Vélib : Sustainable Market Space? ecch the case for learning Social Innovation Centre

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1 Vélib : Sustainable Market Space? 06/ This case was written by Sophie Hemne, Research Associate, Renato J. Orsato, Senior Research Fellow and Luk Van Wassenhove, Academic Director at the at INSEAD. It is intended to be used as a basis for class discussion rather than to illustrate either effective or ineffective handling of an administrative situation. Copyright 2010 INSEAD TO ORDER COPIES OF INSEAD CASES, SEE DETAILS ON THE BACK COVER. COPIES MAY NOT BE MADE WITHOUT PERMISSION. ecch the case for learning Distributed by ecch, UK and USA North America Rest of the world t t +44 (0) All rights reserved f f +44 (0) Printed in UK and USA e ecchusa@ecch.com e ecch@ecch.com

2 Pierre Goes for a Ride On a Sunday morning in May, Pierre left his apartment in Paris 17 th arrondissement to go for a run in the Bois de Boulogne. Wearing his running gear, he went to Rue Guy Môquet, where the closest Vélib free bike station was situated. Great, he thought, as he turned the corner, I have a 20-minute bike ride and then I can leave the bike at the Bois de Boulogne station without having to worry about it being stolen during my run. Although it was early morning, there were only three bikes at the station. Pierre picked up the first one by its saddle and gently kicked the wheels to see if it was roadworthy. He realised the chain was missing. The second bike seemed to be all right, so he swiped his yearly subscription Navigo pass and waited for the green light to stop blinking, signalling that the bike was ready to be unhooked. He put an extra sweater and a small bag containing his phone and keys in the bike basket. As he rode out into the traffic, the sturdy grey bike picked up speed and sped along comfortably even across the cobblestones of Rue des Moines. Arriving 20 minutes later, Pierre parked the bike by hooking it into one of the bays at the Vélib station. He was slightly worried that the bike he had just used was the only one left at the station, as he was now a good 15-minute walk from the closest metro at Porte Maillot. Fortunately, when Pierre returned from his run an hour later, the station had been serviced with bikes. Just as he was about to ride home, someone called out to him. It was Olivia, an old school friend, standing in front of the station s control panel, trying to get a one-day bike pass, credit card in hand. He offered his help but she had already swiped her credit card for the 150 deposit, chosen a personal code for the subscription and bike number 12, so they were ready to go. As soon as they started cycling, Olivia noticed that her bike was making a funny noise. Pierre convinced her to change it for another one as the return to Paris was rather long. When she locked it back at the Vélib bay, the light should have turned green, not red, and although she tried to rent another bike, the system informed her that she already had a bike under rental and could not get another with the same subscription. Pierre offered to help by calling the service number marked on the handlebars. Even though it was Sunday, an attendant at the call centre responded immediately and helped identify the bike that had not been registered by the system and cancel the first rental from the control centre. In less than two minutes, Pierre and Olivia were cycling back to Paris. The Vélib System Freedom, simplicity, user-friendliness, sharing: Vélib in Paris is an innovative approach, in terms of both its philosophy and its unusual scope. With currently 20,600 bikes and 1,451 stations, Vélib is a high-performance service which enables everyone to take advantage of a practical, inexpensive and ecological means of transport 24 hours a day and 7 days a week, providing a new approach to urban mobility. As such, Vélib exemplifies the contribution the people of Paris are making to reduce pollution and greenhouse gases. Naturally, as with every innovation, it will take a while to adapt, and I have to emphasise that the rules Copyright 2010 INSEAD 1 06/

3 must be respected where necessary to ensure the safety of everyone, especially the most vulnerable among us, pedestrians and cyclists! 1 Bertrand Delanoë, Mayor of Paris, (quoted shortly after the inauguration of the Vélib system, July 2007) As the opening scenario and the above quotation suggest, the Vélib system addresses both the need for personalised mobility and low-carbon solutions for urban transport. The generic model of Vélib called Cyclocity provides a low environmental impact mobility service for large cities and urban centres. One of the basic ideas of Cyclocity is to be as user-friendly as possible. The main components of the system are the bikes, the bays where they are attached, and the software that tracks the bikes and the rental time of each journey (Exhibit 1 depicts the Vélib system). A - The Bikes Vélib bikes are designed for mass use. They are sturdy with no visible cables (see item A in Exhibit 1), equipped with a basket for bags and groceries, with an integrated lock to prevent bags being snatched. The bikes are grey with no advertising on them, heavier than a traditional model of the same size, and have only three gears. Each bike is equipped with front and rear lights, which automatically turn on with a blue flickering light as soon as the bike is in motion. B - The Stations Every Vélib station functions 24 hours a day, 7 days a week. To rent a bike, the user introduces a credit card or a membership card into the station s control panel (see item B.1 in Exhibit 1), chooses the duration of the subscription, and selects a bike from the locking bay (see Item B.2). The software, developed by JCDecaux, allows the company to track the bike rental time and the bike s location in the city, and consequently which stations need to be serviced with new bikes. Non-members can choose between a 1-day and a 7-day pass. For the duration of the pass, the user can take a bike from and return it to any Vélib station in the city. The first 30 minutes of each rental are free and the subsequent 30 minutes cost 1. Since users are able to get almost anywhere in Paris in less than half an hour, most trips cost nothing. The rate increases progressively every half-hour: in the event that the user keeps the bike for more than 1½ hours, it goes up to 4 per extra 30 minutes. Thus there is a clear incentive to return the bike as quickly as possible. 2 During peak hours in the morning, bike stations in residential areas empty quickly, whereas those in the city centre fill up. Trailers pulled by electric vehicles are used to redistribute bikes between stations (Exhibit 2 depicts the distribution of Vélib stations across Paris). 1 By July 2009, there were more stations and bikes available than mentioned in the quotation. 2 and Copyright 2010 INSEAD 2 06/

4 Vélib s Success According to a survey conducted in July 2008 one year after the inauguration of the system Vélib was an instant success. One of the reasons for this was the user-friendliness and freedom of the system. Vélib was also perceived as being healthy. More than half of respondents had used the bikes from the start; 94% of users were satisfied with the service; 97% would recommend it to a friend; 93% of users described scheme as improving Paris image and making it a more likeable city, and 93% planned to continue their subscriptions for another year. The typical Vélib user was a 35-year-old Parisian; 58% of long-term users were men and 65% of short-term users were women. Among the negative aspects cited by users was the difficulty of finding space to park the bikes in popular spots, such as railway stations and some locations in the city centre. Users also found the bikes too heavy and stations badly signposted. In May 2009, 853 users responded to a similar survey. Since the inauguration of the system, more than six million short-term subscriptions and 50 million rentals had been registered. The satisfaction level remained high: 94% of Vélib s users were very satisfied or satisfied with the service. 3 However, the share of very satisfied users was lower than in the 2008 survey. Behind the Scenes: JCDecaux The main company behind the Vélib bicycle system is JCDecaux, the world s second-largest outdoor communications company, founded in 1964 by Jean-Claude Decaux in Lyon, south east France. His idea was to provide bus shelters to municipalities in exchange for urban advertising placed in or around the shelters. In this way, the sale of the advertising would finance the bus shelters. Lyon was the first city to install JCDecaux s bus shelters. Today they can be found in 31 countries, mainly in Europe. Subsequent innovations have included: MUPI (Mobilier Urbain pour Information) signage (1972); public toilets (1980); electric and automatic news screens, allowing municipalities to signal traffic problems and local events (1981), and multiservice kiosks, which serve as phone booths and/or as battery and glass recycling stations (1992). These inventions are collectively known as street furniture. Design has been crucial. JCDecaux has worked with top architects and designers such as Philippe Starck, Jean-Michel Wilmotte, Sir Norman Foster, Mario Bellini, Philip Cox, Robert Stern and Jean-Yves Arrivetz, among others. Today, JCDecaux is the second-largest outdoor communications company in the world, after ClearChannel in the US. The company is active on five continents and in more than 76 countries. In 2007, it had an annual turnover of 2.1 billion. Its ten biggest clients are Ford, Samsung Electronics, Unilever, Coca-Cola, PSA, Vodaphone, L Oreal, France Telecom, Renault Nissan and LVMH. JCDecaux s outdoor communications business is divided into three segments: billboard posters (l affichage grand format); advertising in railway stations and airports (transport), and advertising on street furniture such as bus shelters. 4 3 Velib newsletter no. 22, June JCDecaux Document de Référence 2007, page 9. Copyright 2010 INSEAD 3 06/

5 The core of JCDecaux s business model has remained the same right from the start to provide public services in exchange for advertising contracts with municipalities. Most cities are now equipped with the type of street furniture provided by JCDecaux and its competitors. However, competition has recently intensified. Advertising contracts with municipalities, which often run for 5-10 years, are becoming more difficult to win, with cities demanding more public services in return. Latterly, their demands are often linked to sustainability issues. The demand for bike schemes like Vélib, for example, clearly represents a concern with sustainable mobility in urban centres. According to Rémi Pheulpin, Operations Manager at JCDecaux, Cyclocity is a great opportunity for JCDecaux to win new markets and has been a strategic way to win over cities that are against advertising. For example, Cyclocity helped win a contract with São Paulo in Brazil, a city that formerly banned advertising. By 2008, Cyclocity had been implemented in 17 European cities including Amiens, Aix-en- Provence, Besançon, Lyon, Nancy, Nantes, Marseilles, Mulhouse, Paris, Rouen and Toulouse, as well as Brussels, Vienna, Luxembourg, Cordoba and Seville. Vélib is managed by SOMUPI, a company 66% owned by JCDecaux. The other shareholders are Media et Régies Europe and the Publicis group. It was in 2002 that JCDecaux introduced the first free bike system in France also in Lyon thereby moving away from its exclusive focus on street furniture to a more dynamic set of product-service systems, and helping the company to meet the new demand for sustainable services. According to Pheulpin dubbed Monsieur Vélib by his colleagues the system was a challenge to implement because it had to be in place in Paris in just three months. 5 Moreover, JCDecaux built the Vélib system from scratch. Pheulpin admits that the system could have been conceived at less cost, but because they did not know what to expect from it, they sought to develop a system as close as possible to the ideal. For instance, simplifying the technology would have made it possible to cut costs but would not have been as user-friendly and, consequently, not as successful. Two factors made the implementation of Vélib Paris more expensive than elsewhere. First, around 20,000 bikes had to be available from day one; second, the early success of the system increased the need for maintenance, (cleaning, fixing and refitting bikes, redistributing bikes between terminals, running the operating systems at the terminals), representing 85% of the total cost. Value Innovation JCDecaux has a long history in value innovation by selling advertising (for commercial profit) in exchange for street furniture (for the benefit of the public). In order to ensure that the company would keep innovating, JCDecaux created JCDecaux Innovate, a department designed to work only on new concepts, which creates tailor-made solutions to meet the individual needs of clients. The free bike system is not an entirely new innovation, as company communications acknowledge. A similar service was first introduced in La Rochelle, on the west coast of 5 Notes from interview with Rémi Pheulpin, Operations manager at JCDecaux. Copyright 2010 INSEAD 4 06/

6 France, in Although built on the same principles, it did not have the supporting technologies which make the Vélib system so user-friendly. When JCDecaux started developing Vélib in 1999, the goal was to improve on the system in operation in La Rochelle. In line with this thinking, experimental versions of Vélib were tested in Lyon and Vienna in the early 2000s. 6 JCDecaux keeps the innovation, the technology development and most of the manufacturing of Vélib internal, with the exception of the assembly of the bikes, which is subcontracted to Lapierre. JCDecaux designed the bikes (the hardware) as well as the software for the station terminals. It sees a competitive advantage from keeping the development process in house: We provide one service in our clients hands. And we are working with the best providers in the business. For example, for the saddles we work with La Selle Royale. We have to do this because, at the moment, you cannot buy what we need. You cannot go to a bike shop and buy a Vélib that will have all the qualities that we provide. It is not possible to find a bike in a sports shop that you will be able to put in the street tomorrow. Everything is internalised that is the culture of JCDecaux. We do not subcontract for any of our street furniture. 7 Pierre Returns Home Arriving home, Pierre passed a poster (Exhibit 3) he had not seen before, displayed on one of JCDecaux s street hoardings: it announced that 8,000 Vélib bikes had gone missing since the start. Despite feeling energised by his bike ride, he couldn t help wondering how long the service would last. 6 Notes from an interview with Rémi Pheulpin. 7 Ibid. Copyright 2010 INSEAD 5 06/

7 Exhibit 1 The Vélib System A - The Bikes B - The Vélib Station B.1 - Control Panel B.2 - Locking Bay Copyright 2010 INSEAD 6 06/

8 Exhibit 2 Distribution of Vélib Stations in Paris Copyright 2010 INSEAD 7 06/

9 Exhibit 3 Vélib Billboard Source: City of Paris and JCDecaux campaign that began in May Text above cartoon: To destroy a velib is easy it can t defend itself Text under cartoon: 16,000 bikes vandalised, 8,000 bikes disappeared. Velib is for you take care of them! Copyright 2010 INSEAD 8 06/

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