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?"

It's not about the data: Mina Nada, Mobike's general manager for south-east Asia, Australia and New Zealand, says the company makes its money through rides. Louise Kennerley

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.'"

Mobike's Mina Nada says enforcing compulsory parking spots defeats the whole purpose of dockless bikes. Louise Kennerley

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.

Dockless bikes on Australian streets are eliciting a mixed response. Peter Braig

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.

Contractors collect oBikes from the Yarra River in 2017. Joe Armao


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.


Free-floating: oBikes parked in a Melbourne street. Jason South

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.

Companies are reluctant to divulge how much the bikes cost them, but commonly reported estimates range between $60 for an Ofo bike and between $200-400 for a Mobike.

As for profitability from bike trips in Australia, that's hard to ascertain. Figures released by Ofo, Mobike and oBike to local councils show that 142,073 registered users made 390,147 trips in Sydney during January and February 2018 – an average of 6612 trips per day.


The majority of Mobike's business is currently leisure riding on the weekend. "Once bike share gets to a certain degree of density then 80 per cent of the business becomes commuter oriented," says Nada. "But that only happens when you know there'll be a bike within a couple of minutes of leaving the office."

Going nowhere: impounded Chinese share bikes seized in Shenzhen. Blanches

How many Mobikes are operating in Sydney? Nada is coy when it comes to a figure – they launched with 500 in November, and since then have "been scaling up the number in response to demand".

By way of comparison, the Gold Coast operation – a tender with the city council – launched in February with 350 bikes and that's going up to 2000 by the start of May, says Nada.

Investing users' security deposits

Former Melbourne lord mayor Robert Doyle has suggested that dockless bikes are a way to generate enormous amounts of venture capital: "It's essentially money to play the stock markets," he says.

This might be true in China, which has an estimated 200 million registered riders and security deposits of $40 (Ofo) and $61 (Mobike), providing billions of dollars for each company to play with. But in Australia, Ofo and Mobike have security deposits of $0 and $1 respectively. Asked if Mobike has any future intention of increasing the deposit, Nada says, "I'm not really baking it into my forecasts. The deposits have been a handy windfall, but in Western markets it's not something we're relying on."

Ofo gave a more definitive answer: "No."


Advertising

While on-bike and in-app advertising has been posited as a revenue stream, it would seem to be a minor factor in the mix.

Tired of jammed buses and tight security checks at subway stations, Beijing commuters have flocked to share bikes. Sanghee Liu

Cluttering an app that needs to be functional does not make for good user experience, and Ofo has stated it has no intention of using push notifications to deliver location-specific targeted ads.

On-bike advertising is a more likely proposition in the future, and one Ofo hasn't ruled out. "We are open to partnerships," says a spokesperson, although "there are no current plans to do so".

Something similar to Lipton Iced Tea's sponsorship of Brisbane's CityCycle scheme (which is run by outdoor advertising multinational JCDecaux) might be worth in the vicinity of $50,000 for a year's worth of sponsorship on 2000 bikes.

"In the long term it can potentially be an avenue," Mobike's Nada says of on-bike advertising, although he adds, "it's not something that I foresee us doing in any meaningful way in the next couple of years".

What excites Nada more in the long term is marketing for local businesses. "We've already done this in Shanghai, where stores appear in our app as Mobike hubs, and if you park there you get a 20 per cent discount on purchasing in-store. So potentially we can become an avenue for bricks-and-mortar advertising.


"So it's not about data harvesting," adds Nada. "It's more about incentivising people to move in particular directions [and giving] local businesses an opportunity to advertise more effectively in the online space."

Three future bike-share trends

In the short term, it seems that bike hire is the chief income stream for local DBOs, with the possibility of advertising playing a part further down the track.

Is that enough to put these businesses into the black?

Shared dockless bikes are part of the mass transport matrix. Supplied

Before writing off the dockless bike sector as a bubble that will burst, it needs to be considered that DBOs – or their backers – are taking the long view, and using dockless bikes as loss leaders in the early land-grab skirmishes of a much bigger turf war.

Market consolidation

Mobike and Ofo control 90 per cent of the market in China. They benefit from backers with extremely deep pockets: Mobike is now owned by Meituan-Dianping, which is in turn backed by Chinese social media and gaming titan Tencent, while Ofo is backed by e-commerce giant Alibaba. This has allowed them to edge out smaller, poorer competitors.


"In order to one-up each other they just give out free rides," says Angus McDonald, the founder of Airbike, a micro-scale Sydney DBO. After seeing the burgeoning dockless bike sector in action while on a scholarship in China, he launched a pilot program with 50 bikes at Sydney University in September 2017.

"It's a bit like when Qantas and Virgin had a price war," adds McDonald. "They were both losing money hand over fist, targeting the same market, trying to build capacity."

"The winner-takes-all outcome is what happens to almost all internet companies in China," Chen Lin, an assistant professor of marketing in Shanghai, told the Financial Times. "The size of China's market means that the benefits of creating a large network are even more important, and that gives bigger companies an advantage."

No doubt we will see what has already happened in China play out in the Australian market, as smaller DBOs fall by the wayside.

"You might have noticed that all the players are starting to give way on price," says Mobike's Nada. "So as different players start to feel the pressure on their finances I think that's what's going to really move the needle."

Docked bike schemes like Melbourne Bike Share are expensive to run and often require government subsidies. MAL FAIRCLOUGH

As of April, Mobike's app has been downloaded 73,000 times, though it's unclear how many are active users. App analytics company App Annie estimates that Mobike's current market share in Australia is about 50 per cent, with Ofo's nudging 28 per cent.

In contrast, Reddy Go sits at less than 3 per cent, while oBike's share is about 20 per cent.


Perhaps sensing they are losing ground in China and elsewhere to Mobike and Ofo, oBike is now pivoting into sales with the launch of its EVS e-bike.

As lesser competitors drop out, what's shaping up in China – and potentially around the globe – is a battle between tech giants looking to position themselves as major players in the transport and product aggregation sectors.

The future of mass transport

Efficient modes of public transport will be one of the key factors in maintaining social cohesion as cities around the world face the demands of growing populations.

Transport for NSW's Future Transport Strategy 2056 paper foresees a future where people are less likely to have a driver's licence, relying instead on multimodal transport networks that involve a mix of modes – rail, bus, ferry, bicycle – under the auspices of the same transport carrier (or via contracted sub-carriers).

Corporate behemoths such as Alibaba and Tencent, backers of Ofo and Mobike respectively, are seeing the same thing, and positioning themselves to fulfil this role.

John Lennon and Yoko Ono at their Bed-In for Peace at the Amsterdam Hilton: the first-ever bicycle share scheme launched in the city in 1965. UPI

As Ofo tells AFR Weekend, "In the near future, we envision bike-sharing services as central hubs connecting riders to net-based resources via the Internet of Things (IoT) and creating a data-driven ecosystem.


"Beyond integrating with smartphones, bike sharing also has the potential to work with larger regional transit systems, their smart cards and other IoT devices, for greater transportation solution synergy, especially in overcoming 'last-mile' challenges."

We are in the midst of a transport revolution – driverless cars, autonomous trucks, delivery drones – and mass transit modes are not immune to this. The legacy 19th-century transportation model that focuses on the organisation of the railways is being supplanted by a 21st-century model that thinks about servicing the individual customer. It's known in transportation jargon as mobility as a service (MaaS).

Future Transport Strategy 2056 elaborates on MaaS: "The future of mobility is customer-focused, data-enabled and dynamic. Personal mobility packages will bundle traditional modes with technology platforms and new service offerings like on-demand, car share, ride share and smart parking."

The 2056 strategy aims "to make walking or cycling the transport choice for short trips – those that are under two kilometres", and DBOs are in a prime position to address the "first and last mile" problem, the traditional stumbling block of public transportation.

Smartphones will be the gateway for each journey, allowing customers to plan for their multimodal journeys via a single interface, paid for by a subscription service that communicates directly with customers.

"Transport has been mainstreamed into the digital economy," says transport policy expert Shannon Kelly. "People think, 'I get my movie tickets online, I do everything online by my phone. And I just want transport to be exactly the same as everything else.' Bike share really fits that app-based model."

Another mode that we can expect to see more of in the near future is the e-bike. Both Ofo and Mobike are now running trials in China, with the ultimate aim of rolling them out globally, while Uber acquired US dockless electric-bike operator Jump Bikes for close to $US200 million on April 9.

But the diversification of transport modes doesn't stop there. "Ofo is happy to adopt any methods to enrich our solutions for easing the urban transportation pressure," says a company spokesperson.


What could "any methods" look like? Car share is one. On December 29, 2017, Mobike launched an electric-car-share service. Then there's the infrastructure that goes along with that, says Kelly: "Charging points and all of the different ways that you can set that system up. They want to be transport providers, and not just with bikes. They're just … entrepreneurial."

Aggregation and bundling of products

Consider a DBO pondering that existential question that all businesses must ask themselves from time to time: "Who am I?" Are operators bike-share companies, data-gathering companies, mobile-outdoor advertiser companies or aggregated product bundling services?

"The data isn't the main driver," says Airbike's McDonald. "It's more strategic. If you're Alibaba, you want people to use Alipay, you want to control a method of use – and a method of use is bicycle sharing."

Alipay is the world's largest mobile payment platform, overtaking PayPal in 2013, with a 54 per cent share of China's $US5.5 trillion market in 2016. After entering the Japanese market in 2015, Alipay launched in the US, Canada and Singapore in 2017. In March 2018, a partnership with Australian payments provider Smartpay was announced that would see Alipay facilities in more than 25,000 retailers across Australia and New Zealand.

By backing Ofo, Alibaba might be burning through millions of dollars bankrolling an embryonic version of something that will be huge in 10 years' time, and inducting consumers around the world into its network.

And with a wide range of products and services in their stables, giant tech companies are positioning to aggregate and bundle products together. In China, Alibaba and Tencent are already going head-to-head on multiple fronts, including food delivery, where Alibaba's Ele.me is taking on Tencent's Meituan-Dianping. As their empires expand, both companies can integrate their various operations into a super app that delivers a range of services and products – bike share, car share, food delivery, digital payments – in the one ecosystem.

Kelly explains how this could potentially play out in the future. "It's like the bundling markets of internet and phone. You give them $80 a week, they give you access to all of your transport needs. Apart from the bike share, you're going to get 20 car-share trips a month, a good deal with the local mass transit provider, cheap home delivery – and you'll get a 10 per cent discount if you commit to a plan."


Ofo had this to say when asked if it has plans to diversify into "bundling" products, with bike hire being just one card in a suite of services: "It's early days, we're looking at a range of commercial options like any business does. No business can be idle and expect to stay in business."

Local and global implications

With the rapid expansion of DBOs on a global level, dockless bikes are at the pointy end of an ongoing battle between tech giants looking to become transport providers in a sector where lines between public and privatised systems are becoming increasingly blurred.

Not all the players now in Australia will last the distance. We can expect to see a consolidation of the local market to a duopoly – Ofo and Mobike, backed by Alibaba and Tencent respectively.

But more than just a new mode of transport, those colourful fleets of dockless bikes on the streets of Australian cities represent a sideshow skirmish in a much larger war, as these two Chinese tech giants play the long game for a major stake in an aggregated, global digital economy.

THE EVOLUTION OF BIKE SHARING

In the northern summer of 1965, Luud Schimmelpennink had a brainstorm. Frustrated with the "gaudiness and filth" of the "authoritarian" cars that were invading central Amsterdam, Schimmelpennink and his comrades from the Provo countercultural movement distributed 50 white-painted bicycles around the city for free.

The result of this first dockless bike scheme rings familiar. Those bicycles that weren't impounded by unsympathetic authorities ended up in canals or people's homes after a quick paint job.


But in the intervening 53 years, what Schimmelpennink intended as an anarchistic form of free public transportation has evolved into a global industry valued in the billions of dollars.

Following the initial failure of Amsterdam's "white bicycle plan", Schimmelpennink went on to advise on the setting up of the world's first large-scale urban bike-share scheme in Copenhagen in 1995.

Similar operations gradually spread throughout Europe. With the advent of smart technology and docking systems that required bikes to be picked up and returned to a series of lockable stations, viable schemes became more widespread, with Velib launching in Paris in 2007, London's "Boris bikes" in 2010, and New York's Citi Bike scheme in 2013.

It was this type of docked system that was the basis of the first citywide bike-share system in Australia, when Melbourne Bike Share launched in June 2010 (with the backing of the RACV), followed by Brisbane's CityCycle in September 2010. However, both of these subsidised schemes suffered from underutilisation, with many blaming Australia's strict helmets law for the lack of uptake.

Then, in June 2017, a new kid on the block appeared. The silver-and-yellow liveried oBikes launched in Melbourne, and Australia was introduced with a shock to the dockless bike.

Just two years earlier, a group of students from Peking University had launched Ofo – the first large-scale dockless bike scheme. It allowed users to simply jump on a nearby bicycle – no need to locate a docking station – and ride direct to their destination, with no worries about finding a dock to park it.

By August 2017, more than 30 operators had flooded the Chinese market and the streets of Beijing, Shanghai, Wuhan and Hangzhou were awash in a sea of primary-coloured bikes. The rush to corner the market led to an oversupply of bikes, resulting in the now familiar images of cluttered piles of bicycle graveyards.

Not content with the domestic Chinese market, the larger players moved into international markets, expanding to more than 250 cities around the world.


In the Anglosphere alone, Dallas, Seattle, Washington DC, San Diego, Toronto, London, Oxford and Manchester have all become battlegrounds for competing dockless bike operators, which in many cases have arrived as disruptors of traditional docked schemes.

Docked v dockless bikes

Danish urban design expert Mikael Colville-Andersen is scathing in his assessment of dockless bike schemes. "I am convinced they are a passing fad," he says. As the chief executive of Copenhagenize Design Co, which specialises in a human-centred approach to bicycle planning, Colville-Andersen favours the docked model. "It is a credible extension of public transport, not a Pokemon Go game."

However, docked bike systems are expensive and rarely turn a profit. An independent study into the establishment of a docked system in Sydney estimated the cost at $25 million for 3100 bicycles and 632 docking stations, with a best-case scenario of the scheme making 60¢ for every $1 spent, leaving government to make up the difference.

But profit is not the point, argues Colville-Andersen. "Docked bike share is like public transport – it is often subsidised, as it should be," he says. "It is less a corporate yardstick than an intelligent addition to the transport options in a city."

Transport policy expert Shannon Kelly sees room for both docked and dockless models. "You do have that struggle between the two models – the western European 'We'll decide where the bikes are and who can run them' docked systems, versus the east Asian 'Let's just put them out there and see what happens' model.

"But over time you will automatically end up with hubs and free-floating, because that's how travel patterns work. The universities, the CBD, the tourist places, will be massive trip generators, then the rest of the population gets dispersed. So it will be like the public transport system – intense-use patterns, and then scattering."