Can cycle renting take off in India?

As Mobike, China's biggest bicycle sharing player, pedals its way to India, the question to ask is: are there enough takers?

Published: May 28, 2018

g_106157_bg_shutterstock_609554810_280x210.jpgImage: Shutterstock 
 
When Kunal Gupta shed 30 kilos after his three-month retreat at an ayurvedic ashram near Pune last year, he thought he had discovered the secret sauce to maintain shape. Unfortunately, Gupta’s confidence was punctured when the Mumbai-based businessman slipped back to his routine. “I lost weight in controlled environment. It was not real and sustainable,” he rues. Gupta has again ballooned to 120 kilos.
 
Cut to Delhi. Neha Sinha shares a similar experience, albeit in a different context. 
 
A graduate from Delhi University, Sinha was among the first ones to embrace Delhi Metro’s ambitious eco-friendly cycle sharing project launched in 2015. Three years down the line, Sinha finds few takers for cycles outside the campus area. “Delhi is the city of cars and bikes. There are few takers for cycles on rent,” laments Sinha, who is dismissive of the prospects of bicycle sharing startups in India.
 
“Experiments in a controlled environment—gated community or a campus—can’t survive outside,” she reckons. 
 
As Chinese bicycle sharing giant Mobike pedaled its way to India by hitting the road in Pune last week, it would be feverishly hoping for a different outcome than its homeland: Over 20 out of 77 bike-sharing startups shuttered, China’s vice-minister of the ministry of transportation Liu Xiaoming reportedly said in February this year. In fact, what’s more worrisome is the fact that out of five bike-sharing Chinese startups that went bankrupt last year, one happened to be the third-biggest.
 
China, once touted as the miracle market for bicycle sharing, is fast becoming graveyard for startups as mergers and acquisitions gather pace, and startups shutter at a feverish pace. Mobike, China’s biggest bicycle sharing fir, got sold to Meituan-Dianping in April this year. By the end of November last year, at least six well-known bike-sharing startups had reportedly shut down, and more than $150 million in deposits could not be refunded to users.
 
Jeffrey Towson, a private equity investor and professor at Peking University, in one of his blog posts in March last year—‘How hype and greed are ruining Chinese bike sharing’—diagnoses the problem. “Looking at the bike-sharing business in China today, you see a nice, attractive business being deluged with hype and money,” Towson wrote in his blog. But most importantly, he added, you also see a lot of very questionable, non-economic behaviour that will probably end badly, especially for certain companies and their investors.
 
Towson goes on to explain why the business of bike sharing doesn’t make any sense.
 
Firstly, prices, increasingly subsidized by investors, remain very low and are almost certainly unprofitable. Leading bike sharing companies such as Mobike and Ofo are carpet bombing China with hundreds of thousands of bikes, despite the still lingering questions about their business models’ ultimate profitability.
 
Secondly, this business has morphed into a competition based mostly on ability to raise capital. The other part of the problem, Towson pointed out, is the hype and confusion between bicycle-sharing and ride-sharing. This (bike sharing) is not a ride-sharing platform like Uber or Didi. This is a bicycle rental business with an app. There is no significant asset-sharing going on, like with Airbnb.
 
Explaining hype about the business, Towson floats his own theory: the brightly colored bikes are catchy to the eye and happen to be concentrated in the central business districts of Shanghai, Shenzhen and Beijing – exactly where investors and journalists spend their days.
 
Back home in India, Mark Lin, head of international operations at Mobike, stays bullish about cycle renting business.
 
“There is a clear need to strengthen the public transport system through a focus on sustainable modal share commute options,” Lin said in an email response to Forbes India. An environment-friendly commute option, bicycle sharing offers the right mobility fit towards the first mile/last mile and short distance commute, Lin asserted, adding that Mobike has over 9 million orange bicycles operating in over 200 cities across 16 countries.
 
Declining to comment on the difference between Chinese and Indian markets in terms of sustainability of the business model, Lin claimed that Mobike would succeed in India. “We have most advanced technology, which gives riders an incredibly convenient user experience,” he said, adding that Mobike would explore the option of venturing into more Indian cities over the next 18 months.
 
Lin’s enthusiasm notwithstanding, investors are skeptical about the business model. 
 
Prodded by the thought that cities are getting increasingly congested and anything that could reduce the pollution and improve the quality of traffic is worth exploring, Sandeep Murthy, partner at venture capital firm Lightbox, looked into the bike sharing space a few months ago. He first tried to figure out what would be needed to make the model work in India. Firstly, one needs local government buy-in to make the service truly work at scale. Secondly, dedicated bike lanes and space to park the bikes are crucial because without parking spots, service providers will always be at risk in terms of having their parking slots taken away or having to pay high rents.
 
“Without dedicated bike lanes, I worry that consumer adoption may be limited as it is not clear which segment of consumers will opt in to the service,” says Murthy, pointing out another dilemma of users: those that can afford to take a cab, buy a motorcycle or scooter may not trade down, and those that can’t, am not sure if the cost will be attractive enough for those who want to move up from bus and rickshaws.
 
While conceding that he has not looked at the economic model in detail, Murthy reckons that the business requires significant scale before one can bring the cost of the bikes down far enough to make the math work. “Also I am not sure how much of the bike cost can actually be managed down to a point where the yield on the capital will be attractive at the price points that the service would have to be offered at,” he says. 
 
In spite of the chinks in the business model and associated risks, Murthy avers that capital in India is willing to fund models that have worked elsewhere. “If a credible case can be made that over time the economics could work, then it is possible that investors will give entrepreneurs a chance to explore the space,” he adds.
 
Marketing experts too contend that making the cycle renting model work in India would be an extremely uphill ride. Reason: Cycle audience in India is either one who cycles for pleasure, hobby or exercise, and hence renting is not appealing to them; or the lower middle class who use it for commute needs.
 
“Both segments prefer to buy rather than rent,” says Ashita Aggarwal, head of marketing at SP Jain Institute of Management and Research. The low cost of cycles makes it probably more economical to buy than to rent, she says, adding that though biggies are taking a plunge into the segment, overall the business is not for India. “The market is neither psychologically nor economically ready for the same,” she signs off.

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