{"id":1190,"date":"2015-12-05T16:43:52","date_gmt":"2015-12-05T21:43:52","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-rctom\/submission\/citi-bike-potholes-instead-of-profits\/"},"modified":"2015-12-05T16:43:52","modified_gmt":"2015-12-05T21:43:52","slug":"citi-bike-potholes-instead-of-profits","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/citi-bike-potholes-instead-of-profits\/","title":{"rendered":"Citi Bike – Potholes instead of Profits"},"content":{"rendered":"

OVERVIEW\/CUSTOMER PROMISE<\/strong>:\"citi-bike-at-barrow-and-hudson\"<\/p>\n

Launched in May 2013, Citi Bike promises customers a low-cost, environmentally-friendly transportation alternative in New York City.\u00a0 In additional to the functional benefit offered to users on short trips, the bike share system improves physical fitness, reduces car pollution, and provides the city with a greener image.<\/p>\n

As opposed to publicly funded bike share programs in Boston, Chicago, and Washington, Citi Bike is owned and operated by a for-profit business. \u00a0Due to its private funding, station location and expansion plans are under the business\u2019 control.\u00a0 However, the company must maintain relationships with city officials in order to source real estate for its docking stations.<\/p>\n

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BUSINESS MODEL<\/strong><\/p>\n

“The business model is still under development. Some of it is trial and error.” – Susan Shaheen, a researcher of bike-share programs at the University of California, Berkeley [5]<\/em><\/p>\n

Revenues derived from sponsorships and user fees have not been able to support operating expenses:<\/p>\n

\"Mastercard\"Sponsorships\/Advertisements <\/strong>\u2013 In May 2012, Citi Bank was announced as the title sponsor, agreeing to pay $41 million over five years.\u00a0 Concurrently, MasterCard became the Preferred Payment Partner, spending\u00a0$6.5 million in order to place its logo on each dock.\u00a0 However, finding additional sponsors and advertising revenue has proven challenging, as the program has become synonymous with its lead sponsor. \u00a0Citi Bike\u2019s strong brand affiliation has dissuaded other companies from partnering with the system due to low anticipated return on investment.<\/p>\n

User Fees<\/strong> \u2013 The company charges users based on three subscription passes:<\/p>\n

24 Hour Pass = $9.95 + tax (30 minute rides)<\/p>\n

7 Day Pass = $25 + tax (30 minute rides)<\/p>\n

Annual Pass = $95 + tax (45 minute rides)<\/p>\n

After paying the fee, users can take an unlimited number of rides as long as each ride is shorter than the permitted limit.\u00a0 Penalty fees are applied for trips that extend beyond the permitted limit.\u00a0 If a docking station is full, users are provided with extra time to find another available dock.\"Graph\"<\/p>\n

While the company originally forecasted that the program would be popular with short-term users like tourists and visitors, actual usage has been disappointing in these cohorts. \u00a0Since usage among annual members has been higher than anticipated, the company has been plagued by a revenue deficit on a per ride basis and higher than anticipated wear and tear on bikes.\u00a0 By early 2014, with losses mounting, the company needed to raise of tens of millions of dollars to continue operations.\u00a0 A new management team and operator, Motivate Co., has been brought in to attempt to turn around the company. \u00a0As a result, the cost of an annual pass increased ~50% to $145 in 2014 and yet again to $149 in 2015. [4]<\/p>\n

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OPERATING MODEL<\/strong><\/p>\n

“The only macro trend is chaos. The industry is kind of a mess.” Ryan Rzepecki, chief executive of Social Bicycles Inc., which supplies bikes and other equipment to bike share programs [5]<\/em><\/p>\n

Citi Bike\u2019s two main operational issues stem from maintaining and rebalancing its fleet. \u00a0Users expect to be able to rent and return well-functioning bikes at their desired locations.<\/p>\n

Maintenance<\/strong>: \u00a0If a bike is not working properly, users lock it back at a station and notify maintenance by pushing a button on the dock.\u00a0 However, the number of cracked seats, worn tires, and faulty stations overwhelmed the operations team. \u00a0An audit conducted in December 2014 by New York City Comptroller, Scott Stringer, found numerous deficiencies, among which were:<\/p>\n