Commentary: Lessons from the fall of once-mighty bike-sharing giants
There is hope yet for last-mile mobility. E-scooter companies would be wise to adopt a different business model instead of attempting to scale up rapidly, says one NUS Business School professor.
SINGAPORE: The sharing economy has pervaded many aspects of our lives, and is probably here to stay, with goods, assets and services being shared and rented.
However, the bike-sharing sector, with an initial strong growth momentum and proliferation of players, has met with new headwinds and fresh challenges in the last two years.
Still, recent news that Ofo, one of the sector’s pioneers and most dominant player, is facing potential bankruptcy, came as a surprise to many.
Earlier this year, news report detailed how oBike wound up operations in Singapore after citing massive difficulties as it brushed up against regulatory crackdowns on the proliferation of bikes in other cities such as London, Taipei and Melbourne – but Ofo had remained exuberant about its prospects to meet new Land Transport Authority requirements for shared bikes.
BIKE-SHARING COMPANIES OWN ASSETS WHICH INCUR COSTS
On the surface, the challenges faced by these bike-sharing companies are probably no different from the typical challenges faced by start-ups.
Innovative technologies or business models attract newcomers and followers, and with a larger number of players, there would inevitably be a winnowing process as the industry consolidates to a few dominant players.
Much has been made of platform businesses such as Facebook and Google where IT and mobile apps allow companies to acquire massive networks of users exponentially without a corresponding increase in cost, thereby boosting their value and profitability.
However, bike-sharing companies are also asset-based companies, which experience additional challenges in operations.
The sharing of assets on a platform, in this case, bicycles, involve the use of physical assets. Unlike sharing platforms like Uber and Airbnb, where companies earn off users renting out their assets, the bicycles are owned by a bike-sharing company.
This means that the company has to deal with issues of asset ownership and management, including capital investment, inventory tracking, and maintenance and repair.
Additionally, bicycles are not always positioned in the right places, limiting how responsive supply can react relative to demand. Bikes need to be relocated and moved around manually.
COSTS CAN INCREASE EXPONENTIALLY
For bike-sharing companies, operational requirements led to additional costs. If not planned or optimised, a bike-sharing company’s cost structure can rapidly escalate without enough economies of scale to move bikes around affordably.
If the company attempts to scrimp on these, customer service will suffer, eroding their user base.
Bicycles, unlike cars, do not travel far. Their biggest use is likely to be in cities, for short transits between city locations particularly subway stops, saving users the inconvenience of driving in crowded areas, yet still enabling them to move faster than walking can.
But bicycles parked haphazardly on the pavement can become an eyesore, with some cities having introduced rules and ordinances for proper parking and storage of bicycles.
These regulations, which aim to manage the negative externalities of bike-sharing operations add to the sector’s operating costs - as bike-sharing companies then have to invest in the parking, stowage and pickup of bicycles.
DAMAGE AND PILFERAGE
There is inevitably wear and tear on bikes as they get used, and are exposed to the elements. On top of that, pilferage or just plain vandalism might be a factor in some cities.
These add up again to higher operating costs for repair and replacement. If there is no proper inventory tracking system, bike-sharing companies will suffer substantial losses.
According to the Financial Times in June 2017, Wukong Bicycle, one of the first bike-sharing companies in China to close down, lost 90 per cent of its bicycles to theft over six-and-half months.
In some ways, the vast proliferation of bike-sharing makes companies victims of their success. The more the bikes are used, the more they are out there parked on the streets, and therefore the greater the social backlash they generate, with regulatory authorities more likely to step in.
Although not factored in at the start, they suffer rapidly growing costs of operations and compliance as their business volume surges.
LESSONS FOR E-SCOOTER COMPANIES
The next wave of last-mile mobility, which might involve the use of e-scooters, will have to consider these operational and regulatory issues in their business models, to be successful.
E-scooter batteries have to be charged regularly, so companies in this space must factor in plans to tap on a user base and the need to build infrastructure to ensure that e-scooters are and can be regularly charged.
The bike-sharing sector’s fixated on swift consumer acquisition, which might have led to their downfall. Learning from this, e-scooter companies will do well to consider an initial gradual customer acquisition approach, scaling up more rapidly as companies gain more experience and information.
But the problem is that start-ups often come under huge pressure to grow speedily when many venture capital models focus on traditional network economics measures of potential including the start-up's user base and growth in active users.
Although investors also look at the number of cities or countries start-ups plan to enter, these are less applicable for the bike-sharing sector as each city’s operation is relatively self-contained.
While insights into usage patterns and IT systems can be transferable, there may be minimal synergies in the sharing of operational cost across cities.
E-scooter operators also need to remember that satisfying a user base spread over a large area (e.g. across Singapore) might be more costly than satisfying a user base concentrated in a smaller locality (e.g. like Tampines).
E-scooters should also be seen in the context of complementing and enhancing the overall transportation network, for example, in linking MRT stations and bus terminals to office areas and housing estates.
Data that illuminate consumer patterns will be key to ensuring its value proposition and the sustainability of its business.
The company should plan out and adapt its operating processes, analyse consumer information together with journeys taken and timing, and work out how best to optimise its positioning of e-scooters and electrical charging points, based on the usage patterns gleaned through operations.
With information on demand, the company is in a better position to optimise its pricing models based on different periods of the day, week and month, and according to demand for each location.
Starting with an area-by-area approach, or city-by-city approach, allows it to build up economies of scale.
The widespread proliferation of bike-sharing services and their sharp decline in Singapore offers lessons for policymakers and companies looking to solve Singapore’s last-mile transport puzzle.
If e-scooter companies and the investors backing them up avoid the temptation of rapidly scaling up for market share, and focus on consumer retention and a sustainable business model, the city-state has a shot at better last-mile transport mobility.
Goh Puay Guan is an associate professor in the Department of Analytics & Operations at the National University of Singapore (NUS) Business School.