By Rob Nikolewski The San Diego Union-Tribune
WWR Article Summary (tl;dr) Like Uber and Lyft, riders activate dockless bikes and scooters through their smartphones after downloading an app and get billed by credit card. When they're done, riders either push down a locking arm or tap "End Ride" on the app and the devices lock up.
The San Diego Union-Tribune
In just a matter of a few months, hundreds of dockless bicycles and scooters have appeared on the streets and sidewalks of San Diego.
Some have praised them as effective ways to get around town and reduce traffic congestion. Others have complained they clutter sidewalks and that too many riders don't follow the rules of the road, posing safety hazards to pedestrians.
But from a business perspective, the nascent industry raises a basic economic question: How do these companies expect to make a profit?
By last count, there are at least five dockless bike and scooter companies operating on San Diego streets and campuses and they offer their services at a deep discount.
Bike users can expect to pay just $1 per 30 minutes. Electric scooter company Bird charges $1 for the first hour and 15 cents per minute from there.
While that's great for consumers, can these companies make any money at such prices?
The firms say their costs are low and economies of scale help them slash the price of the bikes and scooters they purchase. One executive pointed out that if car-sharing services like Zipcar can make a go of it by offering driving rates at about $10 to $12 an hour, they can turn a profit at $1 for a half-hour.
Like Uber and Lyft, riders activate dockless bikes and scooters through their smartphones after downloading an app and get billed by credit card.
When they're done, riders either push down a locking arm or tap "End Ride" on the app and the devices lock up. Users don't have to return the bikes or scooters to docking bays; instead, they leave them on the sidewalk where other riders can use them.
Venture capital firms have hopped on for a ride.
Silicon Valley's Andreessen Horowitz and Section 32, the San Diego-based firm led by ex-CEO of Google Ventures Bill Maris, are among the investors who have put $132 million into LimeBike, one of the companies operating locally.
In a 1,450-word post on the Andreessen Horowitz website, company partner Jeff Jordan noted there are 8 million to 10 million shared bikes in China. "This kind of widespread, ubiquitous adoption has the potential to change human behaviors," Jordan said, "not to mention the face of the urban landscape."
But in China, where the dockless bike industry began from practically zero two years ago, at least two companies have gone broke in the past nine months.
Neither Ofo nor Mobike, China's two dominant dockless bike-sharing companies, are reported to be turning a profit.
The market has been so flooded that mountains of abandoned bicycles have formed on the city streets in China.
"To me, that's a powerful photo," said Sarah Catz, a lecturer at the Institute of Transportation Studies at UC Irvine. "I think when you talk in terms of can (companies) make money, the lesson there is you can't have a proliferation of these services.
"If in very dense areas in China it can't work, then how's it going to work in San Diego and LA and other such places? So I think cities need to be very mindful of not over-saturating the market."
What's the business plan?
The basic business model for these companies is simple -- get people to rent their bikes and scooters.
"It's pretty much ridership," said Sam Dreiman, Director of Strategic Development in San Diego for LimeBike, based in San Mateo.
Costs for bikes that are checked out and then returned at docking stations are expensive, estimated to be as high as $5,000 per bike, Jordan said.
Since dockless bikes and scooters skip that step, companies can trim expenses. "Our business costs are different," Dreiman said, "so we're able to offer our products at a more affordable rate. And because of their convenience, they're ridden more frequently."
With an eye on their competitors, companies are reluctant to discuss the numbers of bikes they have in circulation in San Diego -- as well as how many rides they have recorded so far and the number of users they need to rack up each month to survive.
There is no requirement the companies report their ridership numbers to the city since they are under the same requirements as any other private company with a business license.
LimeBike, however, did submit a report to the city in March that said it recorded more than 21,000 riders who took more than 55,000 trips in their first three weeks in the San Diego market.
Chris Taylor, Ofo's head of North America, told the Union-Tribune his company's bikes have logged more than 72,000 miles since launching its San Diego operations on March 12.
But a look at the venture capitalists making investments in these companies may offer some hints at other revenue streams.
It's been estimated Ofo has raised more than $1.2 billion from backers such as China's e-commerce retail giant Alibaba and Coatue, a U.S.-based hedge fund that invests in the tech sector. Mobike has reportedly attracted $900 million from investors like contract manufacturer Foxconn Technology Group in Taiwan and Tencent, the Chinese-based internet conglomerate.
That has led to speculation that customer data could be collected or shared, since the bikes and scooters are activated through riders' smartphones.
Such a prospect has taken on added attention in light of the Facebook controversy involving Cambridge Analytica that prompted an appearance last week before Congress by Facebook founder and CEO Mark Zuckerberg.
"I think that's very likely," Catz said. "There's so much data there and it's collected on your cell phone."
But representatives of companies operating in San Diego who spoke to the Union-Tribune said they have no plans to go that route.
"There are no other revenue streams we're interested in," said Travis VanderZanden, CEO and founder of scooter company Bird. "We think our business model is renting the vehicle. We think that's the best way to monetize the service. We will never advertise on the Birds and we would never share or sell customer data or anything silly like that."
LimeBike's Dreiman said ridership is "our primary revenue stream right now. We are exploring other revenue streams through partnerships, whether it's advertising or partnering with other private companies. But right now because ridership is actually quite high, we're able to run a sustainable business."
Ofo's Taylor said revenue in San Diego is coming "100 percent" from bike rentals. As far as data sharing, Taylor said, "That's not something we're interested in at this point."
Who will be left standing?
Dockless bike and scooter companies are not just a recent phenomenon in San Diego. They have suddenly popped up in cities across the country, mostly in densely populated urban areas and on college campuses.
The companies will battle it out and analysts expect a handful to survive.
The bigger companies will try to leverage lower per-unit costs to get an edge. Mobike, for example, says it operates more than 9 million bikes in 200 cities in 15 countries.
Ofo says it has 10 million bicycles in its global fleet and Taylor said each bike costs the company a little more than $200 each.
"The way I do the math is like this," Taylor said. "Zipcar is a profitable, mature business. You pay about $12 for a Zipcar. You pay $1 for an Ofo and an Ofo bike costs a couple hundred dollars. The ratio of $1 to a couple hundred dollars is way better than the ratio of $12 to the cost of tens of thousands of dollars per car. And we're able to pay off that asset through rides much faster in the life cycle than a company that does shared-car ownership."