Saturday 12 July 2014

Creating a better for-profit P2P bike sharing service

Summary: Many startups want to be the Airbnb of bike sharing by unlocking the value of underutilised bikes. However, the margins and market are small and a successful, sustained service will need to limit insurance and overheads, target low-cost, robust bikes, and not unfairly transfer liabilities and responsibilities via its terms and conditions. This post provides advice based primarily on my experience renting bikes via Spinlister.

Spinlister - How it works

Related Posts:
> How renters and listers should use P2P bike sharing services

1. P2P Bike Sharing services
Spinlister, > Bzike

2. There is little profit-making potential in P2P bike sharing services
- I think the profit potential is very limited and there is definitely no comparison to Airbnb. The typical cost of a bike rental might be $20/day. Spinlister's fees are 30%. A few dollars per bike per day just won't add up to much given the actual size of the market. See: Fast Company: When it comes to sharing startups the Airbnb model doesn't work for everyone
Not every category is a natural for sharing... Punsri Abeywickrema, a former LinkedIn software engineer founded an online rental company called Rentalic in 2008. Abeywickrema built the platform as a marketplace for rentals of everything from handbags to lawn mowers. But after nine months of user testing, he concluded that shareable objects had to fit specific criteria: They must cost more than $100 but less than $500, be easily transportable, and be infrequently used. As a result of his research, Abeywickrema has narrowed the site's scope to sporting goods and outdoor gear. > Fast Company: The sharing economy
- There is hope for one dominant, global provider to leverage a really good website and mobile app to do sufficient volume to be viable if its costs and exposure can be kept low. I see Spinlister as having the best chance given its website and mobile app are outstanding. Nevertheless, it needs owners who aren't really in it for the profit potential and would see significant use around the world as being sufficient to keep it going. Spinlister may have such a person in Marcelo Louriero.

3. The long term demand side of the market is the real challenge
- All P2P startups face the chicken and egg challenge of trying to build sufficient supply and demand in each geographical location. In the short term P2P bike sharing services may have shortages of supply but this is mostly due to a lack of awareness. I've mentioned Spinlister to dozens of people around the world (including bike shop staff) and have yet to find one that had heard of it.

- For P2P bike sharing the demand side of the market is a more fundamental, long-term challenge. Let's assume there was unlimited supply in all locations. The types of demand are still quite narrow.

> For city residents who need bikes for transport it makes sense to just buy a bike. My bike cost $380 new and I'd rent it for $15/day - which is just 25 days of rental. If buying second hand the cost of a decent bike is $100 - $300.

> For city residents who are users of city bike share schemes the annual subscription cost is typically less than $100. This would only pay for around 6 days P2P rental. P2P rental for periods shorter than a day has too much overhead to be worth it - in both arranging rental and picking up and dropping off.

> City residents who want a specialist bike (e.g. mountain bike, triathlon bike) for a limited time or to try out before purchasing will find P2P bike sharing worthwhile but this is a very small market.

> The main market I see is for short-term visitors who find city bike share too limited/inflexible and traditional bike rental shops to be too expensive and not offer the bikes they'd prefer to ride. All of my usage of Spinlister falls into this category of holidaying overseas and using Spinlister to try to rent bikes I'd prefer (single speeds) which I couldn't easily get from bike shops. Bike shop rentals are usually around $30/day as well.

> Originally when I started using Spinlister I also saw it as more akin to Couchsurfing - a possible way to meet locals who might be amenable to hanging out. However, Airbnb is not Couchsurfing and similarly profit-making P2P services will mostly attract listers who simply want to earn a little money with minimum investment of time/effort, not meet up for a beer. My first Spinlister rental was an enjoyable exception:

> Another market niche Spinlister is pursuing is for travelling triathlon competitors. I think this market will be difficult to unlock at scale given local triathletes will often use their bikes during local events and the cost of these bikes is generally substantial.

4. Companies shouldn't unfairly transfer risk and liability to renters in the T&Cs while implying they're taking it on via insurance
- If insurance is part of a P2P service, users will naturally assume the service provider is taking on the relevant risks and liability. Yet many P2P services widely advertise their insurance but then use the T&Cs to explicitly make their customers liable, typically the renter.
Spinlister’s chief marketing officer Andrew Batey comments: ‘At its core, Spinlister was set up to create a socially interacting community of global cycling fans and it has evolved as a sophisticated alternative to expensive bike rental options. With unlimited access to the best bikes available on the market, we’ve given cyclists access to the most expensive equipment on the market, and with our insurance measures in place, renters can do so without ever having to worry about theft or damage.’ > TimeOut London: Rent a Bike with new bike sharing site Spinlister
- Spinlister will no doubt want to correct the above statement which is false and was likely made in error. But full, clear disclosure of all responsibility and liability is desirable upfront. Spinlister's website mentions that renters are liable if the bike is stolen but does not mention responsibility for damage or malfunctions:
What if the bike gets stolen while I'm renting it? Notify Spinlister right away. We will work with you to determine the best course of action. Remember the bike is your full responsibility while renting it and it may be found that you need to pay to replace the bike. We think that if you were borrowing a bike from a friend you would be similarly responsible. > Spinlister: Renter FAQ
- Spinlister's "how it works" page mentions the responsibility to "keep the ride safe" from theft but not liability for all losses and damages regardless of fault:

Spinlister: How it works

- Yet, Spinlister's actual Terms and Conditions (made less accessible in a PDF and typically read only when things go wrong) state that the renter is liable for all losses and damages (except wear and tear) regardless of fault:
2.5 Damage to Ride. Renter shall pay Lister for all losses and/or damage to the Ride (except ordinary wear and tear that does not impact the usability of Ride), regardless of fault (e.g. Renter agrees to pay for the loss even though someone else caused the damage or is at fault). Renter is also responsible for all theft or vandalism losses, even if Renter is not at fault for making the theft or vandalism possible, and regardless of any measures Renter may have taken to secure or protect the Ride, including any instructions or security devices provided by Lister. If the Ride is damaged, Renter agrees to pay the reasonable costs of repair and diminution in value, if any. If the Ride is damaged beyond reasonable repair (as determined by Lister), Renter shall be responsible for the retail fair market value of the Ride, less any salvage value if applicable. In addition to the above, Renter shall also be responsible for the reasonable down time (“Loss of Use”), reasonable administrative fee as determined by Lister or specified by law, plus any towing, pick-up and/or storage charges. In the event of theft, Renter shall be responsible for paying Loss of Use at the daily rate for each 24 hours Renter delays in paying the total loss... Renter authorizes Lister to collect from a responsible third party any applicable loss and/or damage. In the event Lister obtains a recovery from a third party after Renter has paid Lister for all or part of any loss, Lister will refund to Renter any excess above the amount of the loss plus administrative fees and other collection costs and attorneys' fees incurred. 
2.8 Repairs. If Renter experiences any malfunctions with the Ride during the Rental period, Renter should immediately notify Spinlister and Lister to obtain authorization for repairs. Renter agrees that he or she will be responsible for any unauthorized repairs or modifications to the Ride. Renter understands that Lister will not reimburse Renter for any authorized repairs without receipts. All repairs needed as a result of the use of the Ride will be performed at the normal labor rates and the cost of such repairs, including all parts, shall be paid by Renter.
Spinlister Rental Agreement (PDF)
- In the absence of Spinlister's Terms & Conditions:
> If a bike I rented from someone malfunctioned due to no fault of mine that would be the owner's responsibility.
> If the owner gave me a lock and told me to return the bike by leaving it locked outside their house and I followed their instructions precisely but it was stolen that would also be the owner's responsibility.
> If an incident occurred that was evidently no fault of mine but resulted in loss or damage that should result in a negotiated discussion between owner and renter as to the reasonably foreseeable risks of hiring your bike out and what, if any, proportion the renter is liable for.

- Reasonable, fair-minded bike owners and renters will generally come to mutually-acceptable decisions themselves to resolve most circumstances of malfunction, damage and loss. P2P company T&Cs that unfairly shift the responsibility and liability (such as Spinlister's existing T&Cs) simply cause problems that lead to a lack of trust, communication and fair-minded resolution.

- P2P companies need to figure out how to provide sufficient liquidity of supply and demand in their markets without misusing and misadvertising insurance. Insurance (that doesn't actually cover the renter and only protects the lister under strict conditions) shouldn't be a dial to be tweaked to induce listings and transactions. If you can't offer extensive insurance fairly and without damaging P2P trust and experiences then it shouldn't be offered at all or should be limited and very explicit as to its actual protection.

5. Eliminate the potential large losses or risks that lead to people failing to take responsibility and cause issues and overheads
- When something goes wrong and the cost is small P2P transactions still usually work - people communicate pro-actively and candidly and take responsibility. When the potential cost is large there is much greater likelihood of a lack of communication and candour, disputes over responsibility and unsatisfactory experiences all round.

- If you use Spinlister to rent a $5,000 bike (listed only because of the $10,000 insurance cover) for 1 day for $40 and a wheel happens to fail during your ride (through no fault of yours) and is buckled beyond repair it may result in a $1000 cost for a new wheel. When you are surprised to find out from reading the T&Cs that you are completely liable are you going to be happy to pay? Or would you feel it is unfair? Is the lister who only received $40 really willing to view this as "wear and tear" and not want to be compensated given the insurance promise that sold them on listing the bike? Is Spinlister going to charge the renter's credit card even if they don't accept responsibility and even if the bike's wheels are not particularly robust (built for speed) and failures do often happen as part of normal use?

- Airbnb has a very profitable market and massive turnover and so it is actually able to afford large payouts and its insurance actually means something. P2P startups that aren't profitable and can't afford large payouts should not offer high value insurance ($10,000 claimed by Spinlister) when it doesn't actually mean they have the capacity or intent to provide primary cover (not fallback) when things go wrong through no-one's fault.

6. Target low-cost, robust, well-maintained bikes and responsible listers
- The Airbnb insurance model isn't appropriate for P2P bike sharing services. Companies like Spinlister should offer low-value insurance for listers and limit cover for malfunctions or damage caused through normal use. Yes this would mean $5,000 performance bikes wouldn't be listed. But the occasional large losses that go with such listings will also be eliminated.

- Transferring responsibility away from listers via insurance or the T&Cs (to renters) also inevitably leads listers to take less care in ensuring their bikes are not going to malfunction or be damaged or stolen or be involved in accidents. During my recent Spinlister hires in Portland, Chicago and Boston I experienced:

> A lister who put their 4th bike, which probably hadn't been ridden for awhile, on the site for $10/day. The price was attractive but a spoke failed an hour into the ride and so the bike became unusable and significant time was wasted. The lister subsequently acknowledged they knew the bike had an issue and had tried to adjust it just before they gave me the bike.

> A lister who lent their very desirable single speed to me but without a lock (it was with another bike). I doubt the lister would loan their bike to a friend without ensuring they had a quality lock to protect it. Clearly the lister insurance affects lister risk taking, yet the exposure caused by the lister is transferred unfairly by Spinlister's T&Cs to the renter.

> A friendly lister gave me a bike with brakes that weren't great and forgot to offer to adjust the seat. Sure I could insist on taking the bike for a spin to test everything myself but some things (effective brakes, adjusting the seat height) should just part and parcel of P2P lister behaviour.

Further Info:
- Fast Company: The sharing economy

- Fast Company: When it comes to sharing startups the Airbnb model doesn't work for everyone

- TimeOut London: Rent a Bike with new bike sharing site Spinlister

- Spinlister PR: Reaching 1 Million Bikes Globally Starts With NYC

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