Posted March 15, 2017

Many industries wrestle with the “last mile” problem, where it’s often cost prohibitive to connect the final leg of something — like fiber optic cable or package delivery — beyond some central hub to individual homes and businesses. Public transportation, too, faces this issue: Trains, subways, and buses are effective at moving riders cost efficiently along pre-planned route maps, but are much less efficient if a destination isn’t near those routes. And current methods of trying to address this for cities all around the world are limited. It’s often hard to find a taxi at rush hour, cars are forced to crawl through gridlocked streets, and walking long distances in the city often adds way too much time to a commute.

With over half of the world’s population living in cities for the first time in human history, the need for last-mile transportation is only growing. City populations are forecast to grow 75% by 2050 according to some accounts. Meanwhile, the car ownership rate among millennials is falling fast — probably a good thing, given that too many vehicles contribute to traffic congestion, environmental issues, and more.

Could a new take on an old friend — the bicycle — help us solve the last mile problem in public transportation?

Since early in the 19th century, bicycles have long served as an easy, efficient, and clean mode of transportation. Their application to transit has been limited however, because it’s inconvenient to lug one’s bike on the train or bus. Bike-sharing programs have emerged to help solve this problem by letting people rent bikes directly from docking stations dispersed around a city. The Citi Bike program in New York City reveals the demand: Consumers took nearly 14 million trips in 2016 alone.

But these types of programs have run into other challenges. Even in cities where bike-sharing exists, there’s unmet demand, as the bikes are often not available for consumers where they want them. Sometimes it’s because the docks aren’t nearby: 25% of subway stops in Manhattan, for example, don’t have any bike docks within a quarter mile. At other times, docks may be empty… bicycles have a nasty habit of aggregating in docks at the bottom of hills, versus ones at the top of hills, for obvious reasons!

What good is a bike sharing program if there isn’t a bike around when and where you need one?!

Simply put, many programs don’t provide enough bikes to create true ubiquity and convenience. I’m in the city of San Francisco almost every week and didn’t even realize it had a bike sharing program.

Consider the economics of existing bike-sharing programs for cities: The total infrastructure cost for bikes and docks is expensive — up to $5000 per bike — as is the operational overhead of maintaining them. Many cities end up needing to subsidize their docked bike programs (or find corporate sponsors) just to maintain them on an ongoing basis. Finally, contracts to the cities are lengthy and binding, locking them into costs for sometimes 5 years at a time. As a result of these economic factors, the programs in most cities are sub-scale, reducing consumer demand and causing local government to reconsider the equal access possibilities and financial scalability of such bike-sharing. Seattle, for example, just announced they were dropping their program.

It’s not just cities either; the economics of providing traditional bike-sharing services have also proven to be challenging for existing companies. Financing takes years to piece together, bike orders are small given their high costs, and ongoing maintenance fees are high. Some early bike-sharing companies/operators have either gone bankrupt or been sold to others at distressed pricing. But the last mile problem hasn’t gone away, and our roads are getting more congested than ever. Bike-sharing remains an enormous opportunity that could benefit the vast majority of cities in the U.S, in spite of the fact that dock-based bike sharing hasn’t found a viable business model… yet.

That’s where another, more recent approach to bike-sharing comes in. It’s nothing short of a phenomenon in China, where there will be 8 to 10 million shared bikes on city streets there this year. Beyond the number of bikes, it’s notable that all kinds of people are using them — even those who own their own bikes, can afford cars instead, or have personal drivers. This kind of widespread, ubiquitous adoption has the potential to change human behaviors, not to mention the face of the urban landscape.

So what makes this kind of bike-sharing work, and what do we need to make it take off in U.S. cities?

Andreessen Horowitz is proud to announce our investment in LimeBike, which aims to bring the “smart” bike-rental revolution to the United States. First of all, “smart bikes” bring an important twist to their docked predecessors: The bikes themselves are enabled with GPS and wireless communication, and come with a remotely powered locking mechanism. Because of this, there’s no need for a dock; riders simply leave and lock the bikes at their destinations, where they become available to other users. And because the bikes are connected to a mobile application that provides bike management and in-app payment, consumers have a map that lets them know exactly where available bikes are located. Getting (and unlocking) a bike is as quick and easy as a few taps on your smartphone.

Most importantly, smart bikes cost a whole lot less to provision than their docked predecessors, in both capital and operations. And because the bikes are far more affordable (and cost cities nothing), they become far more ubiquitous and convenient. This in turn has the potential to change user behavior, in much the same way that people who would never have paid for a taxi or gotten into other strangers’ cars now use ride-hailing and ride-pooling everywhere. Or in much the same way that people who would never have previously even ridden a bike might now consider riding one. What all this means for consumers is that:

  • There can finally be a large supply of bikes to meet demand (including unmanifested demand). Currently, the biggest docked bike-sharing program in the U.S., Citi Bike in NYC, only has 8,000 active bikes — which is actually quite low.
  • Bikes are available wherever they’re needed, including areas of the city whose needs are currently unmet. Because bikes are freed from needing to be picked up and dropped off at a docking station, they’re better distributed throughout and even across cities (which isn’t possible with docked programs due to specific cities paying for the bikes in the first place).
  • On-the-ground operators ensure that smart bikes are distributed and are well maintained; and GPS ensures that bikes are not carelessly blocking important areas like storefronts or off-limit areas designated by the city.
  • Renting a smart bike is more affordable and convenient — it’s the same type of user-friendly mobile experience we have come to expect due to car ride-sharing apps — and there’s no need to lug heavy equipment around or even have to bike both ways.
  • The opportunities to create other businesses for consumers based on this platform are very exciting.

For cities, the smart bike approach:

  • Doesn’t require any subsidies. In fact, there is no cost to the city let alone maintenance fees;
  • Allows the operator to provide best-in-class services to the city and end users, given visibility into the exact location and status of each bike;
  • Enables cities to customize programs for underserved areas and even provision them for high-traffic special events;
  • Can supplement existing citywide docked programs to increase supply and coverage overall;
  • Can increase utilization of existing public transportation infrastructure.

Increased utilization of public transportation, ride-sharing, and biking takes individual cars off the road, reducing congestion and pollution. And solving the last mile problem gets people to where they want faster, more easily, and in a way that some studies show even makes us happier. I’m personally passionate about sustainability. I am on the boards of a half dozen San Francisco companies, and have given up trying to drive my car on the congested streets of the city. I’m also a big biker, so I am eagerly awaiting LimeBike’s smart bike revolution in the U.S.!

We believe that LimeBike is uniquely positioned to take the best insights and lessons learned from the China bike phenomenon to develop a sustainable solution befitting the U.S. market, working closely with the cities. Based in San Mateo, California, C.E.O. Toby Sun and Chairman Brad Bao have deep experience putting together teams that can tackle software, hardware, operations, and more. With this funding round, I am joining the board of LimeBike, supported by the efforts of our partner Connie Chan (who hunted down the opportunity for a16z). We couldn’t be more excited about this company and team!