Lyft May Spend $50M to Expand Divvy to All Wards, Using Dockless-Option eBikes

Photo: John Greenfield
Photo: John Greenfield

Out of the blue, the Divvy bike system may be expanding citywide. The city of Chicago is expected to announce tomorrow that the existing Divvy contract will be amended to make Lyft, the parent company of Divvy concessionaire Motivate, the sponsor of the network, replacing current sponsor Blue Cross Blue Shield of Illinois. As part of the deal, which will require City Council approval, Lyft would spend $50 million on stations and bikes to bring the bike-share service to neighborhoods that currently lack docks. The city says it would also receive at least $77 million in sponsorship money from Lyft over nine years.

The deal could be good news for making the system more equitable. There are currently a higher density of stations downtown and in more affluent neighborhoods, and many outlying communities don’t have docks at all.

The most obvious downside of the the deal is that, with Lyft replacing Blue Cross Blue Shield of Illinois as the sponsor, the bikes will now bear the logo of a ride-share service. Studies have shown that ride-share is increasing traffic deaths and congestion in cities, and decreasing transit ridership, so it’s somewhat problematic that the thousands of Divvy bikes will double as ads for Lyft. In addition, the amendment would freeze out any other bike-share providers from operating on Chicago streets — more on that later.

“My administration has made it a priority to create a variety of high-quality, reliable transportation options to get Chicagoans and visitors where they want to go,” Mayor Rahm Emanuel said in a statement. “While the Divvy program has expanded substantially since its launch in 2013 and helped make Chicago the best bike city in America, City Council has the opportunity to create a modernized system that creates increasing annual revenues for the city while ensuring all 50 wards have access to bike sharing.”

Under the proposed amendment, Lyft would expand the system to all 50 wards by 2021, adding 10,500 bikes and 175 stations. That would bring the total to about 16,500 bikes and 800 stations. All of the new Chicago bikes would be electric pedal-assist cycles and have hybrid locking capabilities, so they can be locked at a station or to a regular bike rack.

The city says the growth of the system would create more than 200 additional jobs with Divvy in Chicago. Lyft would also offer a job-training program for youth and ex-offenders; expand the Divvy for Everyone program for low-income Chicagoans; and pilot an adaptive bike-sharing program for people with disabilities.

Under the agreement, the city says, Chicago would maintain ownership of the current hardware. Lyft  would continue to operate Divvy with equipment owned by the city as well as new equipment purchased by Lyft.  The city would maintain control over “significant” fare pricing changes and any new fare products or promotions, and Lyft would continue to be accountable for meeting service quality standards.

The amendment would not extend the existing term of the Divvy contract, which has nine years remaining. Any extension beyond the contract’s remaining nine years would also require City Council approval. If the agreement is approved by the Council, Lyft would have exclusive rights to operate bike-share from the city’s public right of way, and the city would not license or permit any other bike-share operations during the term of the agreement.

Additionally, the city asserts, the amendment would restructure the financial terms of the contract to “dramatically” increase annual guaranteed revenues and reduce financial risk to the city. Lyft would pay the city an annual payment of $6 million, which would increase by four percent each year. In addition, the city would receive $1.5 million in minimum guaranteed revenue from advertising and promotions, and five percent of all rider revenue that exceeds $20 million per year. The city says that over the nine-year life of the contract, this would total a minimum of $77 million in guaranteed revenue.

The city asserts that the proposed agreement would also eliminate the city’s current financial risk for the system, since Lyft will absorb all operational, cost, and revenue risk of Divvy’s performance, and would eliminate the city’s current obligation to share in operating losses.

The city says it would continue to maintain oversight of the performance of the Divvy contract through a set of ridership and equity targets, and the city would retain its ability to assess financial penalties if Lyft does not meet these targets.

While, on the face of it, the upcoming announcement seems to be great news for Chicago, the devil’s in the details. Hopefully aldermen will give this amendment much more scrutiny than they did to Chicago’s much-hated parking meter deal, which was approved within a matter of days after a heavy push by then-mayor Richard M. Daley.

Update 3/13/19: Per a city official, the new contract would not prevent dockless scooter companies from operating in Chicago.

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  • Anne A

    Wow, that’s a BIG deal.

  • rwy

    Would there be an extra charge to members for using the new bikes? Will they be available in Evanston?

  • johnaustingreenfield

    Not sure and yes.

  • Ben C

    This is, broadly speaking, pretty great. Tourist e-bike dispensers by LST on summer weekends, maybe not so much?

  • I’m would hope the city has full access to if ont ownership of all data collected.

    Look ideally the shared bike system is owned, operated by and integrated with the public transit agencies (RTA, CTA, PACE). If there is money to be made the CTA should be making it all. If it needs to be subsidized it should be structured in such a way as to complement the entire transit network.

    Is Lyft’s goal to feed a version of high ridership private bus routes? Skimming the cream off of the public routes for profits?

    I get that we live in a world that rewards the private sector with the capital dollars to play with while starving public agencies of research dollars. And it’s not because private enterprise is better at it. In many ways they are worse than say the 50 and 60s when govt reasearch was cutting edge in space and network communications.

    That’s my two cents. I’m looking at the missed opportunities of having this all done privately and don’t forget exclusively.

  • planetshwoop

    Exclusively is the key word.

    They are trying to buy a monopoly on DoBi for themselves *and* surely expect to get favorable treatment for ride share at the same time .

    Lyft doesn’t make money. They are about to go public and a critical part of the story is that they are growing other revenues to go beyond ride share.

    I hope the contract has strong change of control language bc Uber and Lyft are clearly going to merge after going public — neither can make money when competing and they need the pricing power.

    Chicago should get as much up front as possible in case Lyft changes it’s mind after the IPO.

  • Tooscrapps

    Didn’t they just expand e-bikes for Citibike and slap a $2 per ride fee on top? The City should insist on some annual rate and fee guarantees.

  • johnaustingreenfield

    “The city would maintain control over ‘significant’ fare pricing changes and any new fare products or promotions.”

  • Jeremy Glover

    I have to imagine that they’ll charge extra for the e-bikes, as is customary in other markets. So this is an expansion, but essentially a price increase as well since over half the bikes in the system will be electric. I’m curious to see how they’ll manage rebalancing with two different products.

  • ChicagoCyclist

    I must say that I am skeptical. Are there any long-existing precedents for this exact arrangement? How about Paris? Who owns / operates VeloLib or whatever it’s called now? This is very vague and dangerous: “The city would maintain control over “significant” fare pricing changes.” E-bikes only? Why not demand certain number of real (full-exercise) bikes? What if Lyft goes belly-up? I.e. bankrupt? So many potential problems. I think that a team of world-class lawyers should look into this for about two years to make sure it can work to the public — and not for-profit Lyft’s — benefit.

  • Tooscrapps

    Sorry, I meant more like an actual schedule, rather than vague assurances of City approval.

  • ChicagoCyclist

    This Sun Times article gives more (important) details and also offers Emanuel’s/City’s rationale: https://chicago.suntimes.com/business/rahm-emanuel-privatize-divvy-bike-share-lyft/. Perhaps it does make sense — especially if all the equipment (bikes, stations, hardware, software) belong 100% to the City at the end of 9-yr contract …

  • Anne A

    I don’t know about the “two years” piece of what you suggest, but this is worth serious scrutiny, both for the length of the contract and the monopoly aspect.

  • Austin Busch

    Citibike in New York recently had issues with level-of-service requirements for the number of active bikes, but the city was loathe to fine Motivate/Lyft. It was seen as levying additional fines would not likely increase service. While it sounds like a nice contract for the city to set targets and assess financial penalties if they are not met, the actual practice of such stipulations may not be.

  • rohmen

    They’re for sure trying to buy a monopoly, but to be honest, given the lukewarm reception this City has given to private, dockless bikeshare (not to mention how some advocates have even looked at “private” companies coming in), they’re potentially paying for a monopoly the system would enjoy anyway for much of the 9 years.

    I think you’re right that this is Lyft (probably overpaying) to establish additional revenue streams. I’m sure they also get to argue the advertising and potential “feeder” aspects of the deal as well to investors (people hopefully ride bikeshare to an event or outing, and then I’m sure Lyft hopes use rideshare to get home later at night, with the key being to get more people to leave the car at home when they go out).

    Given this will have to be re-negotiated no matter what in 9 years, and the City retains ownership of equipment, this doesn’t seem to be a horrible deal at first glance.

  • Russ Klettke

    I like the idea of a broad expansion to all neighborhoods. But let’s watch to see how sophisticated Lyft is about marketing and managing it in underprivileged communities. I recall a podcast that detailed slow or non-adoption rates in low-income Philadelphia communities. It’s not likely a “build it and they will come” proposition. Other barriers (crime, street infrastructure, cost, social acceptance) exist and need to be overcome.

  • Benjamin Gembler

    Any word on bike charging capabilities for stations (like the scooter station demo at SXSW) given the pedal assist docking option? Also has Lyft weighed in on Ventra integration going forward?

  • Kevin M

    How would it look to have bikes that are a hybrid of being capable of docking or dockless? Has that ever been tested? Why would people continue to dock these bikes?

    Having seen dockless in Seattle and the clutter it causes, and the inconsistency of finding bikes, I came to really appreciate that Chicago has a docked system. This “hybrid” approach seems like a slip in the wrong direction, and I judge it to be nothing more than a cost savings for the provider. This is what happens when for-profit businesses enter essential public services.

  • ChicagoCyclist

    Yes, I just threw out “two years” to make a point :). Namely, that this really needs to be vetted not by one or two people but by, to speak analogously, through a kind of “peer review process” — i.e. by a real team of experts who can scrutinize it from every possible angle. We want to get it right.

  • M

    See examples from New Orleans. Bikes there have both options, with a $1 surcharge for dockless locking (to a street pole or public gate). On a recent visit I was impressed with the flexibility it offered.

  • J G

    yes, I’m also worried about all the new bikes being electric. If the system moved to electric bikes, I’d stop using it. The only reason I use Divvy bikes is for the exercise. If they go electric, I’ll just use my own bike.

  • Kelly Pierce

    First, the full contract should be released without spending
    weeks filing and refiling FOIA requests and then going to court over access to
    the document. The Sun-Times story said Lyft could increase rates 10 percent a
    year. How does a $234 Divvy yearly membership sound? That’s a $99 membership
    compounded annually at 10 percent for 9 years. More than doubling the price of
    a Divvy membership under this deal pushes working class people out of the Divvy
    program. Sure, D4E will be expanded, but bike share as a city service should be
    available to those other than well-off professionals and the very poor. I am extremely
    comfortable with Chicago receiving less in income guarantees in exchange for
    smaller allowable price increases.

  • Kevin M

    That $1 surcharge could be abused by Lyft if they under-serve the demand for docking in a popular or far-flung area of the city. I am very skeptical of this.

  • Kevin M

    I agree that the projected price increases already have me worried that I’ll have to give up my Divvy pass in the coming years.

  • FlamingoFresh

    When looking at a deal such as this, it is always good to look at the worst case scenario. I know I’m being paranoid for thinking this but assume this is similar to the GM streetcar conspiracy. What if Lyft’s end game is to expand out the operations to the extent that when the city takes it over they will be unable operate it due to even more costs of maintaining it, that it must be abandoned. I don’t even know if this is likely or feasible or possibly to be abandoned. This is just a hypothetical worst case scenario because to me it would make sense to allow them this 9 year operation of expansion at their cost.

  • Erik Swedlund

    If they use the same pedal-assist ebikes as Citibike, you aren’t required to use the electric assist; one has to turn that on with a button. Without it, it pedals like a normal Citibike.

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  • SloMo2020

    I know I’m being paranoid

    No you’re not. This deal has the distinct whiff of the ill-fated parking meters “deal” also negotiated by a mayor in the last months of his final term.

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  • Thad Oviatt

    ParkENT Cycles is building secure charging stations for electric bikes as well as electric scooters!

  • Benjamin Gembler

    So these are completely separate from the existing Divvy bike stations?

  • Thad Oviatt

    Yes. The stations can hold any style of bike and charge any electric bike. You can see them at ParkentCycles.com.

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  • Benjamin Gembler

    So the plan would be for the time being for only those new stations to hold electric bikes, and not the current Divvy stations? Or would current Divvy stations be outfitted with that capability as well?

  • Thad Oviatt

    The new stations are separate from the Divvy stations. They can hold electric bikes and Divvy’s bikes.

  • Tech E-rim

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