Mobility Disruptors

Bike-sharing Startups Fight for Cyclists

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Utter chaos. Source: Reuters/Jason Lee

As bike sharing programs dominate two-wheeling traffic from Shanghai to Stuttgart and Paris to Pittsburgh, Europeans are keeping a weary eye on Chinese competitors overwhelming their streets.

Several Chinese startups have been making moves into the European market this summer. Where European and North American bike-sharing systems often receive public funding, the Chinese programs are purely commercial, funded by venture capital. Now industry observers are asking just how many bicycles the continent can support.

Many European municipalities are starting to focus on planning for multimodal mobility: Over the course of a week, residents use a combination of public trains or buses, taxis and personal cars, bicycles and walking. Future-focused transportation questions are often centered around the last mile, the distance between the nearest public transit stop and your home. It’s especially important outside of urban cores, where transit options thin out.

Just as Uber and car-sharing companies want to turn personal automobiles into public goods, the new bike-sharing startups imagine a future where you don’t need to own a bicycle because you can just rent one. “I believe that in 10 years, no one will buy personal bikes anymore. And bikes will become the first object that has no (private) ownership,” Dai Wei, the CEO of Chinese bike sharing leader ofo, said in an interview with Handelsblatt.

Germans love bikes, but China is crazy about bike sharing and Ofo, a Beijing-based bicycle-sharing company, has major international expansion plans. Right now, Ofo has 6.5 million bikes in more than 150 cities around the world and hopes to increase that number to 20 million by the end of this year, according to Frankfurter Allgemeine Zeitung. It has all the money it needs, having has raised $1.3 billion in eight rounds of funding, and its investors include ecommerce giant Alibaba and Uber competitor Didi Chuxing. Ofo is not alone: its rival Mobike, also of China, has more than 1 million bicycles in its system and has raised $928 million from investors including Tencent, Foxconn and Sequoia Capital. But the list of copycat competitors from Asia keeps growing: Obike, YoBike, OhBike, Getbike, LimeBike.

Public bike sharing programs are funded by user fees, sometimes local transportation budgets and advertising on the bicycles themselves. Unlike daily or weekly bike rentals, bike sharing is made for short trips. Many companies keep the bikes circulating by offering the first 30 minutes free.

While earlier incarnations used centrally located docks to corral bikes, the new generation of bike sharing uses smartphone apps and GPS tracking to go totally dockless. Traditional docks require permits from local authorities, but dockless bikes don’t.

With smartphones both locating and unlocking the bicycles, you can pick up or drop off your ride anywhere. In many major German cities, Leipzig-based NextBike and Deutsche Bahn’s Call a Bike are already competing. Cologne, Berlin and Munich are experimenting with hybrid bike-sharing systems where rides can end at a station or on a street corner.

“Bikes will become the first object that has no (private) ownership.”

Dai Wei, CEO, ofo, a Chinese bike-sharing company

The total number of bicycles in sharing programs worldwide hit 1 million in 2015; three-quarters of them were in China. Now the number is estimated at more than 12 million. China didn’t invent the dockless model, but they did perfect it. The lower costs of implementing a dockless system is attractive to cities – as are startups that offer to set up an entire bike sharing program with no municipal investment at all.

“It’s curious that the dockless systems are targeting cities that already have bike shares,” says Oliver O’Brien, a researcher at University College London. “You want to disrupt inefficient markets, not efficient ones.”

As newcomers crowd into the market, the way bike sharing works is evolving. Cities, hungry to get in on the bike-sharing act, are now launching dockless bike sharing models, but some are discovering the downsides.

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Docks optional. Source: Felix Zahn/dpa

“Cities that are trying to catch up see this as a quick fix,” says Paul Stratta, director of the European Cyclists’ Federation’s Platform for European Bicycle Sharing and Systems. But cities need to realize that they may end up paying in different ways – such needing to create more bicycle parking or impounding the damaged bikes abandoned on streets or in waterways. Amsterdam is banning dockless shared bikes as of September 1.

Those factors hit profits in an already hard-fought market. The Chinese startups “aren’t earning much money from it – it’s just about who has the most bikes in which city to assure the investors to keep giving them money,” says Mareike Rauchhaus of NextBike, founded in 2004 in Leipzig. But she does appreciate how the debate is overall a boost in recognition for bike sharing. Mr. Dai said he expects his company to turn a profit by the end of the year.

Compared to the Chinese companies, NextBike is small with around 40,000 bikes in 23 countries worldwide. But those ventures have involved close work with municipal governments and transit systems. “We’ve been fighting for years to create this landscape,” Ms. Rauchhaus says. “They’re coming like a big storm and could be gone just as quickly.” Those which survive might not necessarily be the best, she added. It would be much more useful, though perhaps less profitable, for the upstarts to tackle totally new markets, such as the rural regions that have no bike sharing programs at all.

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Bikes askew after the G20 protests in Hamburg. Source: Axel Heimken/dpa

The European Cyclists’ Federation says there is room in the market for competition, which drives innovation. Some cities have exclusivity contracts with the bike share operators, but that isn’t always the case.

To be successful, a sharing program needs a critical mass of bikes. Ofo initially put 20 bicycles in Cambridge, England, and just got approval to increase that number to 200. But the goal is 10,000 shared bikes for a city with a population of about 130,000. A surprise delivery of hundreds or even thousands of shared bikes isn’t a great strategy. Spin attempted this trick in Austin, Texas, where its bicycles were then impounded by local law enforcement. Obike recently placed hundreds of bikes in London only to have them snatched up by councils who found them a nuisance.

“People park them everywhere. It’s actually not our problem but the users’ problem, but the government said you have to make sure the bikes are in lines,” Mr. Dai says. “So we have to send people push messages and ask them to park the bike properly.”

If you know anything about Germany, it should be that order rules. The cavalier attitude of dockless bike share operators won’t inspire enthusiasm in a city like Munich, where two bike sharing programs are already in place and a reported additional four Chinese startups aim to join in.

Stephan Scheuer contributed to this report. Grace Dobush is an editor with Handelsblatt Global. To contact the author: grace.dobush@gmail.com

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