A general analysis of the bike-sharing opportunity in Australia
Bike sharing is a strong trend in the VC ecosystem currently. Originating in China and currently gaining popularity in the US, it builds upon the old system of having bike stations available for rent bit with a significant twist: when you arrive at your destination, you can simply drop the bike off wherever you want and move on.
The bikes do not have to be retrieved and returned at docks like they do in Melbourne’s City funded bike share. This is possible due to new technologies such as low energy Bluetooth, GPS and 2G wireless systems that allow for easy tracking, and integrated locks so they can be parked, securely, freestanding around the city.
These newer bike share companies in China distribute their product in urban areas where population density and traffic problems dwarf that of most US cities. Users can fire up an app to locate the nearest bike, and can use them easily for one way trips, locking them up wherever there’s free space to do so near their destination.
In China, Beijing based Ofo has raised more than $580 million from VC’s at a valuation north of $1B, and Shanghai based Mobike has raised $410 million at a similar valuation. Customers are riding 10 million times a day on these bikes, as compared to London’s old fashioned system which services 10 million rides a year.
Stateside has seen new competitors spring up, such as Social Bicycle (known as SoBi), Limebike and Spin, that hope to implement the same model. Top tier VC’s such as Atomico and a16z are placing their bets, and the cash laden Chinese companies are looking to expand to the US as well.
Naturally, the Australian region is not the top priority for these players, which leaves a potential opportunity for a local player to be the first to go to market and establish a brand in our region.
Australia has a small population relative to it’s large size, which means that density is less of an issue than in places such as Beijing, NY or Europe’s major capitals. This means that bike sharing may be less popular, since people may be quicker to drive around, and there are few places inaccessible to cars.
On the flip side, however, are major trends such as growing urbanisation, decreased car ownership among young people (in conjunction with the Uber effect), and increased environmental awareness that are all factors that would make bike sharing popular. Whilst it’s difficult to imagine a businessman hopping on a bike to cross town, it’s no feat to imagine a millennial gladly doing so. In addition, Australians have a cultural affinity for sports and the outdoors which could factor in as well.
Assessing a TAM is difficult when intending to create a new market. However, a rough estimate gives us a rosy scenario.Though the business models of the existing companies differ slightly, the average cost to users in the US is approximately $1 per half an hour of use. In China, the average cost is about 7 cents per half hour. It is more logical, however, to equate Australia with the US market. Ofo, the market leader, has about 45,000 bikes in Beijing, servicing a population of approximately 21.5 million people, and have 1.5 million rides (of half an hour) per day, for a ratio of 1 bike per 466 people, and 7% of the population using one of their bikes. Equating to a major Australian city such as Sydney, we’d have 300,000 people riding per day. With a conservative view of 100K rides a day in Sydney, you’d have daily revenues of 300K per day. Multiply that across all of Australia’s major cities (roughly, 2.5x), and you have $275M in revenue per year business!
Naturally, New Zealand can be factored in as well, along with other South East Asian countries that have not yet been targeted by the existing players. Bikes are low tech, cheap and do not depend on good roads and other such infrastructure, so they are attractive to emerging economies as well, as their popularity across China proves.
In China, the bikes are used as a last mile service. A commuter may take a train or bus to work, get off at the station, and travel the last mile by bike. The last mile has been a major logistics challenge for a long time. Amazon, the e-commerce behemoth, has been trailing drone deliveries as a tool to minimise this aspect.
As autonomous cars and the IOT take greater presence in our day to day life, bike sharing companies will be well placed to offer consumers the next generation of daily transport. Imagine autonomous electric bikes in major metropolis’s, transporting customers and packages. A bike sharing company with market share would be well placed to synthesise well with the main transportation platforms (Uber?) of the future.
Additionally, large amounts of data could be obtained about efficient routes and population movement. This data can be monetised. Another potential revenue stream could come from advertising in conjunction with the service.
Naturally, the initial capital to manufacture and maintain the bikes will be high. The cost of the technology used to power the model is being commoditised and therefore getting cheaper, but the rise of electric bikes makes things ambiguous.
The largest risk in Australia would be strict helmet laws, a feature that has severely hampered the popularity of the existing (return to station) bike systems in place in Melbourne and Brisbane. It may be possible to lobby the Government to change this law, especially where bikes travel at low velocities in congested cities and the risk of injury is lessened. Another tactic (pioneered by Uber) may be to encourage users to flout the law until a groundswell of popular support pushes the innovation forward.
In addition, there have been incidents in China where piles of bicycles have been left haphazardly around the cities, creating an unsafe and ugly environment. Some companies have used financial incentives to motivate customers to leave their bikes in safe locations, which may be helpful. In general, local governments have been unappreciative when startups begin servicing a city with large amounts of unregulated bicycles. This risk can be averted by working together with local authorities, or via the Uber tactic above.
The trend of bike sharing is growing, though it hasn’t hit Australia yet. Bearing in mind the information above, the potential is there for a large company to be built. Australian focused VC’s should lookout for potential companies that are attacking this space.
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