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Dockless share bikes are the frontline of a battle between Chinese tech giants

Australian Financial Review, 27 April 2018
On April 4, 2018, when news broke that a man had dumped a bicycle on lane one of the Sydney Harbour Bridge before scaling the superstructure and causing traffic chaos, the first thought in many a Sydneysider’s mind was: “I bet it was a share bike.” It turned out it wasn’t. But those water-cooler conversations spoke volumes about the city’s troubled relationship with dockless bikes.

Ever since June 2017, when Australia was initiated into the ever-growing global club of countries with dockless bike schemes, many residents of Melbourne, Sydney, Adelaide and the Gold Coast have developed something of an ambivalent attitude to this new transport option.

The appearance of these alien invaders has got people asking, where did they come from, why are they here – and how do their owners actually make money from them?

In answering those questions, AFR Weekend found that beneath the surface of the emerging dockless bike sector there are bigger forces at play: the evolving future of transport in our cities and a continuing clash between Chinese tech titans involving billions of dollars as they battle for market share in the digitised global economy.

Bike litter or moral panic?
There are now four dockless bike operators in Sydney – Reddy Go, oBike, Ofo and Mobike – with perhaps upwards of 5000 bikes on the streets of the CBD, eastern suburbs and inner west.

As in Melbourne, complaints about “bike litter” are myriad and show little sign of abating. Nine months after the first scheme launched in Sydney, an Inner West Courier reader grumbled about the 148 share bikes he spotted over the Easter weekend. In a related letter on the same page, a local councillor denounced her colleagues trying to “turn inner-west Sydney into a second Holland. The people of Sydney grew up with cars, the Dutch did not.”

This car-centric attitude is one that has prevailed in Australia for the past 70-odd years. Cars are an accepted part of the urban experience, even when they’re illegally parked across footpaths, driveways and shoulder lanes. Given dockless bikes have been with us for only nine months, it might take some time for people to get used to a new paradigm.

One Sydney-based transport policy expert wonders if the heated reaction to dockless bikes isn’t a moral panic. “How bad is it, really?” asks Shannon Kelly (whose name has been changed due to political sensitivities). “How many times have you fallen over a share bike? Compared to traffic congestion, lack of public transport, 50 pedestrians a year getting killed, how bad is it?”

Plenty of private, personal bikes are left on our streets secured to a fence, signpost or tree. So what is it about dockless bikes that instils such loathing?

An Ofo spokesperson says the company has “seen much higher levels of vandalism in Sydney than comparative markets overseas”, while oBikes have been dredged from the Yarra River on a regular basis since their first appearance in Melbourne in June 2017.

For some, a sense of disenchantment with the disruptive interlopers that have “dumped” bikes on their streets can lead to a nuanced form of vandalism.

“There’s no fear of consequence; there’s a sense that it’s actually justified,” says Kelly. “That’s where the civic conversation hasn’t really said, ‘What you’re doing is illegal.'”

Perhaps it’s not so much where the bike has been left, as who has left it there – not the last rider who used it, but the foreign company that owns it.

The parking problem
If you had a few million dollars in venture capital to burn and decided to start a dockless bike operation tomorrow, you probably could. In most Australian cities there is no official approval process, no need for community consultation.

It’s this lack of regulation that has so frustrated local councils in Sydney, and led them to call on the state government to take action on the matter.

One possible (if partial) solution to “bike litter” is geofencing, where a virtual geographic perimeter is created around a given area using the bike’s inbuilt GPS system and the user’s mobile phone. When a user enters or exits a geofenced area, a message can be sent to the user via the operator’s app.

Essentially, geofencing enables the creation of a virtual docking station without any physical hardware and allows dockless bike operators (DBOs) to reward or penalise users depending on how responsibly they’ve disposed of the bike.

Mobike, for one, does have geofenced hubs where people are incentivised to park. But Mina Nada, the company’s general manager for south-east Asia, Australia and New Zealand, argues, “If we push people into geofences where you can only park in this little area, it takes away all of the upside, the whole point of it.”

How do dockless bike operators make money?
One of the great mysteries surrounding dockless bikes is how their operators make money.

Given the cost of distributing (and redistributing) bikes and helmets and maintaining fleets in the face of high rates of vandalism and attrition, and low hire fees (typically about $2 per trip in Australia, but often free initially as competitors battle for market share), many struggle to see how a dockless bike scheme could break even, let alone turn a profit.

Such views are backed up by reports that Chinese group-buying website Meituan-Dianping assumed roughly $700 million in debt when it bought Mobike on April 4 for somewhere between $US2.7 billion ($3.55 billion) and $US3.4 billion in the biggest bike-share deal so far.

In Australia, Mobike’s Nada says, “It’s an expensive business to run. We’re still a start-up, we’re still not running profitably.”

However, there are much bigger forces at play in the dockless bike sector than short-term profits.

Many pundits have suggested DBOs have four potential revenue streams: bike rental fees, investing capital raised from security deposits, advertising on bikes and in apps, and selling data gathered from rides.

Before exploring the real reasons why dockless bikes are here, some myths need to be dispelled. First, it’s not about the data.

Data harvesting
Data harvesting has been proposed by many industry watchers as the main way DBOs hope to turn a profit in the long run, but every operator AFR Weekend spoke to insisted that on-selling data is not a revenue stream.

“We don’t make money through selling data,” says Nada.

Ofo also says it does not sell data. “It simply is not true. Our focus is trips-per-day-per-bike.”

While Reddy Go and oBike did not respond to requests for interviews, in October 2017 a spokesman for oBike told the ABC’s 7.30, “We don’t sell users’ data.”

Assuming operators were in the business of selling data, who would be interested in buying it? The most obvious customers for the type of data sets that dockless bikes create are government urban planners. However, DBOs are already providing this information for free in an effort to build bridges with local councils.

And even if a DBO did manage to find paying customers for its data, its value is debatable in the Australian market.

“Unless data is highly differentiated, scalable and useful to other businesses or sectors, it’s got questionable spectrum appeal and therefore value,” says Claire Lawler, director of product commercialisation at Fairfax Media (owner of AFR Weekend).

“Apart from the trip information, all you’re getting is basic demographic data, and that’s readily available,” says Lawler. “If there was a synergy between this bike-share data and something else in people’s lives, that kind of a merger might be attractive down the line. But I don’t know what that would look like.”

Bike hire fees
In Australia at least, Nada says Mobike aims to run profitably through charging people to cycle the bikes.

An Ofo spokesperson says: “If the bikes move a number of times a day, then the model is profitable.”

“We make money through rides,” says Nada. “We take into account what our capital costs are for bringing the bikes in, plus the ongoing operations costs. We’ve done the numbers and we’re in this market because we’re confident that we can make money on X trips per day.”

And how many is X?

While Ofo refused to name a figure, Nada was more open. “One ride per bike per day is enough to be profitable … at a sufficient scale. Obviously there are scale benefits in this game.”

This is certainly the case in China, where Mobike has more than 9 million bikes and 200 million registered users who make 30 million daily trips. That’s roughly 3.3 trips at 1 yuan (20¢) each per bike per day. A quick back-of-the-envelope calculation makes that a total of $6.57 billion a year.