Flying Electric Birds

A potential $150 MM investment into electric scooter sharer Bird is expected to make the company a unicorn, only the latest in the spate of investments into the bike sharing space.

The US market itself has seen incredible interest in the last 3 months, with LimeBike raising $70MM and JUMP being acquired by Uber.

The interesting trend here is that the US has been a follower to the Chinese market, with giant players in China like ofo (did you see the cycle?) raising a staggering $866MM last month.

What is going on and what does this portend for India?

The key problem that bike sharing is attempting to solve is final-mile transportation, where bikes help you get to places where cars can’t take you. In congested, polluted and/or densely populated areas, bikes even get you to places accessible to cars faster (take San Francisco for example).

The concept of bike sharing is not really something new (they have been around for 3 decades), but this scale is unprecedented.

The reasons why bike sharing has become so wildly popular today is threefold – easy to locate (mobile), easy to rent (mobile payments), easy to secure (GPS). By paying as little as $1 to rent, and $0.15/minute to use, one can utilize these at a pretty low cost.

It is little wonder San Francisco has gone ballistic with the unlimited scooters available on the road. 

India has seen its fair share of bike-sharing activity with Ola launching Pedal, ofo entering Pune and startups like Yulu kicking off.

Indian infrastructure is groaning, especially in cities like Bangalore and Mumbai where traffic is a nightmare. This definitely indicates that there is a transportation problem to be solved, so will it happen? It may be early days, but I am yet to see the kind of mass proliferation of bike sharing in India.

I believe it may boil down to 4Cs – connectivity, cost, culture and climate.

Connectivity for bikes is poor in India, with roads largely lacking the infrastructure for bikes while China/US have largely upgraded their infrastructure for bikes.

In terms of cost, while usage maybe cheap, the upfront deposit that is to be paid in India is higher due to the fear of theft, as an insurance. 

Culturally, bikes were discarded by Indians as cars are status symbols (and more comfortable), it is going to a definite change to get people cycling on the road.

As a tropical climate, versus SF/Shangai’s moderately temperate climate, heat and rain can make cycling a task (no wonder Bangalore and Pune are the two best options!). 

In terms of monetization and payback, which remain a question, most bike sharing services are charging ~15 INR per hour.

With reasonably priced cycles at ~4,500 INR, it will take 300 hours before just a cycle’s cost is recovered. Assuming 30 minutes a trip, it could take 600 trips before recovery, and with 2-3 rides a day – more than a year.

For a 2 year lifetime, daily depreciation works out to 4500/720 ~ INR 6, so the depreciation per ride could work out to 2 INR. Depreciation being the only “direct cost” to service, gross margin per ride could be 80% (10 – 2 = 8 INR gross margin).

With customer acquisition costs in India between 200-300, customer payback is 200/8 (CAC/GM) or 13 rides. These indicate a fairly high usage need for things to work out. 

All of these suggest the path to profitability for bike-sharing in India is one word: scale.

Whether we can overcome the hurdles to get there remains to be seen. 

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