Uber Jumps Into an Overcrowded, Unprofitable Business

Bike sharing is a booming market crowded with ambitious startups. GREG BAKER/AFP/Getty Images

Ride-sharing giant Uber announced on Monday that it has agreed to acquire station-less bike-sharing service JUMP reportedly for over $100 million. The deal marks Uber’s entry into bike sharing, an already white-hot space crowded with both homegrown competitors and foreign entrants.

Uber CEO Dara Khosrowshahi told TechCrunch the JUMP deal is part of his vision for Uber to become a full-fledged platform for urban mobility.

“We see the Uber app as moving from just being about car sharing and car hailing to really helping the consumer get from A to B in the most affordable, most dependable, most convenient way,” Khosrowshahi said. “And we think e-bikes are just a spectacularly great product.”

But Uber might be a little late to the game.

JUMP’s dockless bike sharing service was launched just one year ago. It is currently available in San Francisco and Washington, D.C. and plans to enter more key cities by the end of 2018, the company said on its website.

Most of those cities already have a number of bike-sharing services that have created a high entry barrier for new entrants.

Motivate, for example, the operator of Citi Bike in New York City and parts of New Jersey, and Ford GoBike in San Francisco have exclusive, long-lasting agreements with regulators in its operating markets. The agreement with San Francisco is good through 2025, and the contract with New York City is good through 2029.

One downside of Motivate’s sharing service is that you can only park its bikes at designated docks. Younger startups, including JUMP, mostly offer dockless bicycles to give users more travel flexibility. It also eliminates the cost of building parking infrastructure.

Dockless shared bikes are equipped with GPS trackers and allow you to park anywhere (in theory), and lock and unlock them by scanning an app on your smartphone. JUMP’s bikes can be legally parked on sidewalks as long as they don’t block pedestrians.

A few Silicon Valley startups, such as LimeBike and Spin, are aggressively competing in the dockless space. Many of their markets overlap with JUMP’s.

Uber’s new acquisition will also face hostile competition from overseas rivals.

Dockless bike sharing gained tremendous popularity in China and Europe much earlier than in the U.S., and winners who have conquered their home markets are now eyeing the States. China’s two largest bike-sharing operators, Mobike and Ofo, both began services in U.S. cities last year.

An even bigger challenge for Uber will be profitability.

Like ride-sharing, bike-sharing has yet to find a sustainable business model, especially for fast-growing companies. Bike-sharing is a seasonal service; storing excessive bikes during winter seasons and managing misused and abandoned bikes can be costly.

The Financial Times has reported that China’s Mobike and Ofo, which have tens of millions of bikes in China, are burning up to $50 million in cash on a monthly basis.

Given that Uber has yet to turn a profit from its ride-sharing service, betting on bike-sharing will be a risky and expensive move.

In the meantime, though, consolidating bike-sharing seems to be an inevitable path for ride-sharing companies. Uber’s international equivalents, Singapore’s Grab, China’s Didi and India’s Ola, have all acquired or launched their own bike-sharing services.

Uber Jumps Into an Overcrowded, Unprofitable Business