Uber has partnered with Lime to introduce scooter service

Now introducing, uberSCOOTER!  It seems not a week goes by that Uber doesn’t partner with, purchase, or otherwise affiliate with a company that makes a form of transportation that uses wheels!

It was just last month that Uber announced it had purchased Jump, a bike share company based in San Francisco.  It is speculated that Uber will create a new service called uberBIKE out of the purchase.

Uber & Lime

Now, we see Uber investing in LIME, the electric scooter company.  Lime just completed a new funding round that saw them raise $335 million.  Uber participated in the round but no one is giving details of the deal.  Both sides say they are working on a strategic partnership.  Oh and did we mention Google Ventures participated too?  Well, yes they did.

The partnership would see Uber offering scooters on the Uber passenger app.  And it would see Lime imprinting Uber’s logo on all its scooters.  It would also restrict Uber from investing in or affiliating with any other Scooter company.  And it would restrict Lime from affiliating with any other rideshare company.

So now that we have the technicalities out of the way, what does it all mean?  And why is Uber interested in a Scooter company?  Especially after they just bought a bike company?  What’s the big difference between bikes and scooters?

Scooters, Like Bikes, Racking up a Big Mess in Cities

There are a lot of similarities between bikes and scooters, obviously.  In this case, they are all electric.  So whether a customer chooses a bike or a scooter, they’re not going to have to exert much effort to get where they’re going!

Another thing they have in common is that they’re causing a big mess in every city they come to.  That’s because there are no set locations where riders have to drop them off.  That’s one of the selling points.  ‘Drop it off wherever you end up’!  Sounds crazy… and it is.  Because San Francisco for instance, has just about had enough.

The San Francisco Municipal Transportation Agency earlier this year temporarily banned these scooters from the city’s sidewalks.  Then they passed a law saying scooter companies have to obtain a permit or else they will not be allowed to operate in San Francisco.

San Francisco City Attorney Dennis Herrera wrote in a press release that, “San Francisco supports transportation innovation, but it cannot come at the price of public safety.  This permit program represents a thoughtful, coordinated and effective approach to ensure that San Francisco strikes the right balance. We can have innovation, but it must keep our sidewalks safe and accessible for all pedestrians. We can have convenience, but it can’t sacrifice privacy and equity along the way. This program is a strong step forward. It provides the framework to ensure that companies operating in the public right of way are doing so lawfully and are accountable for their products.”

The scooters, if left unregulated really could become a nuisance in any densely populated city.  And not only that but they can create a real mess as riders drop them off wherever they please.  They can’t be locked down and they can be easily stolen or vandalized.

Why is Uber Interested in Scooters?

The economics for scooters is actually pretty good.  And that may explain why Uber wants to get their toe in the door.  The problem is, everybody else and their brother wants to get in on the action too.  In San Francisco alone, five or six companies are already trying to get in on the action.  Besides Lime, there is Bird and Spin and a few others.  Lyft is also looking to get in on the action.

The unit economics of scooters is pretty solid according to Ali Grisold of qz.com.  She outlines the following example from Bird.  Bird began operations in Santa Monica and this was their experience.

  • A Bird scooter does 5-6 trips per day, Bird disclosed at a June Santa Monica city council meeting
  • The average length of a Bird trip is 1.6 miles (same city council meeting)
  • Bird charges $1 per trip plus $0.15 per minute
  • Assuming an average speed of 5 miles per hour, the average trip lasts 12.8 minutes
  • In which case the average trip costs $2.92
  • At 5.5 trips per day, the average scooter earns about $16 a day

The Xiaomi scooter that bird uses, sells for $500 on Amazon.  But if you buy it direct from China, it’s just $320.

We can pretty safely assume that Bird gets the scooters for not more than $320.  Although they probably have a bulk discount deal with the manufacturer since they’re buying so many of them.

But, let’s say they’re paying $320.  It would only take them 20 days to recoup their overhead.  That’s less than a month.  Not bad!

The real question is what it costs to service and maintain these scooters.  It turns out Bird hires private contractors to charge its scooters overnight.  It pays $5 per scooter.  And a typical charge takes 3-5 hours.  And by contracting out the charging job, Lime doesn’t have to pay an additional dime for the actual electricity used.  (You really have to wonder how these contractors are making any money)!

Anyway, that brings the per scooter revenue down to $11 a day.  And that’s before the competitive effect.  Imagine if Lime starts off in a city at $1 per trip and $0.15 per minute, and then four competitors show up a few months later.  What’s the first thing competitors do?  They slash prices!  So it’s not hard to see this $1 a trip ending up as 25 cents per trip!  If that happens, all bets are off.

But for the time being, sources tell Griswold that at least in Santa Monica, the scooters are making in the high $20s range per day.  But the associated expenses are higher, because they’re getting a lot more use.  But even after all expenses are accounted for, her source believes it takes no more than two months for revenue to cover all the expenses.  And after that, the scooters become little money printing presses.

But they’re going to have not only costs when competitors enter the marketplace, there’s also the unknown regulatory costs.

For instance, San Francisco’s new permitting law for scooters will charge applying companies $5,000 to cover evaluation costs.  If the permit is issued companies will then have to pay an annual permit fee of $25,000 as well as a $10,000 public property repair and maintenance endowment.

In Portland, OR, the city wants to increase the base price by 25% by getting its hands on a piece of the action for each ride.  They’re proposing charging a $0.25 fee for every ride.  And that’s in addition to permit fees of $5,250.  Oh and the permit fees of $5,250 are for the deployment of just 200 scooters.  So that cost will not be spread over thousands of scooters, but just a couple of hundred.

Those are some pretty big fees when you’re only charging $1 per ride!

How Will This Affect Uber’s Drivers?

Like we concluded in our article about uberBIKES, probably not much.  These will be used for the shortest trips… the shortest trips in the most densely populated urban areas.  Those are the trips drivers hate the most.  Because they’re short, they don’t make any money.  And because of the traffic they take forever.  So, they are forever not making money on these kinds of trips!

And maybe the scooters and bikes will help alleviate some of the congestion so drivers can get around faster to pick up their more long-distance passengers.