Top 5 ways scooter share can survive and thrive
This week saw the report that Lime lost $300 million over this year, which just so happens to almost equal the amount they raised in their last investment fundraising. We have an innovative transportation technology company struggling to find alignment between cost and revenue. Are we hearing the second verse of the same song that started with Uber and Lyft?
When scooters burst on the scene last year, they quickly boasted very impressive ridership numbers in comparison to bike share systems that had operated in cities for years, showing there was a market for personal electric vehicles. In the time since, the story has not been as rosy. These companies are plagued by short equipment lifespans, high operational costs, rampant vandalism, and a business model that is so easy to copy it has resulted in an oversaturation of providers.
All of this is putting great pressure on the scooter share industry to find their way to profitability. For the publicly traded companies, Wall Street will not tolerate quarter after quarter of billion dollar losses, putting micromobility services in the crosshairs of future corporate cost cutting. For those companies that are still proving themselves with investor cash, there is an increasingly skeptical investment market that will make future funding rounds and IPOs difficult if they cannot show how they are built to last. Just ask WeWork.
We have a product that is loved by a core group of customers and could be a key piece in evolving our urban transportation landscape away from cars. How will scooter share survive? Here are my Top 5 actions every company needs to take if they still want to be around next year and beyond
1. Get on top of operational inefficiencies
The initial scooter model pioneered by Bird was inefficient by design. They were trying to prove someone would be willing to fork over a few bucks to ride a scooter from point A to B. The concept has been proven, and now operational losses are driving much of the heartache around this model. I have been told by industry colleagues that it costs about $12/day per scooter to operate under the current model. Systems will need over 6 rides from each scooter to come close to breaking even. This is not a realistic number in most markets, and we need to see better operational efficiencies.
This means dumping the gig economy juicers for professionalized staff, industry specific vehicles, and sophisticated dispatching models. Crowdsourcing is great to test an idea, but you will not get to logistical efficiencies with after-work helpers. UPS famously saved millions of dollars in fuel costs and staff time per delivery by switching to only making right turns. These are the kind of innovations scooter companies need to get a handle on operational cost.
They also need to step back from the freedom completely dockless systems give them and realize there is also a real cost. Part of the reason operational cost is so out of hand is that when vehicles can be left anywhere, they end up everywhere.
Last week, we saw the introduction of a riderless scooter to allow the staff-less rebalancing of a fleet. While this an interesting idea to explore, the cost and feasibility of this solution at scale is a real question mark. A more practical return to a hub based system with highly visible parking and a financial incentive to riders to use them would go a long way. Also based on my experience operating a scooter system, the majority of vandalism and damage happens not from riders, but anonymous passersby. Deployment of lock-to technology would reduce this greatly and providing more order to public space.
While field swappable batteries are a solution now, in the longer term scooter and e-bike providers should be talking to folks like Swiftmile to establish charging networks so vehicles do not have to be removed from service for charging.
2. Invest in better equipment
The first kick scooters were repurposed electronic toys. They were never designed to be vehicles rented in public space. This is why we were hearing in many markets the average scooter was only lasting 30 days. In contrast, Bike #1 in the Bixi Montreal bike share system is still in service over a decade later. Regardless of how efficient you make your operations, no company is going to last replacing its entire fleet on a monthly basis.
The application and use of lock-to technology will reduce vandalism, but we need fundamentally better vehicles. Lime, Bird, and Jump have begun developing and deploying better quality scooters, but we really need to look to companies like OjO Electric which created a purpose built vehicle from day one.
3. Chose your markets wisely
The major scooter companies have largely followed the rideshare strategy of growth at all cost in an attempt to dominate the market. This approach sacrifices business fundamentals for ridership, and gross revenue numbers to boost market valuation of the company ahead of a hoped-for IPO. We see how well that is going for Uber and Lyft.
The capital and operational cost problems mean the current business model is not profitable at any scale. Scooter share cannot grow itself into sustainability. Instead, these companies need to learn how to say “no” to growth. Focus service on markets where gross revenue is highest and where there are opportunities to test out improved efficiencies and better equipment. They need to get it right where the chance for success is greatest before they grow.
4. Make your riders pay for bad behavior
I have had conversations with scooter providers who tell me that their policy is not to really charge riders for bad behavior. This is a tactic born out of the need to grab as many users as possible for IPO valuation, not a sustainable business practice. Hertz and Avis don’t let you leave your rental car just anywhere and look the other way if you total the car. Scooter companies are leaving serious money on the table here, and your customers will not learn how to use and park the scooter properly if there is never anything at stake. Plus, some customers are not worth the trouble.
5. Be smarter with your money
As your community banker will tell you, locking up a large amount of your cash on disposable equipment is not the best investment strategy. Big scooter providers need to leverage their market position to get buy-back programs from manufacturers as better equipment is developed. They can also take the lead of Revel, an electric moped share company, that was able to take a relatively small initial investment and use financing to launch a 1,000 scooter fleet in New York City. Rather than tying up their money in the small fleet that they could afford to buy outright, Revel was able to leverage limited cash into big impact. Now they have a cost effective strategy for capital growth.
Bonus point: Don’t ignore the public option
Do you know the old joke about how to be worth a $1 million as the owner of an airline? Start out with $100 million.
The honest truth is that all of the innovative business smarts may not get scooter share to profitability. There is a reason so much of transportation services are publicly financed and regulated. Making money in transportation is hard.
Even if these companies can figure out how to make the model work in the best markets, it is likely many communities that have scooter share today will not have it in the future. Private companies are not required to serve your community if it is not in their financial interest.
Public policy makers need to be prepared for this future. We should be looking at how local community providers, like their public bike share systems, can fill this gap, or setting up public-private partnerships with a specific scooter company. The private sector is not going to fix it all, and innovative interplay of government, non-profit, and for-profit organizations will be required in most places that want scooters.
It’s time to innovate the innovators!
About the author: Elliott McFadden is the founder of McFadden Mobility Consulting and is a veteran of the shared-use transportation industry. His career has involved taking on ambitious, visionary plans and helping organizations adapt and move to the next level. He is a nationally recognized leader on shared-use mobility, having been an invited speaker at over a dozen conferences around the country. More about Elliott…