Recently when Bluegogo, a Chinese bikeshare company, announced plans for a Bay Area launch, public officials responded with a public smackdown. To the chagrin of public space managers, Bluegogo intended a repeat of their Chinese strategy; setting loose up to 100,000 bikes onto city streets, which would then become disorganized clutter on sidewalk racks. Citing this, city officials threatened to clip the company’s bikes and to, essentially, outlaw its operations. In response, Bluegogo resorted to a far more conservative operational model, but that hasn’t stopped the city from pursuing additional punitive measures, with the hopes of deterring copycats.

Bluegogo’s experience is indicative of a rough new landscape for bikeshare startups. Buoyed by runaway popularity in China, and backed by venture capital, these companies are planning ambitious market entries in North America and Europe. Having outgrown Chinese metropolises, major US cities, which are witnessing a prodigious growth in the popularity of the bike, seem like natural expansion targets.

The regulatory enviorment in the urban West, however, dramatically alters the operational models of these services. Unlike China, Western cities are far less permissive of streetscape clutter and are more likely to view bikeshare as a traditional form of public transportation, rather than a classic open market. In that vein, many cities have introduced official bikeshare franchises, which dramatically increase the barriers for non recognized operators.

Thousands of bikeshare bicycles litter the streets in Chinese cities

Generally speaking, there are five major hurdles that newcomers in this market will face:

Exclusive Operating Agreements Life Hard For Newcomers

New York, Washington and other large cities have franchised bikesharing and awarded them to a single operator, usually an established player like Motivate or B-Cycle. From a City Hall perspective, this ensures a robust, predictable bikeshare system that is tightly integrated with existing public transit facilities and largely responsive to the needs of the public.

For bikeshare entrepreneurs, however, the arrangement is toxic.

The selected operator for a city’s “official” bikeshare scheme has a access to a wide array of infrastructure and marketing tools. Not only will they be provided with access to city streets but sometimes additional funding to subsidize operations and transit interconnectivity.

The result is a strong, almost insurmountable network effect; users have little reason to chose an alternative.

An illustrative example can be found in Social Bikes, a New York based company that sought, and eventually lost, the exclusive franchise bid to Motivate (formerly Alta). The company then sought to supplement with the city’s official bikeshare service by providing bikes in underserved areas like Jersey City and Harlem, where Citibikes had yet to venture.

Billing itself as the “alternative to Citibike” the company seemed poised for success, especially as Citibike experienced a slew of early problems. Several major media outlets even wondered if its model was superior to Citibike. Yet, after the onslaught of marketing and press, Social Bicycles never gained substantial traction in the New York, while the official bikeshare system flourished.

On Street Stations Offer Substantial Competitive Advantages

Bikeshare systems based on on street stations have a few inherent advantages when compared to dockless systems like Spin and Bluegogo.

The most significant of these is visibility. In American bikeshare cities, the showy bikes are prominently displayed on sidewalks and in the streets themselves. Stations provide a permanent, fixed presence for the system, ensuring that customers never have to wonder where the nearest dock is. Stations also offer a superior marketing presence; seen in prominent locations, it quickly becomes clear to locals that the bikeshare system is a recognized part of the urban transportation landscape.

Dockless systems, like the ones that are trying to compete in San Francisco, typically offset this advantage by aiming for ubiquity; they distribute an overwhelming number of bikes to pubic bike racks around a city, many more times than what a station based system can offer. In practice, this makes the system much more flexible and versatile.

It also, however, leads to a lot more clutter. In Chinese cities, abandoned and vandalized sharing bikes litter the streets. This has given civic leaders in America and Europe cause for concern. These leaders are likely, as in San Francisco, to block this strategy forcing these companies to dramatically decrease the number of bikes and to use stations on private property, eliminating any competitive advantage.

Station based systems offer high visibility and a fixed point for which users can access and return bikes. Image via Peter T on Flikr

Public Investment in Official Franchises

Official franchisees often receive generous contributions from local governments, which make it difficult for new players to gain market traction. Divvy, Chicago’s official bikeshare system, received an initial investment of $30.5 million from the city, and posted a net loss of more than $100,000 for the first year of operation. Washington, DC covers the operating expenses of Capital Bikeshare, as well as capital costs related to expansion In New York, city officials aggressively worked to rescue the city’s popular bikeshare program after a rocky initial rollout.

Comparatively, bikeshare startups operate as unsubsidized competitors with limited financing. Municipalities can afford to subsidize their bikeshare programs despite operating losses, because their primary bottom line is policy based. Private operators cannot.

Strong, Established Operators

Today’s established players are stable, entrenched, well capitalized and experienced.

Motivate, the largest bikeshare operator in the world by number of trips, has over 700 employees and operates in eleven major markets including Washington, New York, Toronto, Melborne, Australia and Boston. It’s systems are massive, New York’s Citibike, which is undergoing an expansion, operates more than 605 stations and 10,000 bikes. The smaller systems in Boston and Washington each have more than 150 stations, with impressive numbers of daily riders.

Motivate is owned by real estate conglomerate Related Companies, which purchased the company in 2014.

B-Cycle, a smaller operator, was formed via a partnership between Trek Bicycles, Humana and  Crispin Porter + Bogusky. Today the company operates public-private partnership franchises in 37 markets including Philadelphia and Denver.

In Los Angeles, the Bikeshare is operated directly by the region’s transportation agency, Metro, allowing for even greater synergy between existing transportation infrastructures and the program. Users can even pay for bikeshare trips with their mass transit payment cards. Internationally, JCDecaux, the largest outdoor advertising conglomerate in the world, operates the Parisian bikeshare system.

Each of these firms has tremendous operational experience in Western urban spaces and, most importantly, in working with public agencies to build these schemes from the ground up.

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Seattle’s cancelled Pronto bikeshare program leaves a void that’s open for newcomers to fill Image via SounderBruce on Flikr

Sponsor Subsidized Business Models

Official bikeshare schemes, with their vast network of stations and high visibility, can further monetize by attracting large amounts of capital from sponsors. Citibike, has raised nearly $80 Million in commitments from Citibank and Mastercard, while the Ford Motor Company recently backed the Bay Area bikeshare scheme. In London, Santander pays nearly $8.7 million annually to sponsor that city’s bikeshare program and New Balance is a major sponsor of Boston’s program.

This capital is especially useful when accounting for the operational expenses that large systems incur. Larger systems must spend considerable human capital to “re-balance” bicycles around the city and to maintain stations.

Comparatively, the business model behind dockless operators is confined to user revenue and potentially drawing capital from leveraging user data. While large systems can attract sponsorship capital, dockless competitors are forced to carry the costs of system maintenance and transporting bikes, leaving them with an incentive to minimize such operations. Instead, these companies have opted to simply flood the market with more bikes, which can be produced in masse and are actually cheaper than hiring numerous vehicles and staff.

Underserved Markets Are Ripe With Opportunities

Despite the challenges, there are some opportunities for bikeshare startups, especially in underserved and smaller markets, where comprehensive systems have not yet established firm footholds.

Many cities have made only tepid commitments to bikeshare or lack systems altogether. Seattle, for example, recently announced that it would permanently end its bikeshare program, leaving a metropolitan region of more than 3 million with nothing. Seattle, like San Fransisco, has conditions and demographics that favor bikeshare, the city has an established cycling culture and has made substantial investments in bike related infrastructure.

With no official bikeshare franchisee, a user friendly startup could fill the void by providing a much needed service to the public. The operating model would still have to be refined, to avoid the prospect of cluttered bikes, but companies like Spin would be more likely to find an audience in Seattle City Hall than San Fransisco or New York.

The region’s outsized presence in technology, innovation and culture could also present a substantial stage that could be used to garner national attention.

In other cities like Charlotte, Denver and Oklahoma City bikeshare systems are largely confined to downtown areas and dense cores, with no expansion plans in sight. New entrants could gain considerable traction here by targeting university campuses and residential areas outside the central portion of the city.

Social Bicycles, the New York based company that once competed with Citibike for dominance in that market, found success in utilizing an underserved market strategy. After losing New York to Motivate, the company shifted focus to untapped, lower visibility regions and today operates in more than fifteen markets, including Orlando, Long Beach and Boise. Their diversified operations portfolio also includes campuses like University of Virginia and infrastructure sales to bikeshare systems operated by other entities.

There is a path forward for new bikeshare companies in the West, but simply dumping bikes in large cities and hoping for the best won’t profitability here.

Featured image via Mr. TinDC on Flikr

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