
This is basically the same business model that rental car companies follow. The firm incurs a big upfront expense when they buy a bunch of bikes or cars, then slowly recoups the cost with each ride/drive. So you don’t even break even on one of these bikes until hundreds and hundreds of rides have occurred. What happens when you pull inventory off the street? Break even just became harder to achieve as you spread the total bike expense (and ALL of your business expenses) over fewer and fewer performing assets. This is the problem, as Lizz dances around: “but it seems like the basic math might work out, assuming ridership stays constant as the volume of bikes ramps up.” This is a HUGE assumption, especially given the seasonal nature of biking in Seattle.
Info on limebike’s funding
https://venturebeat.com/2017/03/15/bike-sharing-startup-limebike-raises-12-million-led-by-andreessen-horowitz/
And info on spin’s funding:
http://www.prnewswire.com/news-releases/spin-secures-8-million-series-a-funding-round-led-by-grishin-robotics-300463742.html
One of factors, I feel that may have contributed to Pronto’s demise, was that they spent way too much money re-balancing. Obviously, any bike share system will need to some sort of ground crew to chase down bikes which are broken or illegally parked, but attempting to truck bikes up Capitol Hill at the same rate that people are riding them down is a fool’s errand – each downhill ride provides $1 of revenue, and there is absolutely no way to truck bikes back up for under $1/bike – at least not with first-world labor costs.
But, assuming that the companies are willing to just accept that most of their bikes will end up at the bottoms of hills, I think it might be able to work. And the reason is that the bikes that do accumulate at the bottoms of hills don’t just sit there and rust – they will naturally get ridden again, many times over, along flat trails like the Burke-Gilman at the hill bottoms. In fact, the Burke-Gilman trail has (not surprisingly) become of the bikeshare’s strongest corridors, and the fact that the bikes are nearly everywhere along the trail almost makes bikeshare a form of PRT (personal rapid transit) along the trails. Even if my destination is a few blocks up the hill, simply pedaling a bike down the trail, returning it next to the trail, then walking up the hill (possibly up a staircase) without the bike, works quite well.
And there are, of course, plenty of trips where a bike can be much faster than a KC Metro bus. For example, Gas Works Park to UW Station (11 minutes bike vs. 29 minutes transit), Lower Wallingford to U-Village QFC (14 minutes bike vs. 29 minutes transit), Gas Works Park to Ballard Locks (21 minutes bike vs. 35 minutes transit), or Eastlake to Seattle Center (15 minutes bike vs. 35 minutes transit). All of the above examples are at bottoms of hills, with lots of bikeshare bikes at both ends, and nearly flat.
Of course, the real tests to whether bikeshare can be profitable is the extent of theft and vandalism, and the ability of the companies to keep up with maintainance. It doesn’t take many occurrences of people stealing a bike, stealing parts from a bike, or ending a bikeshare trip in their living room to doom the system for everybody. There is also the concern of how the company becomes aware of mechanical problems with their bikes that need to be addressed. Sometimes, issues can be subtle enough that you don’t realize them until you get on and start pedaling, like a seat post angle that’s slightly off, brakes that squeak, or a shifter that’s stuck in the highest gear. At the moment, only Ofo has the ability to report problems through the app. And, currently, none of companies will give you your dollar back if you didn’t like the bike, or even an opportunity to switch to another (working) bike without having to pay an additional dollar. As the bikes get more wear and tear on them, this is something that’s going to have to change.
To rebalance, all we should need to do is provide an incentive to leave bikes at a higher elevation. We know the elevation for all points on the map and this feature could be integrated into the apps.
I’m impressed with the convenience and efficiency of the new bike share model, and the wide distribution of bikes around town — but Capitol Hill (and Queen Anne, and other hills) might as well be a lake in the maps in the apps showing where the bikes are. And that makes sense. How many people will pay to sweat their way up to the top of those hills on a heavy-ish, slow-ish bike when it’s not much faster than walking?
Biking downhill, or on a flat, however, is vastly more efficient than walking, and if bikes are missing at the tops of hills, there will be countless missed opportunities for rides. The high-elevation zone of Capitol Hill is actually a pretty big area with lots of housing and commercial activity, limited parking, and transit that cannot serve all the origin-destination pairs — seemingly a great market for bike share. Same goes for other hills around town.
Manually carting bikes en masse to the top of hills is bound to be expensive and labor-intensive. But some kind of rider incentive should be all it would take to reverse this. I’d bet some combo of credit/discounts/points and “gamification” could be revenue-positive for the bike sharing companies, while achieving a distribution of bikes that more closely matches the demand.
I completely agree, there needs to be some way to incentivize people to bring the bikes up to the top of Capitol Hill. However, as one of the people who rides them one-way downhill to UW, I can’t think of a reasonable incentive that would make me do this given the $1 pricing model ($0.50 for UW students). It’s just too cheap and convenient right now, especially with Spin occasionally moving more bikes to Broadway. The whole reason I ride them instead of my personal commuter bike is to not have to drag a bike onto the light rail in the evening.
Besides offering a discount for taking bikes uphill, bike shares may need to also have a penalty for taking the bikes downhill, especially trips that lose more than ~150 ft of elevation like mine does. I’m thinking $3 for taking the bikes downhill and a $1 ride credit for taking the bikes uphill. Otherwise any bikes that make it to the top of hills will be immediately ridden back to the bottom of the hill.
The bike shares did the right thing to start–making things easy with cheap prices and few rules. I think everyone knows that long-term sustainability will require some changes.
Yeah, some sort of gaming approach is cheap to implement. Heck, even offering free trips up the hill might be effectively free for the company if they replace trips not taken, rather than paid trips.
Yet another option would be to have bikes of a different color that are geofenced to the top of the hill, and simply can’t be taken to the bottom.
But, ultimately, stuff like this will only make a difference at the margins. Fortunately, for reasons I outlined earlier, I consider service at the top of capital Hill a nice-to-have, not an essential for success.
Maybe they could encourage folks riding the bus up the hill to stick one of the bikes on the front of the bus and take it off when they get up there? Give a free ride or two for doing this.
Right on, Jonathan.
Trips of 100-200 ft. elevation gain: .50
Trips of 200-300 ft. elevation gain: free
Trips of 300+ ft. elevation gain: 1 ride credit and/or name entered in drawing for some modest prize
I agree. It really is a different model, and folks are glossing over that. Pronto provided something significantly different for the customer. There was an expectation that every docking station had bikes. If you got unlucky and ran across an empty one, then you assumed the problem would be solved fairly quickly, and that a nearby station had them. That is the model that has been very successful all over the world.
But it is expensive. For these other bikes, there is no such expectation. I really have no idea if there will be a bike where I want it. I might see a bike on the corner one day, then not see a bike there for weeks.
This means that people have to be very flexible. You have to be prepared to take a bus, or walk. It also means that it is quite likely (as you’ve said) that significant parts of the city simply have no service. It is kind of crazy if places like Capitol Hill end up with very little in the way of bikes. A bike ride from CHS to Seattle U. would normally be one of the most popular routes in the city if you knew that bikes could be found in both locations. But without aggressive bike balancing, they are likely to find themselves down the hill instead.
Any way we can avail ourselves of a bicycle, or use the toilet, without reference to somebody’s Business Model? Lately it seems to be the latest standard excuse for something critical, like one of my health plans, suddenly collapsing out from under its responsibilities, phone-system first. Not first similar experience.
Term itself is latest skin-crawling pair of Prozac-faced “Buzz Words” to roll up an honest accounting balance sheet and smack. Responsible grown-ups have budget our resources every day of our lives, every day. In this economy, often in our sleep. When our personal broken glued together Model allows us any. An way business law can limit the concept to things people don’t need?
Use for anything public should be an impeachable offence. For Car-Shared bicycles- no quibble with a BP. So long as every rack in the city has a Business Plan (Wouldn’t it be great following the word “Schwinn?”) ready when another-one-bites- the-dust.
But how about we have political parties and candidates set up volunteer teams of their supporters to distribute, maintain, fetch, and relocate bikes all over the city for the grabbing.
To prevent anybody’s “Base” (smack!) from destroying opponents’ bikes, participating politicians can all advertise their support for the whole operation on websites and Twitter, starting with amount each one donates to the program.
All bikes visibly assembled from, literally, scrap, by the volunteers. Can be legitimately billed as skilled trade program for all ages. Best Anti-Theft? Coaster brakes, horns with rubber bulbs, and weight of welded iron.
One problem a killer, though. Guys at least 70 grabbing bikes with balloon tires on the front wheel and racing ones on the back away from ten year olds. Memory too far gone to remember it got stolen near the gumball machine, 65 years ago.
Mark
The business model here is Walmart, Uber, et Al: high volume, low margins. There’ll be one or two main players, and one or two underdogs in each market. If I had to guess, that would be the end game. High margins would just invite Interlopers.
But there’s still lots of semi substitutes. Uber/Lyft, carshares, transit, your own bike, walking, driving, ebike shares, etc.
Uber of course is massively unprofitable. Their business model is to lose money on every ride, but to make it up in volume…
Bike share is more workable because the bikes are cheap and you don’t have to pay for a driver. They are “self driving” because you drive it yourself.
I think the margins on bike share could actually be quite good. They have some maintenance costs, but bikes need to be ridden a LOT before they need maintenance, and bike share bikes are designed to be pretty durable.
Actually, probably their main overhead after all the bikes are paid for is on the software development and service hosting side. Software is always more expensive than you would think to develop and maintain.
I don’t think Uber loses money on every ride. Rather, they make money when people actually pay the regular fare, but they lose money from special promotions, and there’s enough of the special promotions going on around the world to result in them losing money overall.
The business model is currently just slightly ahead of Henry Ford’s Model-T strategy–black isn’t the only color available. There’s a lot to be learned from the market’s response and how the companies respond. Local weather and nefarious behavior will challenges, but there’s also the question of liability looming. Inevitably, some 10 yo kid is going to find a way to jump on a bike and get hit by a bus. If you think a cup of hot coffee is a dangerous product, just think of what’s going to happen when a cute 10 yo gets killed.
Kidding aside, I wonder if vertical relocation of bikes couldn’t be volunteer service. Parks Department, maybe? Or schools?
Also, would be excellent use for Portland-style bus-sized aerial tramway between the park by the King County Courthouse and Harborview Hospital. Connecting two parts of the city that used to be connected ’till somebody dug a huge concrete ditch between them.
But, having a hard time understanding state-of-civil-war argument about helmets. I don’t think the Age of Reason extended “Open Carry” (neither founders nor cowboys nor Marshal Wyatt Earp who made visiting cow-hands check their guns ever said that) to your head.
Also, while employers often require a law to make them give their workers safety gear, logging, mining, and quarrying themselves guarantee their voluntary use. For work less dangerous than steep-grade bicycling in city traffic.
But I think healthy resistance to over-stepping -look on YouTube how Nazi (German, not Alt) soldiers used to march-Authority provides easy, intensely popular solution. A law Forbidding! anyone from wearing a helmet while riding a bike!
And making penalty defiantly pushing a bike up or down a hill, where yelling groups of supporters will be defiantly slamming helmets on as they pedal away. Sometimes ripping helmets off riot-police heads and demanding they obey the law too!
Terrific Business Model (smack!) for whole Freedom-Fighting local helmet industry. Sic Semper! Google it. Usually has something about tyrants after it.
Mark
As the market matures, I expect that mainline retailers will gradually take interest in the market. Supermarkets could find that having in-store bicycles with saddlebags are more effective than home delivery, for example. Even these new vendors could find that coordinating or partnering with a retailer that has multiple locations in Seattle would be better than pushing market share alone.
I’ve already seen these bikes as far south as Federal Way. I wonder how long before they show up in Portland or Spokane.
https://awanderingphoto.com/2015/02/02/cycling-through-tierra-del-fuego/
Could be the way to encourage the extension of LINK across the floating bridge to Antarctica. Covered up truth, though, is that all those alpacas in Snohomish County are really llamas brought up here on unadvertised RapidRide AFB (for Antarctica Floating Bridge) line, LINK to Westlake Station, and CT 512 upstairs. Thurston County didn’t want ORCA, so we found people that do.
MD
That’s one of your best posts yet. Love it!
For VC exit strategies, my thinking is there are quite a few more options than simply merging with other bike share companies. It’s a far cheaper than starting a car-sharing company (or to start digging your own tunnel system). Some of these companies are likely just training grounds for their teams. An otherwise successful company that’s not making a ton of money on its own could be bought as a feature for some other company. I’m thinking something like Ford’s Chariot shuttle bus seamlessly combined with a bike share membership. Bewegen also has some involvement with electric car sharing, charging stations and electric bike share. None of that seems to be particularly successful so far, but maybe someone else will get it right. A particularly ambitious company might see cars in their present form as a doomed industry ripe for disruption. There seem to be a lot of patents coming out for inductive charging systems (electric toothbrush style) that are appropriate for large-scale deployment of electric bikes. Battery and motor technologies are improving very quickly to the point they’re starting to become practical for bike share (though not yet dock-less bike share). When that combination does happen, some of the features that the bike share companies are competing on could include something like normal-seeming bike racks powered by a patch of solar roadway to allow shared bikes that are both electric and dockless. At some point you start adding cargo capacity and fairings and before long most people are getting around the city (those not in high-capacity transit or walking) on something that looks more like Vancouver’s Veemo fleet. That’s something new that’s only vaguely like a traditional personally-owned car or bike.
Methinks this will go the way of Munchery, but I do love anything that encourages the flouting of a stupid regulation (i.e. – the helmet requirement for bikeshare rides).
The most important incentive for uphill riding is multi-gear (i.e. – >1 derailleur) bikes. With the proper bike (I have a Trek hybrid), riding up Pike from downtown to Capitol Hill is VERY manageable, although I definitely end up sweating.
So far, the Lime bikes are the only ones with good enough gearing to make one even think about climbing up Capitol Hill. Even then, if the hill is steep, it’s faster and easier to just park the bike at the bottom of the hill and walk up a staircase.
Given how irresponsibly the city pissed away public money on its failed bike sharing endeavor*, at least this time if these fail the taxpayers won’t be on the hook for it.
* They should have just let it fail after the original sponsor pulled out because it wasn’t meeting projections, instead of throwing good money after bad.
The statement in the original post that “This is not a business blog…” made my eyes pop open this morning! Transit and transportation planning are critical components of almost every successfully operated business in America. Imagine if Amazon had decided to ignore the delivery part of the transaction and not worry about how the product arrived in the customer’s hands or if Microsoft ignored how its employees arrived to work. This is definitely a business blog and in my opinion–writing as a former logistics manager–most interesting when the posted topics touch on the business aspects of transportation.
Does anyone know if there is a time limit as to how long a bike will stay at a certain location if it is not picked up by a rider?
It’s not in the City’s rules, so I guess it’s up to each operator – and operators could change any such self-imposed limits at any time.
Ultimately, the system is eventually going to need some sort of geo-fencing, as allowing people to drop off bikes in places that all-but require paid staff to chase down does not make a sustainable business. It remains to be seen what the boundaries will be, but in general, any place at the bottom of a hill where you can’t reasonably ride anywhere without going to up the hill should probably be in the exclude list. For example, the Discovery Park Beach should probably be excluded (anyone who picks up a bike has nowhere to go but up), while Fremont/34th should definitely NOT be excluded (you can ride the whole Burke-Gilman and more without needing to climb the hill).
For now, the companies aren’t doing that, and for good reasons – they want to see where people are naturally taking the bikes before imposing arbitrary rules that might do more harm than good by limiting the usefulness of the system.
In fact, the bikes aren’t currently even geo-fenced to the Seattle city limits, and some have traveled as far as away as Southcenter, Angle Lake Station, even Bainbridge Island. It will be interesting to see what sort of use these bikes get out there, and if it ends up being enough for companies to decide it’s acceptable to allow it.
https://www.seattle.gov/transportation/docs/BicycleSharePermitRequirements.pdf
Requirement P6: Any free-floating bicycle that is parked in one location for more than 7 consecutive days
without moving may be removed by City of Seattle crews and taken to a City facility for storage at the
expense of the bicycle share operator. SDOT shall invoice the violating opera tor as stated in Requirement
O12 below.
How many days has it rained since the bike shares began operation?
We no nothing until it is wet and dark at commute times. No one is taking a spin on the Burke-Gilman for fun those days.
Northern Europe also has bad winter weather and they have dramatically higher rates of cycling for transportation – it’s all about the infrastructure.