Behind the Scenes of Bike Nation’s Deal with Los Angeles

Bike Nation enjoys high-level support in the City of Los Angeles. Image via ##http://bikenationusa.com##Bike Nation##

On the morning of April 15th, Mayor Villaraigosa walked up to the press conference kicking off CicLAvia and announced that Bike Nation, a new bike share company, would invest $16 million in creating a bike share program for Los Angeles.  Bike Nation would bring 4,000 bikes, 400 kiosks to communities in Downtown Los Angeles, Hollywood, Westwood and Venice Beach.  Of that $16 million, 70% is for capital (kiosks, bikes, etc…) and 30% is for bike share operations.

The announcement caught nearly everyone off guard.  Outside of a small group of CicLAvia Board Members and media members the city had kept a tight lid on the announcement.

While the secrecy helped make a big splash at L.A.’s biggest Livable Streets event, it also led to confusion and criticism from some quarters that one would expect to be sympathetic.  Rumors swirled, including one that Bike Nation was an AEG front group (it’s not).  Others attacked Bike Nation for exaggerating the uniqueness of their patented chain free bicycles or for biting off more than they can chew by promising the nation’s second largest bike share program.

Further complicating things, Bike Nation’s relationship with Los Angeles is different than the model used in most cities.

In the year before Bike Nation announced it was coming to Los Angeles, Metro was working with a handful of bike share vendors to bring bike sharing to Los Angeles County including Bike Nation, B-Cycles and Alta Bike Share, a partner with Alta Planning and Design.  At the time, many assumed that when bike share did come to Los Angeles, it would be a subsidized program similar to the ones in Washington D.C. and the one coming to New York this year.  When a bike share program is subsidized, a formal Request for Proposals (RFP) is released where vendors compete for the contract and funding.  Their proposals show where they will place bikes, how many they can place in certain locations and what the other revenue streams to support the system are.

But Bike Nation’s business model doesn’t require a subsidization which frees them from some of the commitments required by an RFP.  Between what it charges users, and what it will sell in advertising, Bike Nation expects to make a large profit over the next decade in Los Angeles.  A rival company estimated that the advertising that could come from a functioning bike share system with 4,000 bikes could be $40 million over the next decade or 250% of Bike Nation’s initial investment.

As Lisa Sarno, with the Mayor’s office put it, Bike Nation’s offer “Allowed the city to leverage and speed up the process for bike share.”

Seeing the opportunity, Bike Nation came to the city of Los Angeles not with a proposal but with a request.  “Create a system to permit bike share installation and we’ll make the investment to make that system work.”  Bike Nation has repeatedly said it didn’t have an exclusive deal with the city, and they’re right.  They have a commitment to apply for permits to put in kiosks and bikes.  In this way, Bike Nation skipped the RFP and went straight to permitting and soon thereafter installation.

“To date, bike sharing systems have been reliant on government funding and ongoing operational subsidies,” explains Derek Fretheim, the Chief Operating Officer for Bike Nation.  “We saw a way to create a bike share program without using those subsidies and began promoting a private venture strategy earlier this year.”

City staff believe they can have the permitting system created by the fall so installation can begin before the end of the year.  “Quite frankly, this is the first time we’ve done this in the City of Los Angeles,” Sarno says of creating the bike share permitting process.

Such an arrangement has one obvious benefit for the city: it will have a bike share system it couldn’t afford to pay for.  But there are drawbacks.  If one considers bike sharing as a form of public transit, a system where the local government has less say on placement, upkeep, bicycle conditions and other safety issues is just that: a system where the government has less say on placement, upkeep, bicycle conditions and other safety issues. 

Bike Nation has been a consistent presence at biking events in Los Angeles including CicLAvia, the Los Angeles River Ride, and Bike to Work Day.

Alexis Lantz, the planning and programming director for the Los Angeles County Bicycle Coalition, is excited about bike sharing but has some reservations about the process.

“There definitely is something we lose in not having an RFP and not having a process around what we want, and regional connectivity,” argues Lantz.  “There’s other things that we might lose out on.”

There are benefits to doing an RFP process so that the various systems can compete and create a dynamic bicycle transportation system.  Instead of that process, Los Angeles will have a permitting process and an LADOT bicycle division working with Bike Nation to see that the bike network exists to support the kiosks and bikes that are put in place.  Downtown Los Angeles, with both the existing network and the one that is underway seems like a natural fit to Lantz.  Westwood and Hollywood are two other areas that still need more work for a novice cyclist to feel comfortable on the street.

One specific concern Lantz has is about the equity of the system.  Will Bike Nation have a plan for people who don’t have credit cards or access to the Internet?  A video by Reason TV, a libertarian group that has long been skeptical of public investment in bike sharing, slammed D.C. bike share for not getting enough bikes in the hands of lower income people and people that weren’t white, young and college educated.  While Reason would doubtless have less issues with Bike Nation’s plan, after all they’re all about private investment, their point about equity stands.

As both Bike Nation and the Mayor’s Office point out, just because the city permits a private vendor to have a bike share operation on city streets doesn’t mean that an RFP couldn’t be completed in the future to create a more traditional bike share vendor/city relationship.  It’s hard to picture Bike Nation not having a major leg up in such a process, but it still could happen.

In the end, Lantz believes that bike share can work under the permit system,”Bike Nation has everything to lose by not having a successful implementation.”

For its part, Bike Nation is reaching out to both public and private entities about kiosk placement.

“Connectivity to transit, employment centers, educational facilities, points of interests and other related locations is paramount,” Fretheim adds. “We are placing kiosks in public right of way and private businesses.  We have already received a number of calls from businesses that have approached us to consider their locations.  Determining kiosk locations is an ongoing process and we plan to release tentative locations in mid to late July.”

Neither Bike Nation nor city staff predict that bike share will be an overnight success in Los Angeles or that the permitting and kiosk placement system won’t need some tweaks.

“Anything that’s new, that’s never been tried before, the first iteration might need to be tweaked,” explains Sarno.

Bike Nation opened a portion of its first venture in Anaheim this past weekend.  Streetsblog is taking a field trip this Friday to test the system,  We’ll have a full report on the bikes, kiosks and everything else next Monday or Tuesday.  And yes, a Bike Nation membership purchased in Anaheim will work just fine in Los Angeles later this year.

Bike Nation has clarified that the Anaheim launch won’t be until late July.  I based the last paragraph off this article in the Orange County Register, but staff at Bike Nation clarified that the launch was moved while some logistics were ironed out.

More: Bike Nation Responds to User Questionnaire 

  • civitoss

    The main thing the City loses with this deal is the ability to establish a second bottom line.  Profit seeking is a great motivator, but without established performance metrics from the City (number of trips/bike/day), we could potentially lose out.  Will Bike nation offer the first 20 minutes for free in order to encourage bike share’s intended role in short tripmaking?  It’s conceivable that the most profitable system is one where advertising is in place on the kiosks, but the cost of entry is so high that the bikes never go anywhere.  They would save millions in maintenance and operating costs!

    That said, I’m cautiously optimistic and curious to see how this evolves.

  • Irwinc

    Why is the last paragraph crossed out?

    My main issue with this deal is that this is a City of LA initiative and not a County/Metro project. That means Bike Nation will not be able to install bike stations in unincorporated areas (e.g. East LA, Marina del Rey) or neighborhoods that falls in other municipality (e.g. Culver City, Santa Monica, West Hollywood).

    Another potential problem is form of payment. We already have a transit payment system (TAP) but I’m guessing City of LA and Bike Nation didn’t even get that far down to the fine prints. The last paragraph (which is crossed out) seems to suggest you have to purchase a membership and presumably use some form of RFID or magnetic swipe card to access the bikes. I really hope whatever payment/validation system Bike Nation uses is TAP compatible.

  • zstern

    Hopefully Bike Nation implements this well and it is successful.  Then places like CC, SM, West Hollywood, etc. may feel the pressure (or incentive) to open up. 

    I am curious to learn more about the bike share permitting process. 

    Also highly doubt we see a functioning system by end of 2012 although I hope I am wrong.

  • Sorry for the confusion.  I was away from my computer when I got word that the launch had been moved and wanted to get the bad info off before I had a chance t to talk to Bike Nation.

  • Dennis Hindman

    This looks like a Trojan horse scenerio. Instead of doing battle with large established bicycle sharing firms for the rights to place them on public property in a city, get some off-the-shelf made in Taiwan bicycles–that look similar to the competitor’s bikes, along with a mockup of a kiosk. When a city accepts this free gift, then let companies know that there are riches to be had from placing ads for their products in the most desirable places of the city. When the bicycle kiosks are dropped at a location, the advertising burst forth to lure people to buy the products.

    It seems as though people believe that a cheap knockoff could work just as well as the products that companies such as B-Cycle or Bixi have. Companies which spent the time and money to improve upon the well thought out and robust earlier systems from outdoor advertising firms Clear Channel and JC DeCaux. A lot of work went into making sure that the bikes could stand up to the abuse and attempted theft from being left out on the street. They may look like regular bikes, but they have components that are not removeable with regular tools and the kiosks have locking systems that make it very difficult to steal a bike.

    Its doubtful that Venice Beach will allow blatant advertising to accompany the bike kiosks. Council member Bill Rosendahl stated in a city council committee meeting that he no longer allows anymore bus bench/shelter furniture to be placed in his district due to complaints about the advertising that accompanies it.

  • Misterbee

    according to their website, the first 30 minutes of usage will be free: http://www.bikenationusa.com/rates.html. And yes, you still have to purchase a membership. This is the same model that most other bikeshare systems seem to use. I just used bikeshare in Paris and DC, and it made my mouth water for bikeshare here in L.A. Here’s hoping they do it right.

  • Misterbee

    I love the Bixie bikes. For what it’s worth, Bike Nation states that their bikes are built here in the US.

  • Dennis Hindman

    These bikes are not a proprietary design for Bike Nation. They are a off-the-shelf bike design that can be purchased retail from Rugged Cycles headquartered in Texas, and they are made in Taiwan, not the U.S.A.

    http://www.ruggedcycles.com/industrialbikes/stepthru.html

  • Dennis Hindman

    If Bike Nation puts bikes out on the streets 24/7 that do not have anti-theft features, then the bikes could soon be called missing parts, or just missing.

    There was a band called Missing Persons that had a song called Nobody Walks In LA. Well, if this turns out to be the missing parts bicycle sharing system, then people might soon say that nobody uses bike sharing in LA.

  • calwatch

    This seems like the shelter contract, which plopped roadside billboards on the street, many without accompanying shelters, and sometimes blocking the view of other businesses who have been there for years. Like the shelter contract, you are going to have a concentration of these on major arterials with lots of traffic, and near freeway on and offramps, and not necessarily where people need bikes.

  • Misterbee

    @Dennis, my point exactly ;-)

  • Misterbee

    @calwatch, so how do we influence the process of selecting where the satins will be? I live in Venice, so I will probably have a station reasonably close to where I live. But to me the great value of bike share is not cruising around my neighborhood, but getting from one part of town to another. Westwood is not high on my designation list, and while I do ride to Hollywood now and then, I’m pretty confident that the casual rider does not. At the very least, put bikeshare stands at every light rail and subway line.

  • John Spence

    I just heard that Bike Nation bought off the shelf CrMo forks stripped them, then had the kiosk lock support welded, then powdercoated….I heard they didn’t heat treat the forks….that’s a lawsuit waiting to happen as we all know they will fail.

    My suggestion….I wouldn’t ride them!!  If the fork breaks when my family is riding, I’ll sue the pants off that Navin guy!  These guys don’t have any idea what they’re doing.  The rumor is their operations guy just quite for not being paid as well…..Trojan horse….exactly!

  • Bikeshare Friend

    I am very suspicious. The ClearChannel bikeshare system failed and it
    was ad-supported. Some of the failure had to do with station placement,
    but their experience is part of the very well-accepted concept that one
    cannot fund a public service on advertising revenue. Bike Nation must
    have another angle… likely to be over-billed by their sister
    companies: Media Nation, an advertising company; Employee Relations
    Inc., an HR company; and Technability, a web resource company.
    Additionally, the kiosk software was initially developed by Acire, Inc
    (owned by Derek Fretheim, Bike Nation COO) and I wouldn’t be surprised
    if it uses the bicycle management system developed by BikeConnect (also
    owned by Derek Fretheim). This is a classic opportunity to make Bike
    Nation a failing company under the parent company, First Pacific
    Holdings, so that FPH can absorb the losses and reduce their tax
    burden… by shifting it onto the general public. It’s not free… it’s
    costs are just unseen.

    Lastly, Bike Nation has been caught in lie after lie when it comes to
    their technology and experience. They said that their bike was
    proprietary and Buy America compliant, but the bikes are actually
    purchased directly from Texas company Rugged Cycles which sources its
    frames and forks from Taiwan and other components from throughout
    Southeast Asia. The only thing made in America are the airless tires…
    which, contrary to Bike Nation assertions, are not a new or unique
    technology. They were the first kind of tires and have been in use since
    their creation.

    Pretty much every single claim about their product has been successfully
    refuted… most importantly that there is a product at all. For the
    past year, they’ve been parading around one or two branded Rugged Cycles
    and a fleet of branded beach cruisers solely for PR. There has never
    been a public demonstration of a working kiosk or, literally, any Bike
    Nation bikeshare installation anywhere.

    This is a company making it up as they go along seeking miniscule
    validation from Paul to sell their product to Peter. Los Angeles has
    fallen for it hook, line, and sinker, and their repeated failure to
    deliver a single bikeshare station in Anaheim (since their original
    launch date of May 1!) should be a sign.

    These guys are untrustworthy salesmen and will completely destroy hope
    for widely adopted bikeshare in all of Southern California when their
    product fails to meet the standards that have been set by established
    companies like B-Cycle and Alta/Bixi.

    It’s a genuine shame that there has not yet been an investigatory report
    by the LA Times, OC Register, or one of the many other major papers in
    communities that would be affected by this sham attempt at business.
     

  • zstern

    I think the good news is that 1) they do not have an exclusive contract and 2) we (the city) haven’t paid anything yet.  So – if the reality is as bad as you paint it to be, we should be able to cut ties with minimal losses, right? 

  • Linda Sinclair

    Wow!!  These guys (Navin and Derek) seem like such tools!  I agree with everything you have said!  My friend Ethan got screwed over by them, he actually told me the same thing!  I also heard they sacked their CEO a guy name Dave that actually was the one guy trying to make things legit!  Bring us Bixie!!  Citibike in NYC is useing them…they have to be on the up and up!!

  • Dennis Hindman

    It is possible to fund a public service on advertising and the widely used in cities to fund the installation and maintenance of bus shelters. The bus benches and bus shelters in Los Angeles are provided free in return for the permission to advertise and the ad revenues are shared with the city.. New York City has a 20 year contract with Cemusa for bus shelter advertising that is estimated will bring in $1 billion to the city over the life of the contract. The outdoor advertising firm JC Decaux has installed and maintained a 20,000 bicycle sharing system in Paris called Velib since 2007. The city gets most of the user fees and JC DeCaux is given the rights to place advertisements on billboards in the city. Its very well established for cities to accept outdoor advertising in exchange for free furniture like public toilets, newsstands, bus benches, bus shelters and now, starting with Clear Channel in Europe, bicycle sharing.

    New York City is going to have a 10,000 bicycles in a bicycle sharing system installed and run by Alta Bicycle Sharing, which will use the Bixi system from Montreal and it will be entirely financed by advertising, along with user fees.  Perhaps a major reason that neither the JC Decaux or the Clear Channel bicycle sharing systems were accepted is that there is a stipulation in the contract that states the bicycle sharing system must not be hard-wired. Both Clear Channel and JC Decaux use hard-wiring for their very succesful bicycle sharing systems in Europe.

  • Bikeshare Friend

    Dennis, to the best of my understanding, the NYC Bikeshare isn’t advertising-supported in the traditional sense where an advertising group must seek constant contracts from various companies to pay for the space. Instead, it has sponsorship from Mastercard and Citigroup (the main sponsor) for constant advertising space and development in-kind. It’s the same setup as London’s Barclay Cycle Hire.

    Bike Nation, on the other hand, has nailed down no such central sponsor, so it’s quite likely they will have an advertising recruitment contract with their sister company Media Nation. If companies don’t think the bikes and stations are good for advertising (and they’re not), their revenue stream will have to rely almost completely on tourist revenue (since subscription revenue just won’t bring in enough).

  • Dennis Hindman

    @google-c9f426aa04822434488349f1e0063e57:disqus 

    From what I’ve read, I gather that Alta Bicycle Sharing is not planning on putting up bus shelter sized advertising billboards in New York City. They have stated that there is little incentive to increase the amount of kiosks and bicycles based on the fixed rate they received from the bike sponsorship from CitiBank. They are trying to think of some other ways to increase the revenue by perhaps adding a touch screen on the bikes.

  • Erik Griswold

    Bycyklen in Copenhagen had Airless tires in 1995.

  • Tom Riddle

    So…..with everything coming out about Bike Nation.  I’d like to know why the City of LA hasn’t partnered up with a real Bike Share company like NYC??  Why doesn’t Alta come here??  Or B-Cycle?

  • Concerned Anaheim Resident

    I’m hearing more and more about this company Bike Nation, and it’s founder Navin Narang. 

    Here are the facts I have witnessed:
    1. Everyone is saying that he doesn’t pay his bills, that the CEO of the company Dave who created the brand and actually got the Anaheim Project and LA projects, left the company because he was owed tons of money, as well as every employee has left the company because of non-payment.
    2. vendors are owed money and have stopped working with them? 
    3. I also heard today that the FTC is starting an investigation prompted by the LA Times looking into fraud in Bike Nation’s allegations that they are Buy America Compliant. 
    4. Emails from Rugged Cycles, defending that all the the product Bike Nation buys does come from them and that it is all asian made, only assembled in Texas has prompted concern.
    5. Their old employee who’s father is a VP of Media Nation’s biggest Account, Verison Wireless, just told me that they owed him so much money that he couldn’t afford to drive to work anymore. 

    What is up with these guys??  I read the posts by their COO Derek Frethiem, where he won’t answer questions from posts on our great forum here about questions on their products.  Unless of course it’s on the phone, where he skirts around the issues.  A friend of mine knows Derek from doing business with his kiosk company and says the guy is a deceitful person who tells you what you want to hear and never delivers.  Ugh….  So what’s going on here? 

    It seems like the only people that truely care are Denis Hindman and BikeShare Friend….why doesn’t our moderator Damien get to the bottom of this for us all? Are we going to get duped by Bike Nation to the point where are great city of Anaheim get damaged?  We are trying to increase awareness and participation in bike riding here in Anaheim.  Some of us really love our communtiy here and would love bike share, but an honest system.  Bike Nation is sponsoring the Beach Babes Bicycle Classic in Long Beach, but sponsoring the event means charging $15 to rent their bikes for the event?  Are you kidding me?  Sponsoring means bringing your product in to showcase it, let is be scene and be used!  This doesn’t sound like the work of a Company that really has millions of dollars to invest in bike share.  It sounds like more bs from a company that has no money and is trying to give us all smoking mirrors.

    Who else thinks these guys are corrupt and why won’t Damien investigate to get to the bottom of this, other then contact Navin and Bike Nation Staff for comment.

    Thanks for reading my rant…just a concerned Anaheim cyclist.

  • Bikeshare Friend

     Hi Concerned Anaheim Resident,

    Bike Nation just had their launch party yesterday. They opened one station and that one stations missed multiple deadlines since May 1, 2012. I am curious, though. I had not heard anything about the LA Times actually (finally) taking on the investigation let alone any involvement with the FTC. Could you link to anything in that regards?

    Just waiting to get the announcement that Bike Nation is folding,

    BikeshareFriend

  • Johnbike

    Sounds like bike nation is one full of shit company. Good luck Anaheim and Los Angelea