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Bike sharing attracts investors despite abuse and stiff competition for users

Trinity Chua
Trinity Chua • 9 min read
Bike sharing attracts investors despite abuse and stiff competition for users
(Aug 21): Sean Tay now understands what it is like to be disrupted out of your business. His family runs 10 bicycle rental kiosks here — under the banner of Cycle Max — and has watched demand take a hit after bike-sharing companies Mobike, ofo and oBi
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(Aug 21): Sean Tay now understands what it is like to be disrupted out of your business. His family runs 10 bicycle rental kiosks here — under the banner of Cycle Max — and has watched demand take a hit after bike-sharing companies Mobike, ofo and oBike launched services across the island state. “We are sitting ducks if we don’t do something,” says 25-year-old Tay.

Earlier this month, the Tays rolled out a similar bicycle-sharing service with the help of Catalist-listed HDB repairs and maintenance company ISOTeam. Called SG Bike, the service is starting with 300 bicycles in Bukit Panjang on Aug 24, followed by 200 in Yishun and 500 in Sembawang. It is aiming for a user base of 50,000 by mid-2018. SG Bike has a paid-up capital of $1 million, with ISOTeam holding a 51% stake. Tay has a 27% stake, while his father Andy Tay owns 22%.

The Tays met ISOTeam while competing for a Land Transport Authority (LTA) shared-bike tender last year. The project was axed when Chinese bike-sharing companies entered the market. ISOTeam’s CEO Anthony Koh says he saw an opportunity to leverage his company’s connection with town councils and local authorities to deploy a system suitable for Singapore. Also, ISOTeam has experience building park connectors and bicycle lanes. The bikes were designed by the Tays.

But are the combined capabilities of ISOTeam and the Tays enough to pose a challenge to the well-funded Chinese bike-sharing players? Is bike sharing even a good business to get into, given the high rate of abuse?

In China, the sharing economy is booming. You can rent umbrellas, power banks and basketballs for a fee. But bicycles have been the country’s best sharing export. Specially built bikes allow users to rent a bike for $1 to $2 an hour using a mobile app, and then leave it anywhere. Two of the country’s largest bike-sharing players — Mobike and ofo — have established operations here. Mobike has even raised funds from Temasek Holdings-owned Vertex Ventures.

Today, there are four bike-sharing companies here, with a combined total of 300,000 bikes, vying for market share. There are also at least four e-scooter-sharing firms in Singapore. Use rates are climbing — oBike claims to have signed up 500,000 people as at March this year, with the number of rides tripling on a weekly basis. ofo says it is closing 10,000 trips a day and plans to have over 10,000 bikes by year-end. Scooter-sharing company Neuron has signed up about 2,000 users since it started in June.

Rising adoption — both here and in China — has fuelled massive rounds of investments. Mobike, which claims to be “the first and largest smart bike share”, recently raised US$600 million ($818.2 million) and is now valued at more than US$1 billion. In July, ofo raised US$700 million in a funding round that included Alibaba Group Holding, Hony Capital and Citic Private Equity. This is the largest amount raised in the bike-sharing industry so far. On Aug 16, oBike announced that it had raised US$45 million to expand globally.

But as adoption grows, problems are emerging with the sharing model. Seats and baskets have gone missing, while some bikes are left to idle in the middle of walkways. LTA has served 1,000 notices for indiscriminately parked shared bikes and impounded 278 bikes this year. A 14-year-old was arrested for throwing a shared bike off an HDB block, while one user was caught riding a bike onto a train platform.

Problem of urban societies
While bike shares lend themselves to dense and technologically savvy urban societies, they are also prone to abuse. “In urban societies, the prevailing norm is to mind your own business,” says Daniel Goh, associate professor at the National University of Singapore’s department of sociology. “Because most people do not personally know the people they meet on the street, they tend to avoid mutual surveillance.” It is also in urban areas that abusive behaviour is most likely to go unpunished. “Dockless or unregulated bike-sharing schemes provide greater opportunities for motivated persons to abuse the sharing bicycles, since the sharing vehicles are out there in the open for [use] and the abuser can easily get away with the act,” Goh adds.

Psychologist Joel Yang, who operates private practice Mind What Matters, says the public may not be keen to report abusers for selfish reasons. “This could be because such behaviours coincidentally benefit others. Parking in non-designated areas may mean that bicycles can be more readily accessible for them.”

Nevertheless, behaviour can be altered. Goh of NUS notes that while Japan is often praised for its clean public toilets, this was not to the credit of a civic-minded population. Rather, it was the result of costly surveillance technology and cleaning crews deployed by public and private entities. “We can only reduce the acts of deviance to a minimum by reducing the opportunities to commit them, through surveillance systems, disincentives and constant cleaning-up,” Goh says.

The bike-sharing companies have been experimenting with some options. oBike, which has the greatest number of bikes impounded among the bike- sharing companies, started a Credit Scoring System. Rule-abiding users enjoy a cheaper rate than those who misbehave. Mobike also plans to roll out a gamification feature, which was launched in China earlier this year. Some bikes will carry a “bounty” to motivate users to ride the bikes to preferred parking locations. Ofo is rolling out 100 preferred parking zones in public housing estates.

Newcomer SG Bike has come up with virtual docking stations to ensure cyclists return bikes to designated areas. A small, portable device that resembles a webcam is installed in areas that are suitable as parking lots such as HDB estates and MRT stations. The device lets users know where they can return their bikes and how many can fit into each so-called geozone. Users can locate these zones through the SG Bike app. The company also plans to penalise users between $2 and $5 if they park their bikes outside the geo-zones.

Another company testing geo-zones is scooter- sharing company Floatility, which has a 12-month contract with JTC Corp to deploy some 50 scooters in one-north. Floatility will continue charging users as long as they do not return their scooters to the geo-zones. Each zone is about 10 sq m. Founder Oliver Risse says: “We have always used geo-[zones]. But in other countries, the zone is an entire estate. This is new and very specific to Singapore because we know how the bike-sharing scheme went, with people dropping vehicles everywhere.”

Can shared bikes make money?
Curbing abuses will be important if bike-sharing companies are to make money. Even without rampant abuse, it is not clear whether the sharing model is profitable.

Each shared bicycle reportedly costs between $200 and $600. Because there is little other physical infrastructure, however, the companies do not need to incur high capital expenditures. “This can be quite a significant business if each bike makes $3 a day,” says Koh of ISOTeam. “It is scalable, and we can bring it overseas.” He expects SG Bike to break even in two years, on a usage rate of three users per bike per day. “The Singapore shared-bike user behaviour is not mature yet. Only 20% are using. This number will improve,” he notes.

Chua Kee Lock, CEO of Vertex Ventures, says bike sharing “is a very profitable model” under the right circumstances. “When Mobike started in a few cities, when no player tried to copy what it was doing, it had a very profitable business model,” he points out. Intense competition has seen players cutting prices for market share, resulting in high costs. But Chua is optimistic. “This is a temporary phenomenon. Ultimately, not all money can be raised. Certain players will run out of steam to raise funds and drop out. Once the [subsidies stop and competition dies out], the recurring component plus the revenue would make a lot of economic sense.”

Floatility expects to turn a profit by targeting niche markets such as business parks. “Our scooters use glass fibre reinforced composites, which can save manufacturing cost by 30% compared with using steel,” Risse says.

Industry watchers say bike-sharing companies could find other ways to generate profits. “This could include monetising subscriber data to enable retail and payment services,” says Lyon Poh, head of digital and innovation at KPMG Singapore. “Bike-sharing companies are expected to take advantage of registered users’ down payment as a cash float for other monetisation purposes.”

But some investors think the economics don’t make sense. “There’s no clear exit opportunity here, and there’s an outrageous amount of capital pouring into this scene such that it’s difficult to predict who will win or what drives any potential exit,” says Golden Gate Ventures principal Justin Hall. He adds that the quality of the service is very binary. “Either the customer or product did or did not reach its destination. If you can solve that problem, there’s very little room for additional innovation that would really set the different companies apart.”

“Issues such as maintenance, loss and additional manpower can eat into the slim margins,” says Damian Tan, managing director of Vickers Venture Partners. And while some investors may be hoping for a buyout from a bigger player in the future, VentureCraft’s CEO Isaac Ho says the small size of the market will limit valuations.

Bike sharing has been a boon for some businesses, though. Mobike has technology partnerships with the likes of Taiwanese manufacturer Foxconn Technology Co and digital security player Gemalto. M1 is in talks with a couple of bike-sharing companies as potential users of its recently launched narrowband Internet of Things network.

As the industry grows, there may be other benefits that are not obvious now. “The data harvested from the digital platforms of these sharing economy companies will benefit other industries within the ecosystem, including the bike manufacturing industry,” says Howie Sim, Asean transport industry leader for Accenture. “This can even extend to the scrap metal industry for the recycling of the bicycles’ materials.”

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