Venture Capitalists Don’t Ride Bicycles

I tried many dock and dock-less bicycles and travelled in Asia and to San Francisco to learn everything there is to know about booming dockless bike-sharing economy making it’s way from China to America. Here’s what I found.

Confiscated bikes seen in China. Photo: VCG via Getty Images

A few fellow entrepreneurs who talked to me know that I’m very excited about the future of sharing economy. First, I was in the sceptic camp, but then I have learned to live and embrace the brave new world of shared economy.

Which brings me to the onslaught of shared dockless bicycle networks, that have cropped everywhere — from Seattle to Shenzhen. And that’s where the problem is.

In Shenzhen, by some estimates, more than half a million bikes have been deployed, which created pile of bikes, and dozens of companies have flooded streets with shared bikes, with some, like Bluegogo, deploying 70,000 bikes in just one month. That massively opened a flood of bikes, creating literally piles of bicycles, thrown on top of each other. When I visited Shenzhen last month, I saw bikes in ditches, in piles, and routinely thrown around by security guards near shopping malls and subway stations. Instead of public utility, those bicycles now represent a public nuisance in a fast growing city of 12 million people.

A pile of bicycles in Shenzhen. Many security guards around stations and buildings in Shenzhen would throw bicycles into piles, because they would block entrances and pathways.

That is different from Spin deploying 500 bikes in Seattle. By taking a measured approach and appearing in cities where former, dock-enabled, bike sharing program has failed and has been shuttered, allows greater utility to the public.

But dock-less bicycles, despite incredible hype and attention, do suffer from major drawbacks, when compared to dock bike systems.

Dockless bikes that I have tested, like ofo, Mobike, oBike, have considerable construction drawbacks.

When compared to a dock bike sharing, like YouBike in Taiwan, Citi Bike in New York, or Toronto Bike Share in, of course, Toronto, quality gap becomes apparent.

A smaller pile of bicycles I found on the construction site, away from any people who might look for them. Photo by Evgeny Tchebotarev.

Dockless bikes are designed for a shorter rider. Even though some bike-sharing system claim (on Wikipedia and news articles) that they have gears, most, if not all, are single gear bicycles, so cycling is harder. The bikes are designed to be vandal-proof, and this means frame is heavier, and controls, like brakes, are harder to use.

Most dockless bikes come with a smart lock (which costs for around $30–40 USD on Alibaba), that comes with Bluetooth and GPS, allowing remote unlock. Unlocking bike usually takes 5–7 seconds, and locking, at least on oBike, can often be buggy and may not register 100% of the time, making user experience flawed.

All dockless bicycles work on the similar system, so no wander you can buy a whole white-label system from China, where you get smart locks, an app, and a ready set of servers for cloud management of your fleet. This is “deploy your bicycle sharing as a service”.

To sign up for a dockless bike, any user has to provide a deposit via the app. In case of Chinese companies, it’s around 299 RMB ($45 USD), and in case of oBike in Taiwan, it’s 900 NTD ($30 USD), which feels like a serious detriment to sign up for multiple bike systems, because while the single ride can cost as little as 6 cents (that’s 15 min ride with oBike), paying a $30 deposit seems disproportionately high.

Some systems, like ofo, have built bikes to be extremely frugal, so an ofo bike might cost just $36 (after deploying more than 6 million bicycles, ofo has recently introduced costlier bicycles, paired with a higher fee), compared to $100–150 for a regular dockless bike (even though Mobike premium bike apparently costs $400, which is hard to believe, given it’s made in China by a Chinese firm), but come with just a manual combination lock, where the code is revealed once a QR code is scanned.

A dock bike, similar to the one built by Giant for YouBike system in Taiwan, costs around $330 USD, but comes with a much better build quality — 3 gear system, better brakes, and generally higher quality materials, such as handlebars, pedals, and a seat. A dock system, in this case, is used to protect idling bicycle, unlike a dockless system.

Bikes piling up near skyscraper in Shenzhen. Photo by Evgeny Tchebotarev.

The investment in higher quality build means less bikes are broken, leaving customers frustrated, and less maintenance per hour of riding required.

In cities with some hills, using dockless bikes represents a significant challenge — absence of gear shift means you either walk the bike uphill, or just leave it behind.

Dockless bikes also suffer from a unique challenge, when compared to the dock bikes. When left on a stand they tend to fall more often, resulting in damage and requiring servicing more often than dock bikes, where the dock acts as a “safe harbour”. In my own usage, a solid 20% of dockless bikes had flaws, whereas dock bike systems are generally maintained better and are somewhat safeguarded by the dock itself.

Dockless bikes are starting to get a bad rep with the local city governments in the way they deploy their fleet. In countries around Asia, for example in Taipei, dockless bikes were introduced overnight, just by having a team deploying a fleet of a few hundred bicycles around the city. No wonder, then, that the city ordered bikes out (they returned a few months later). In Austin, Texas, Spin bikes were launched and suspended by the city on the same day. In San Francisco, Bluegogo thought it was appropriate to pepper streets with bikes one morning. They also had to retreat when city has threatened legal action.

Shared bicycles near subway station in Shenzhen, with a few bikes dropped around. Photo by Evgeny Tchebotarev.

In China, initial deployment of bikes was unsupervised and uncontrolled. The cities, like Shanghai, had to adapt, by introducing areas for bicycle parking, and drawing guidelines for situations when bikes are left on sidewalks or in front of entrances (which still happens). Now, in cities around China, more than 50 million bikes have been deployed from more than 40 different companies, peppering public spaces with bikes of all the colours.

As sharing is picking up, it’s the big companies with years of political experience, that are able to bank on the trend. Ford Motor made an unusual entry to the Bay Area, by acquiring a ride-sharing startup, and introducing partnership with Motivate, making, for now, a largest fleet of shared bicycle for the Bay Area, with 7,000 bikes expected by next year (they also run a fleet of bicycles for New York with a Citi Bike branding with a total of 12,000 bicycles by end of 2017).

An oBike member in Taipei. The bikes are less comfortable than YouBike dock network due to smaller degree of seat adjustment, 1 gear and rough build quality. Photo by Evgeny Tchebotarev.

In cities, like Shenzhen, where it came down to extreme point of having dozen companies competing by flooding city with half a million bikes, the regulation will be coming quick — we will likely see bike companies requiring permits as to how many bikes they can deploy, with constant monitoring and adjustment of policies from authorities.

In Shanghai, the city was quick to introduce rules, created parking spots, and started monitoring the bike-sharing industry, including a proposed ban on more bikes in the city. As a positive effect, though, traffic congestion has seem to have fallen noticeably.

In other cities, like Taipei, where a YouBike is a city-run initiative (with a partnership of Taiwanese bike manufacturer Giant), dock have been installed and the program has been expanding, but often docks can be placed at a 10 min walk. So introducing a competitor, a dockless oBike, was a welcome sign, because consumers gain a choice — pick a lower quality oBike and go for a usually shorter ride, or walk to YouBike and enjoy a more comfortable ride, suitable for longer distances. At times, YouBike bicycles aren’t available, so a substitute, like oBike, fills the demand quiet nicely.

Hundreds of bikes around a subway station in Shenzhen. A security guard in the distance is throwing a bicycle away from the entrance. Photo by Evgeny Tchebotarev.

So in places like Toronto, which has a metro population of almost 6 million people, Toronto Bike Share, a dock-type bike sharing sponsored by the government, announced a major expansion in August, after which it will have just 2,750 bikes, and boasts just 9,500 active members (that’s just 0.15% of the population). A clear argument can be made that cities like Toronto (with a fairly flat downtown area) can be very conveniently served by one or several dockless bike systems. One such company, Dropbike, has launched a pilot this summer, but so far provided just 68 bicycles, utilizing similar system to ofo.

Shared bicycles, of course, don’t mean people will not be buying personal bicycles. But such systems provide better utilization and better utility, while being non-personal enough for people not to think of ownership in the same terms as they think about cars.

A path forward to bike sharing startups is not in competing head to head in free-for-all municipalities, but rather entering the markets where there is either defunct or ineffective public transit, or where existing bike sharing doesn’t serve the general public (like in Toronto, with just under 10,000 active members for a fourth-largest city in North America).

Focusing on those niche markets, bike-sharing players can dominate each specific city or town, often heading into second or third tier cities, and build a reliable network of bicycles, where competition simply can’t gain ground without an all out price war. In the end, this is a path toward sustainable, and profitable, future for many companies in this space.

Evgeny Tchebotarev is a founder of 11-million-photographers-strong community 500px, backed by Andreessen Horowitz (which is also an investor in bike-sharing company LimeBike); and currently helps other companies unlock 10x potential. He is usually based in Taipei, Taiwan.

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