Bird, Lime, ofo, pony: Is Mileage The New Gold?
I am the Founder and CEO of pony bikes. We launched about a year ago in the UK, as the first European dockless bike sharing company.
It’s clear that there is something magical about this business. Never before have I encountered so much passion, angst, skepticism, cleavage and excitement from my own friends, family and also from complete strangers.
‘Bike sharing is doomed to fail’
‘Bike sharing should be ruled out’
‘Bike sharing should be managed by councils!’
Never before, has something struck me so clearly as the epitome of Schopenhauer’s three stages of truth: first ridiculed, secondly violently opposed, finally accepted as self-evident.
Image: Dallas Bike Mess/Instagram In Dallas, where just 0.2 percent of the population commutes by bike, at least five…motherboard.vice.com
- CAC = 0
- It's here to stay & it’s gigantic
- Unit economics: beware of the bike
- No network effect
- Last mover advantage
- No economies of scale
1. CAC = 0
We launched in Oxford in August 2017 by putting 20 bikes by the Rail station. We didn’t have an Android app. We didn’t have any literature on the bikes. No PR campaign. We just put the bikes on their own, arranged nicely in two rows of 10. By noon, all the bikes were gone, taken away by real users for a ride around the city.
This is how we discovered what we think is the most important aspect of bike sharing:
The bikes market themselves; they don't need you.
- High visibility: Their presence is overwhelming, they have bright colours, they create a catchy cheerleader effect. They are just really really hard to miss.
- Simple offer: The bikes are up for grabs. Most people get it straight away and need no explanation.
- Seeing a bike = trigger. The act of purchase can be done right away on the spot.
The bike does the marketing, the selling and provides the service all by itself. It does not need you at any stage of the process. This is extremely well explained by Jeffrey Towson in his article about Wild Assets.
But, isn't CAC always super low for early adopters?
True. But 10% of the entire population of our cities is already registered on the pony app. This was achieved with 0 spent in marketing. For perspective, in the same cities, 40% of the population has a bus pass.
Most importantly, the rate of new users have not slowed down yet.
Will CAC increase when competition kicks in and we have to start convincing users to switch to pony?
We started in Oxford which is probably one of the most competitive market in Europe. At peak, you could count 4 dockless bike sharing schemes competing for a 150k people city: pony, ofo, Mobike and oBike. It had no impact on the rate at which we were acquiring users.
Internal surveys suggest that most users have all 4 apps registered. It's not your typical ‘you only need one’ market.
2. It’s here to stay & It's gigantic
Just like Airbnb, Amazon, Uber or Deliveroo. Once you have tried, there is no going back. It's simply one of those things that is here to stay.
I am at a café in Paris right now and I just paused for 5 minutes to watch the traffic:
- Half of the mopeds are shared e-mopeds from Coup or Citiscoot
- I saw one guy with a Lime scooter (remember there are only 200 in paris for 10m people)
- ¼ the cyclists were on shared bikes
Shared micro-mobility doesn’t need convincing. It’s a solution that solves real, serious, large-scale problems: urban transport and air pollution. Product-Market fit is not a question here.
It’s also enormous. I was not surprised when Mark Suster said in an article about Bird that he thinks 'it’s quite possible that Bird could be the fastest growing company to reach a billion dollars in run rate revenue.'
In less than a year dockless schemes have been set up in 100+ cities in the US alone.
We passed the 100,000 rides mark fairly quickly — hitting a few operational road bumps on the way — but fairly quickly. Bike, scooter, moped sharing is simple and straight forward. It is one of the rare products that is truly universal and genuinely mass market.
3. Unit economics: beware of the bike
It took us 5 iterations, loads of containers and weeks of real life testing to get there, but we are proud to say that every pony ride is now highly profitable.
That's the thing. In the end, bike sharing is about the bike. No matter how well you execute, no matter the scale— if the bike is not fit it's never going to generate a return.
This is one of the main traps of the industry. Once the bikes are produced and deployed there is no way to ‘update’ them or to deprecate a feature. It means it's extremely difficult to pivot. You are stuck with you bikes.
When we first launched, our lights fitting where not strong enough. We replaced 600 lights on our initial fleet of 100 bikes in the first 4 weeks 😰. And we had to keep going until we could come up with a better solution… Mistakes in the bike design really are costly.. and more often than not, cannot be fixed!
What is the difference between a bad bike and a good bike?
- Degree of independence: How long can the bike continue executing its duty of carrying people around without external intervention (charging, repairing, cleaning, moving etc.)
- Ease of intervention: how easy is it and how long does it take to put the bike back to work (spare parts optimised for maintenance etc.)
- Asset cost
There are a lot of difficult calls to make that are not always intuitive (gears, basket, GPS technology, shaft chain etc.) but once it works — you’ve got something precious. It means that ordering more bikes creates value instead of creating risk and liability. This also means that scaling with the wrong bike/scooter makes you a giant with feet of clay!
4. No network effect
Bike sharing companies have been labelled "the Uber for bikes", but in practice, the dynamics are structurally different from ride hailing. It's not a 2-sided market place.
- No network effect
- Asset owned by the companies
- Ops manage internally
In fact, what we like to say is that the dynamics are more similar to retail dynamics. Riding a shared bike is just like buying a bottle of water.
- It’s fast moving: high volume, small margins.
- Availability is a necessary condition to success but is not sufficient to win
- Merchandising strategies can be applied (gondolas, product packaging, shelf strategies, distribution strategies, etc.)
- Segmentation strategies can be applied (brand, price, niche, local, etc.)
- The act of purchase happens in the physical world
- The user is reminded about competitors' propositions at the place of purchase
5. No economies of scale
Ops cost breaks down as follows:
- Charging (for electric vehicles)
All of these are highly proportional to local living cost. Local players might even have a slight advantage thanks to the higher focus on their market.
The bike industry is super optimised for small orders. The cost is not going to be -much- cheaper if you order millions of bikes. There are economies of scale to a degree, but they are asymptotic. The scale of bike sharing and scooter sharing is just way way beyond the inflection point.
You can place orders as small as 100 bikes. Beyond 1000 bikes it’s almost impossible to get the price meaningfully lower. The average cost of a good shared-bike is 200$.
This means within a given market/city big players have no cost advantage over small players.
6. Last mover advantage
A year ago, we were all under the impression that there was some first mover advantage like for ride hailing. Turns out: (1) it’s not the case, (2) there is even a last mover advantage.
Let me explain.
Bike design advantage: New entrants can get inspired by incumbents bikes or/and work with the same suppliers. They learn from others' mistakes and tend to have nicer bikes.
Merchandising advantage: When you put out new bikes on the market, all the bikes are arranged in big groups looking sharp, shiny and most importantly not broken. At the same time, incumbent bikes can sometimes be dirty and messy.
Novelty advantage: bikes and scooters are fun and exciting. When something new pops out, whether it’s an entirely new scheme, or simply a new model of bikes from an existing scheme, people will inevitably be attracted by the novelty and will try them out. Remember, it’s a retail market — people want the new thing.
In the end, any new entrant will get usage right away, even more so if several other players are already operating. This is what we saw in Oxford when Mobike started several months after both pony and ofo. They dropped their shiny, new bikes by the station, and just like the pony bikes a few weeks before, they were all taken by users within half a day.
We are also seeing it happening in China as we speak, as new player Hello Bikes is becoming a leader on markets previously dominated by ofo and Mobike.
There is no moat (CAC 0, small MOQ, no economy of scale, no network effect, no first mover advantage)
Yet, nothing has ever been closer to finding the golden goose: put some ‘birds’ or ‘ponies’ or ‘limes’ out there and they'll literally eat miles and lay gold for you.
There is no point in questioning whether it’s worth investing in golden geese.
The question is: are you going to be able to protect your geese?
(more on this on our next post 😊)