A lesson in the Bixi funding problem: free lunches aren't free (and shouldn't be underpriced)

The Montreal Gazette has a number of articles (editorial: "Rigorous oversight will help keep Bixi on course;" "City insists taxpayers will still come out ahead") about financing of the Bixi bicycle sharing organization, which comes in the form of a loan from the City of Montreal. Since I am involved in a business that works to sell bicycle sharing too, it would be easy for me to try to seize on this as an illustration of problems with that firm.

While there are problems (some of the conflicts of interest that have been disclosed, and the perennial problem of public-private partnerships doing things off the municipal books), for the most part I think the lessons are more intricate and aren't criticism of Bixi as a business or as a competitor:

1. It's very hard and expensive to develop new transportation technologies. Financing is necessary (unless you can miraculously bootstrap your business) and must be obtained from somewhere.

2. It's hard to obtain investment/have the private sector do the development if the ability to profit from these technologies is questionable. Therefore, government funding is usually needed if you want to do the program.

But government funding of innovation--except for big projects like Airbus, military equipment, DARPA type stuff--is almost impossible to obtain because it is beyond the ability of local governments to fund or conceptualize.

Plus, it's risky, and government is risk-averse. I joke that government officials have nightmares imagining stories about their projects as exposés on the front page of the local newspaper. Hence, it becomes easier to not even try. Look at the Dulles Airport subway station issue as but one example of this general problem.

The sad story of Harrisburg, Pennsylvania in another--their debacles of trying to create a wild west museum off the books by the mayor, plus problems with a waste-to-energy facility have driven the municipality to the point of default, except that the State of Pennsylvania has stepped in.

For example, the bicycle sharing systems originally developed in Europe were a form of bundling by billboard/outdoor media companies. In return for the privilege of selling advertising in public spaces, the outdoor media companies would provide street furniture such as bus shelters, kiosks, restrooms, and even, bike sharing systems.

But it wasn't a free lunch. They did it for the advertising money. Similarly, companies aren't doing long term lease deals for toll roads and such because they want to help municipalities out, it's because the terms are so favorable that they will make a lot of money. Cities only do it because they are desperate for funds.

3. The bike sharing systems in North America have a more difficult time launching or funding because most cities have already signed away the privilege of selling advertising in the public space, which could fund this kind of infrastructure, and most of the contracts don't have a provision requiring the vendor to allow the sales of advertising on bike sharing kiosks.

4. And that is irrespective of the cost of developing new infrastructure, even if it has been proven elsewhere. The business model of the Bixi system in Montreal presumes that it won't necessarily be self-funded through operations, instead it projected that revenues generated by selling the technology to other communities would help pay for the system deployed in Montreal.

5. Getting financing from a government agency for technology development is very difficult. It would be impossible I think for most any city in the U.S. to be able to fund the development of bike sharing technology in the way that the Bixi system has been developed in Montreal.

6. I think the lesson is (a.) that cities can't expect to get this stuff--bike sharing systems--for free even though many elected officials think so;

7. and that subscription costs for members at around $75 per year are probably too low.

In fact, this reminds me of the bankruptcy of the English Channel train-tunnel. Construction and financing costs were significantly higher than anticipated. The 100% privately financed system was supposed to cost $2.6 billion but ended up costing $4.65 billion.

But the Eurostar system has a much better chance on breaking even and generating revenues without subsidy compared to a community bike sharing system. After all, the cost of a round trip ticket bought far in advance is more than $100. First class tickets, and tickets not bought in advance cost much more.