Uber goes multimodal

Uber gets into dockless bike sharing with $200M acquisition of JUMP bikes. By going multimodal, Uber enters the next phase of a strategic shift, continuing to remake itself under new CEO Dara Khosrowshahi.

The urban mobility platform

Uber’s original mission, monopolize the global taxi game, proved to be too complex and expensive.

Issues abroad – from legal challenges, cultural differences, and increased competition – paired with a saturated market stateside, helped caused many of the company’s growth initiatives to hemorrhage loads of money.

That’s not a good look for a startup (probably) going public in the next couple years, so at the behest of Uncle SoftBank and his $1.2 billion investment, Uber is switching gears.

It sold off their business in China, Russia, and Southeast Asia, as well as shuttering UberRUSH and it’s car-leasing service.

Uber’s new stated mission is to become the “urban mobility platform,” a fancy way of saying if you’re in a city and you need to get from Point A to Point B, you’ll have the most options with Uber.

What does JUMP bikes do for Uber?

For shorter distances and congested areas, bikes can be a big part of the urban mobility platform. Uber clearly knows their stuff when it comes to ride sharing, so why drop $200 million to acquire a much smaller operations?

Fills a skill gap

The beauty of Uber’s business model is that it requires minimal asset ownership. The supply-side, i.e. drivers, owns the cars, and the demand-side, riders, use Uber’s app to signal demand. To enter the bike share business, Uber needed additional expertise to manage a very global bicycle supply chain (more on this in a bit).

Bolsters their IPO profile

Uber could, in theory, direct-hire to fill skill gaps to launch their own UberBikes. But even at a breakneck pace, it would take a couple years to scale that into a well oiled machine. And who knows whether that business would actually be profitable by then (a problem for Uber in general). That’s a bad move for a startup whose investors probably expect it to go public in 18-24 months.

By dropping $200 million on JUMP, Uber quickly fills a skill gap so the bike share business has a better chance to scale quickly and at least have a timeline to profitability to take to the public market.

If JUMP returns a conservative 5x to Uber overall, that’s another $1 billion on top of the ~$48 billion valuation. Not a massive percentage, but the bigger the IPO, the better.

Continues an existing experiment

Uber performed their MVP for bikes haring by partnering with JUMP back in January on Uber Bike by JUMP. Uber users in SF could share (rent? borrow?) a JUMP bike via the Uber app, and although JUMP claims that most actions were performed in their app, Uber got a little bit of data out of the experiment.

Even though the test was with, like, 250 bikes, in a tech and bike friendly city, it’s enough to extrapolate usage rates and project the business value of different supply/demand scenarios and ROI of a $200 million investment.

What could Uber do for JUMP?

First, the obvious. They got paid.

JUMP closed their $10 million Series A in January at a top line valuation of $100 million. Without knowing the specifics of the deal (guessing it’s a mix of cash and Uber stock), that’s a kickass exit for such a young company.

They also get to operate as a subsidiary of Uber, at least for now. So what can Uber do for JUMP as a business unit?

Massive market access

Uber has millions of users. JUMP does not. Uber gives JUMP access to said users way faster than it could muster on their own, and has expertise in handling the demand-side of the sharing economy. JUMP only has to worry about growing pains and scaling supply-side operations.

Massive amounts of data

By itself, JUMP is flying blind when it comes to future demand and likely faces significant lead times to increase the supply of bikes. The supply chain order of operations looks something like this:

  1. If and when regular demand spikes, they use their contract manufacturer to ramp up production.
  2. The contract manufacturer has other, long-standing clients that may have higher volumes (probably not) or higher spends, so JUMP needs to pay more for it to happen faster.
  3. This all happens in SE Asia. Getting them stateside takes 20+ days by ocean freight. It would be insanely expensive (and dumb) to ship by plane.
  4. But bikes are oddly shaped and somewhat heavy, especially bike share bikes. So they aren’t shipped fully assembled and need final assembly in the U.S. This probably occurs close to their final destination.
  5. There are plenty of levers to pull to optimize that process, but either way, without historical demand as a baseline, you’re spending a ton of money – and time – to work out the kinks as a startup pursuing exponential growth.

Uber provide some data that can be useful in determining demand as JUMP gains adoption and expands to other cities (total rides under a mile, conversion rate if offered bike, etc).

Uber has the resources to overcome regulatory hurdles. They don’t have the best reputation with local governments, but it’s reasonable to assume that new leadership will shift toward a more collaborative approach than the previous “act first, ask second” strategy that annoyed a lot locals.

Adoption, challenges, and outlook

As an urbanite, it’s great to be able to bike one-way to a destination. But it’s not perfect.

In my experience using bike share, 1) I would show up to wherever I was going very sweaty, 2) traffic patterns heavily favor one direction, which leads to full docks and what feels like a lot of time looking for a place to leave the damn thing. Electric, dockless bikes solve at least one of those problems and mitigate the other.

The nature of the consumption presents unique operational challenges, as well. There’s a long history of high volume bike theft, people are annoyed by bikes being left in obstructive locations, and repositioning scattered bikes to better locations can be labor intensive.

On the business end, the Uber/JUMP combo seems like a no-brainer. Uber generates ride share demand, and JUMP has the expertise (or can at least specialize) to produce dockless bikes. But is bike share demand there?

Plus, bike riding, while popular in cities like San Francisco, Portland, and Washington, DC, is no where near as common as it is in Europe. Will there be enough demand to validate the $200M acquisition? And is Uber’s ongoing mission to redefine car ownership transferrable to bikes?