Dockless scooter rentals have become big news ever since word first popped out about them in early 2018. And let’s face it, the real reason anyone is talking about them is because both Uber and Lyft are both showing a lot of interest in them.
And it’s no secret that they’re taking cities by storm. To the joy of riders, and dismay of regulators, hundreds of scooters are sometimes dumped into cities overnight with no word from the company that owns them.
These types of aggressive growth strategies played a key role in helping Uber and Lyft grow into the behemoths they are today. So it’s no surprise we have no doubt that they’ll also work for scooter rental companies.
But what are scooter rentals and how do they work? This post is going to cover everything you need to know about dockless scooters so you can jump on board.
What Are Dockless Scooters?
First, a word on what dockless scooters are. Dockless scooters are electric motorized scooters that several companies around the nation are making available to the public as a new mode of urban transportation.
The stand-out feature of these scooters is that they are dockless. Meaning when a rider drops one off they don’t have to drop it off at a “dock” that would be located in specific locations around cities. Instead they can drop them off, literally, wherever they like within the area they’re allowed to ride in! And yes, that means they can leave them on the sidewalk. And yes, that could get messy!
M.G. Siegler, a general partner at Google’s investment arm, GV, tweeted in April, “A few weeks ago, I had not noticed any electric scooters in SF. Now you can’t exit a building without tripping over one.
An anonymous online commenter said,
“Lime popped up here in Honolulu a month ago (without proper permitting or permission). The scooters lay scattered about in the middle of sidewalks and ridden by users on sidewalks for a few days before the city impounded a lot of them, classified them as mopeds, and threatened users (yes, users) with hefty fines for using them.
“Without docking stations this system is a cluttered, trashy looking eyesore. Use of motorized vehicles on sidewalks is also a nuisance and dangerous for pedestrians, I have the same complaint with Segway “foot” tours… Thankfully the city nipped the scooter situation in the bud quickly and Lime has suspended their service here. I respect and admire the idea behind the effort but the implementation and reality doesn’t live up to the dream.”
So, that’s what the “dockless” part is all about. They can be a real nuisance in communities because there is no specific place where they have to be parked. And that is a big reason why so many cities are struggling to regulate them before they get out of control. The other reason is safety. Safety for pedestrians who have to share the sidewalks with scooter riders and safety for the scooter riders themselves.
“How viable is the Scooter Business?”
With those negatives taken into consider, it turns out on the other hand, that the economics of the dockless scooter business are actually pretty good, which is causing a bit of a problem for the scooter startups.
Good economics makes the sector an attractive target for competitors. And with generally low barriers to entry, the field could get crowded very quickly.
In fact, we’ve already seen a good bit of field crowding. For an industry that’s just a few months past a year old, there are already at least twelve competitors who have entered the space. There are the three largest scooter companies so far, Bird, Lime and Spin. And then there are at least a dozen similar but smaller companies across the nation. In fact, twelve companies applied for permits this past summer in San Francisco. Some of the other names are Skip, Scoot, ofo, Razor, CycleHop, USSCooter, GOAT and Ridecell.
Without going into too much detail here, the economics for scooters are so attractive that investors have poured hundreds of millions of dollars into a couple of them. $415 million for Bird and $467 million for Lime! That’s a pretty big deal for companies that didn’t even exist little more than a year ago!
To say the least, when the economics are explained to investors, they see it as a very attractive business opportunity that offers a great potential return.
Why Are Uber and Lyft Interested in Scooters?
Uber and Lyft both have a couple of problems that scooters could help them solve. For one, they’re both losing money. And scooters have the potential of helping stem the tide of losses. The economics of scooters, at least as they have been laid out for investors, look very attractive. Under one potential scenario, the worst-case scenario, scooters would make a profit of only $147 each during their lifetime of use.
But under other scenarios, where just a few numbers and assumptions are slightly tweaked, that number could skyrocket to a $2,100 profit per scooter over its lifetime. Multiply this by hundreds of thousands of scooters and you could be looking at a new annual revenue stream of around $1 billion. That’s just about enough to flip Uber’s loses into a breakeven scenario.
The Political Problem
The other problem scooters could help solve for Uber and Lyft are their mounting political problems. Major cities around the world are getting that haunting feeling that Uber and Lyft cars are the biggest contributor to their growing congestion problems. And that feeling is not without merit.
When a private citizen jumps in his car and drives to work – sure that’s a lot of extra cars on the road if every person takes a separate car. But, when they get to work, they take their cars off the streets and out of traffic and park them. But when an Uber driver picks up a passenger and takes her to work, guess what happens to his car after he drops her off? His car stays in circulation. It goes back out into traffic and drivers around for possibly several miles and tens of minutes – completely empty and looking for a rider.
In other words, the hours and miles Uber drivers put on the road in between trips without a passenger, are miles that the passenger would not have put on the road if they had driven themselves. It is this time in between trips that the Uber car is adding to traffic congestion.
Although Uber and Lyft have tried to pitch their services as environmentally-friendly, they are decidedly not. And they are definitely not congestion-friendly either! If a passenger is taking a 5-mile trip, an Uber driver may end up driving a total of 8-10 miles to accomplish that same trip. He will have to drive anywhere from one to five miles to get to the passenger.
Uber + Scooters
It boils down to this. If this same passenger were to take his own car, a total of 5 miles of driving would be added to the city’s traffic load. But if they call an Uber, a total of 8-10 miles will be added to the city’s traffic load. And multiply that by several thousand times an hour in the biggest cities – and that’s a ton of additional road miles added to the traffic load. It’s that simple. Uber drivers put in a lot of dead miles each and every hour. And all of it adds to traffic congestion.
Cities have had a hunch that was the case for a long time. But as more data has come out, that hunch is starting to turn into a firm belief. In fact, New York City has just recently banned Uber and Lyft from adding any new drivers or cars to their fleets for a year so they can study the situation with traffic congestion.
So, in comes scooters and now you have a lot of people taking them instead of cars for shorter-distance inner-city trips. Imagine if in a large downtown area, half of Uber riders were suddenly scooting around instead of taking a car. In time, you would eliminate half of the demand for Ubers in the downtown area. Drivers follow demand and if the demand is no longer there, they won’t be there much longer either.
This could have a great impact on lessening the traffic load in the most densely populated areas of the largest cities. And Uber and Lyft could accomplish this in a way that could be very profitable for them as well. And instead of cannibalizing their existing ride-hail business it would actually compliment it. Riders could take a car from their homes to the edges of the city where they could then get on a scooter and get to their destination faster than if they had remained in the car. It seems like a win-win for all sides.
Who’s Going to Win the Scooter Wars?
But of course, there has to be a downside. Or this story would be too good to be true. And yes, there is a downside. That competition thing, we mentioned earlier! Remember we said the economics of this business look pretty good? And because of that and the low barriers to entry, the business would attract a lot of competitors. And it has, in fact, already attracted more than a dozen competitors.
The problem is, this could be a billion dollar a year profit generator for one company. But if you split that 12 ways among 12 competitors, it wouldn’t even be a $100-million-a-year revenue generator to any one competitor.
Because of that you can expect to see these companies fight tooth and nail to come out on top. Because if they don’t, it’s over for them.
Sunil Paul who was a co-founder of Sidecar, one of the earliest ridesharing companies, and a company that was eventually crushed by Uber, has some interesting insights into who he thinks is going to win.
He makes no bones about it in a piece for recode. He says Uber will crush the others – no doubt about it. His reasoning is interesting.
The reason is not only Uber’s nearly unlimited funds, and not only its market leverage with its millions of customers already using its app. But it’s also Uber’s great depth of knowledge from all the data it has collected over the years.
Where to Put the Scooters?
Just like in ride-hailing where you need drivers to be in close proximity to riders, scooters will have to be placed in areas where there will be the greatest likelihood for riders. Well, who knows better than Uber where riders are most likely to be? Certainly not the new scooter startups who will be no match for Uber on this score. They don’t have even one-thousandth of the data Uber has. Sure, they can guess that they should put a bunch of scooters downtown where it gets busy during lunch and after work. But that’s no match for Uber, who will not only know to put them there but they’ll also know where else to put them. They’ll know the not-so-obvious locations.
And that kind of advantage on the margins, is what will help Uber crush the competition. Not only their superior market knowledge, but their infinitely deeper pockets. How can any of these tiny companies beat that? As Paul says, “the only hope for the scooter companies is an anti-Uber backlash — or to be bought by Uber.”
Who Charges the Scooter Batteries?
This is another huge advantage Uber has. Currently, the scooter companies are using gig labor to charge the batteries. All you need is a car and the ability to lift lightweight scooters into it.
The scooter companies are currently paying people from $5 to $25 per scooter that they charge. It doesn’t matter what kind of car the “chargers” use. (That’s what the people who charge the scooters are called – “chargers”. I know, it’s a little confusing)! So, it’s very easy to find people who can do it because the qualifications are so low.
After loading the scooters into their vehicles the “chargers” take them to their homes (usually) and plug them in and charge them up. Then they have to take them back out very early in the morning so they’re ready to go for another day. Everything is controlled and managed through the app. The app tells the “chargers” where the scooters are that need to be charged. And it tells them where to drop them off the next morning.
The companies are trying to pay $5 per scooter for the daily charge. Their entire business model is heavily dependent upon keeping this cost as low as possible. They pay higher amounts for scooters that are harder to get to. But for the typical scooter that’s not in a hard-to-reach location, they are generally paying $5 each.
Why Charging Costs Could Kill the Startups
Here’s where things could get very tough for these startups. Suppose Uber comes into the market and tells “chargers” they’ll pay $15 per scooter – no matter how hard it is to get to. Even the scooter that is most convenient to reach will pay $15. It’s not hard to see what would happen. All the scooter chargers would move over very quickly to work only for Uber.
This would leave the other companies with two options. Either match the $15 pay, or even up it, or have scooter fleet that is only 60% charged and ready to go by the next day.
Either option could be devastating to any of these companies. If customers come to believe that their scooters aren’t reliable, they’ll stop using them. And if they have to triple what they’re paying the “chargers”, it could put them out of business very quickly.
With Uber’s deep pockets, they could keep this game going on for a very long time. Long enough that the smaller players would be completely crippled.
That is just one of many reasons why Sunil Paul is so convinced that Uber will win the scooter wars and the only hope for current players is either an anti-Uber backlash or to be bought out by Uber.