How do Seattle's bike share companies make money?
Seattle’s in the middle of a big bike share experiment, with bikes everywhere that you can rent for only a dollar.
It’s so cheap. So how do these companies make money?
I rent bike-share bikes often, to get to interviews in a hurry. When I rent a bike, I’m one of probably two to three people who will rent the bike in a day. That means the bike I rent will bring in a few dollars a day for the bike sharing company.
But these bikes cost the company around $300 apiece, according to an interview with the company’s president. And then there’s the overhead: The cost of replacing lost bikes and repairing vandalized bikes. The cost to send vans full of workers scurrying around to move bikes when people complain about how they’re parked.
It’s hard to see how $2-$3 a day pays for that.
But it doesn’t have to. Because investors are pouring money into bike share companies.
Take Limebike, for example: It’s raised $62 million from Silicon Valley investors such as basketball superstar Kevin Durant.
Then there’s Ofo, which owns the yellow bikes in Seattle. It’s received $1.3 billion from investors like Alibaba, which is Amazon’s equal in China.
It reminds me of the dotcom bubble of 1999. Back then, Seattle was full of companies without a clear path to profitability. Kozmo.com was one of them.
Kozmo delivered things like magazines and snacks by courier in under an hour, and it didn’t charge a delivery fee. This old ">Kozmo commercial may bring a smile to your face.
Kozmo did not make a lot of money. At the very end of its life, it managed to burp out a thin profit. Then it went down in the dotcom bust.
I brought my concern – that bike sharing is the Kozmo of today – to a bike share investor. Kyle Lui works for Silicon Valley based company DCM Ventures. It’s one of Limebike’s investors.
Lui said by focusing on just the user fees, I’m thinking about this wrong. “I think user fees are one part of the equation – and it’d be a substantial part of the equation …” But, he emphasized, there are plenty of other ways to make money. They could put company logos on bikes, for a price. They could convince companies to offer bike sharing memberships as a corporate perk. They could sell ad space on their apps.
Still, could these possibly be enough to justify the stampede of investors towards these companies? Even Uber announced last month it’s jumping into the bike sharing game.
Kyle Rowe, who works for Spin bikes (the orange bikes in Seattle), described another potential source of money for bike sharing companies: government subsidy. “Right now, there’s private investment … and trying to make it work without public dollars … that’s really exciting and one of the reasons I wanted to join and see if we can make it work, but —”
But bike shares also help cities solve a big problem: Getting people from bus stops and light rail stations to their doorsteps, the last mile of people’s commutes.
Maybe cities will be willing to pay bike shares to solve that problem someday. After all, Seattle used to subsidize Pronto – a bike share service that continually lost money. And it was designed on the old model where you had to park bikes at a bike station.
“The standard business model for station based bike shares, just like Seattle had, usually involved grant or local dollars subsidizing the capital equipment. It also had those local dollars subsidizing operations,” Rowe said.
So here’s another way to think about the green, orange and yellow bikes you see around town: They’re part of a giant, very expensive campaign to convince companies and governments that bikes are worth investing in.