The Case for Ebike Subscription

The US is experiencing the largest boom in bike sales in modern history. The last time we have seen anything comparable was when the oil crisis propelled boom of the 70s. The catalyst this time is COVID-19 and the ensuing closures, social distancing and changing expectations around what we consider safe forms of transport. And yet I believe that COVID-19 exposed intrinsic truths that have been brewing beneath the surface. American’s have been ready to cycle practically for a decade. It just takes conspiring circumstances and a little nudge to start gaining momentum.

In this essay I will review the growing bicycle sector and explore a business model that is ideally position to capture the early majority of prospective cyclists. I will examine the barriers to cycling and how this business model innovation may be well positioned to overcome them. In the second post I will break down the details of the model and propose a pilot to prove it out.

Exploding bike sales

Bike shops have been on the decline since the late 90s. In March of 2020 they were given a shot of adrenaline and the numbers are staggering. In May, the New York Times announced that bike shops around the country were doubling their sales. Sleepy bike shops had suddenly had lines that rivaled the best pizza spots in Brooklyn. Diminishing supply meant many prospective buyers needed to wait weeks before receiving the bike they ordered. Since then, the numbers have only gotten more impressive. The ebike company VanMoof, once confined to primarily Europe, has seen its US sales increase by 180% from the same time last year. Bicycle sales, both cheap and premium, are setting new records and testing existing supply chains.

Reasons for growth

COVID created the fastest economic contraction in the history of the world. This was primarily due to a sudden loss of mobility, a perquisite for economic activity. It was inevitable that more people use their bikes as a means to get out of the house or as a family activity. Even as some normalcy has returned and people start returning to work, the threat of the virus has not diminished. The 10-12% of American’s relying on public transport look for alternatives to these close quarter modes of transit. The ride share market has also plunged by half and it is a fair guess that some of these Uber riders are now considering bikes as well.

On the other end of the spectrum, our streets have never been emptier. With falling car travel, the roads can reclaimed by pedestrians and smaller vehicles. Personal safety is the most common reason for not cycling in the city. Overnight the perceived risk has flatlined.

In the great metropolises of the US, many are experiencing, for the first time, what cities with limited traffic are actually like. And it is truly remarkable. Who knew (besides from most of Europe) a city could feel both peaceful and accessible? It remains to be seen if this growth is temporary. Car culture will not vanish overnight but there are promising signs that these emerging alternatives will not, ‘go gently into that good night’.

The Conflicted Consumer

Practical bicycling has been niche in urban America. It’s not clear if the current buying frenzy will alter that. Buying habits can be seen a tug of war between the perceived benefits and downsides of a purchase. While consumers aren’t always rational, when the benefits outweigh the cons it’s a good bet that people will make the purchase. Since the benefits of cycling are numerous, it follows that the frictions inhibiting people are hefty as well. It’s only by analyzing and understanding these pain points deeply that we may discover the right solution.

In an interview I conducted with Bay-area millennials while at Faraday Bikes, I analyzed the reasons why people weren’t cycling practically (e.g. errands, commutes, exercise). The results can be summarized as follows:

1. Personal safety - The rider feels unsafe sharing the road with other vehicles
2. Effort - The rider is lazy - they don’t want to arrive at work tired and sweaty
3. Theft anxiety - The rider is worried about unattended bikes getting stolen

This aligns pretty well with a much larger study conducted by Breakaway Research Group. They started with individuals who had cycled at least once in the last year (~100 million Americans) but who were not cycling regularly. Importantly, half of these stated that believed they should cycle more often but lacked access to a reliable or working bicycle. After doing more research it was surprising to realize how many American’s own broken bikes but have not bothered getting them fixed. So let’s add that the list:

4. Access to a working bicycle

Electric Bikes as a Service

I believe access to an electric bike as a subscription service overcomes most the frictions inhibiting prospective urban riders from integrating cycling into their lives. Let’s work our way backwards through the frictions we have identified and see how we are resolving them.

Access to working Bicycle

Let’s return to the urban millennials I was interviewing. They either have a broken bike in their garage or they don’t own one at all.

Let’s pretend a colleague comes into work riding a VanMoof and starts raving about how great it is. Our millennial is intrigued and is ready to be convinced… until the price tag? $2000! This is where the conversation ends. As much as the rave review may be intriguing, the sticker shock is enough to turn off all but the most receptive or affluent.

A subscription lowers the barriers of entry by dropping the initial cost by 5-20X. At such a low entry point the other frictions we have mentioned are diminished. Cycling can be viewed as a trial rather than a commitment. Without little risk or cost, the prospective cyclist can test if this means of transport makes sense for them.

The benefits don’t end with the price. For those that own an old, dilapidated bicycle, many have not managed to bring it into a bike shop for assessment. If the cost and effort of starting to use a new electric bike is less than the prospective repair a mechanical one, it will be the preferred solution.

Theft anxiety

The nice thing about not owning something is that we are more likely to use it without reservations. After spending 3k on a new bike, that last thing you do is park it unattended outside while you go watch a movie. This is the opposite of utility. An insured vehicle that you are not responsible to repair is a source of much greater confidence. Of course, the vehicle still needs to be locked but it will be designed to make this as intuitive and robust as possible. The psychological burden that is the fear of theft is not justified given real world chance of a properly locked bike getting stolen. The company should make that bet and relieve the customer of the burden.

Effort

At Faraday I had my first exposure to the magic carpet ride that is the electric bicycle. The quip was that you couldn’t help but smile when you rode one. The sentiment was well founded. The additional power, applied as a natural extension of the pedal stroke is really special. It takes an intuitive and efficient form of motion and amplifies so as to flatten hills and diminish distances. Electric bikes make sweating an existential decision rather than a necessity. They provide confidence when navigating in traffic. They make carrying accessories or even children a breeze. It comes as not surprise that these marvelous machines are the fasting growing bicycle segment. And they the technical step change allowing us to finally reach Americans.

Personal Safety

Helping rider feel confident and safe on city streets remains one of the hardest challenges. While US municipalities have been improving cycling infrastructure, we still are woefully behind the likes of Amsterdam, Copenhagen and Berlin. But without a large cycling community, it’s difficult for cities to justify the expenditure. It is not an easy urban design problem to overcome city streets that have revolved around cars since their inception. However, that expenditure is necessary for many new riders to find the courage to start commuting by bike. It is a game of momentum and depending on the direction, it can lead to a virtuous cycle, or as we have seen so far, a vicious one. We should support the brave cyclists. They will be the catalyst for and plentiful, safer bike lanes and streets closed to traffic.

Summarizing the magic sauce

• A subscription overcome a high initial price required by prospective riders
• Ebikes are a game changer - they reduce the effort of traditional bikes and can become the preferred method for getting around a city
• Riders will worry much less about theft and damage and therefore extract higher utility

Why not bike share?

There are two primary models for providing the utility of cycling - ownership and bike sharing. The first involves purchasing a bicycle up front and requires one to store it and pay for it maintenance. The more recent model involves companies deploying a fleet of bicycles and users paying for rides on a per-use basis.

This has gained substantial momentum over the last decade but it is still unclear whether or not it can be profitable. It is the company’s responsibility to purchase and maintain the fleet. The consumer has no incentive to treat the vehicle well and the repair rate demonstrates as much. In short, the operational costs are brutal for vehicles that have no home.

There is one more prescient point. Using a bike that has been touched by strangers can be unpleasant enough. They are a shared service and quickly show signs of abuse and filth. During Covid, the discomfort with sharing has grown further. I expect this to be a common consumer disposition for a long time to come.

Momentum

The shutdown around covid has shown many Urban dwellers what a city not choked by traffic congestion is like. It’s forced American’s to consider alternatives to the way they move in cities. What they are discovering is better. In this excellent oped from the New York Times, Mr Manjoo examines how great the city of New York can be when not dominated by cars. Covid may be that inflection point that brings what urban planners have been telling us for decades in the pubic’s purview - cities can be great places to move in!

I believe an ebike subscription service will become the most successful means to getting more cyclists on bikes. In the next section I will explore the challenges and details or the business model needed to make this sustainable.