Suranga Chandratillake: Will bike-sharing schemes in cities wobble off course?

Suranga Chandratillake
Bike-sharing companies such as Mobike generate income from deposits and fees

Technology can change our lives rapidly. You would be surprised if you got on a bus today and didn’t see everyone buried in their smartphones, and yet the iPhone is just 11 years old.

In the same vein, do you remember London before bike-sharing schemes? It started with the Barclays Bikes (now Santander Cycles) but today you’re as likely to use one of their non-docking competitors like ofo, Mobike or Urbo.

Smartphones feel as though they’re here to stay, but what about bike-sharing schemes? Will they be here in 2028? Do their sums add up?

Today, bike-sharing companies generate (or hope to generate) income from four main sources:

1) The deposit: key to getting many of the Chinese-founded companies off the ground was a returnable security deposit that helped get fleets bought in the first place.

But with some deposits being over £100, people asked the valid question of why they don’t just buy a bike themselves. And, as more companies have appeared, competing on a lower deposit has become a key battleground.

This month Mobike responded to this competition by entirely dropping its deposit in mainland China and it feels just a matter of time before this dries up for the rest.

2) The fees: the maths here is fairly simple. Ofo costs 50p per 30 minutes. If the bikes are used for just an hour a day then that generates a healthy £365 a year which ought to cover the cost of a bike within a year’s operation.

The challenge is in the maintenance of the fleet, especially when vandalism is so high that some companies have pulled out of certain European cities.

At night, armies of workers for the companies spread out across the city, returning bikes left in out-of-the-way locations to key journey startpoints, fixing or replacing broken bikes and rescuing those left on lampposts, in canals or on train tracks. In all, bike-sharing companies struggle to run on a profit just based on the fees.

3) The investors: as the global venture capital markets get larger every year, there is a lot of investor interest in bike-sharing companies.

Mobike has raised a total of $900 million, ofo has raised over $2 billion. There’s nothing wrong with raising vast sums of capital to build a business but at some point, these companies have to run on their own steam and, with access to all this capital, it is difficult to know if they are actually self sustaining underneath the noise.

4) The data: During the dotcom boom, when all else failed, companies would describe their potential for future turnover by talking about “eyeballs”. The idea was that in an attention-centric economy, any time spent looking at a website would surely be worth something some day.

Today’s “eyeball” is data and the bike-sharing companies boast how they know exactly who is cycling from where to where in every key city on the planet. That does sound valuable, but mainly to other bike-sharing companies. Whether there are huge numbers of other customers who want to know people’s cycle routes is questionable.

Also, those sorts of buyers may want to know about when people walk or use buses, trains or cars too and other more generic transport apps like Citymapper or Google Maps have a much better grasp of that overall picture.

The economic case for bike sharing thus remains far from proven. Whether the Mobike or its rivals will be ubiquitous on our streets in 20 years’ time probably requires one firm to “win” each city, after which it will be able to charge slightly higher prices and a rational security deposit. That combined with long-lasting bikes should lead to profitability.

Unfortunately, it could take a while to get to this position. In that time, bike sharing as a concept may be disrupted. Regulation is one key concern; as Uber’s struggles in London and Airbnb’s in San Francisco have shown, cities can erect tough barriers to sharing-economy companies.

Meanwhile, new motorised transport methods like uberPool and Citymapper’s Smart Ride are creating cheaper ways to get around. And in 10 years’ time, surely self-driving drones - that pick us up one or two at a time and fly to wherever we need to get to - will be all the rage?

Suranga Chandratillake is a partner at Balderton Capital and previously founded blinkx, the video search engine.