It’s never about being first to market. It’s about being the last

A practical case study on why it’s better to be late into a market

Scoot.co, an electric scooter sharing service that’s just arrived late to the party in Barcelona where so many alternatives are already available. And why that works to their advantage.

How many times have you heard entrepreneurs and businesses in general say “we need to go fast in order to be the first to market”?

Well, today I wanted to explore the very opposite of that idea. I feel like there is a wide array of reasons as to why you would not want to be first to market, and we tend to overlook them.

To deliver the ideas, I’ll be using a practical example of Scoot, an electric scooter sharing company that’s just launching their service in Barcelona, a city that’s already had a range of competing companies for several years now.

First-mover disadvantage

Very often we find people talking about how important it is to be the first to market, to get the first-mover advantage. Securing most of the market share from the get-go, benefitting from brand name recognition, gaining control over certain resources such as location or providers, yada yada yada…

But, as with anything in general, there’s always two sides to every story. Being first to market means that there is no market in the first place. You need to develop it and that’s a very ambitious, complex and usually costly thing to do.

One of the most important tasks when developing a new market is convincing people your new solution will solve a problem they have. Heck, sometimes we get so drowned into the status-quo we may not be able to see there could be a better solution to our problem and convincing people there is an alternative is a monumental task.

Case in point: urban mobility (i.e. how you get around your city).

For decades there has been a lack of major innovation across the urban mobility space. Personal transport, Buses, Taxis and Metros (or Tubes for you Brits) were pretty much the only options to move around a city. It’s only in the last couple of years that we’ve seen a number of different business models arise to try and solve this problem taking a fresh approach at the problem.

One of said approaches is scooter sharing.

A couple of years ago one of my good friends told me about a new service that had launched our city (Barcelona, Spain) called eCooltra. It’s a free-floating electric scooter sharing company. The idea is that they have a decently-sized fleet of scooters parked around the city and you just have to book one through their app. Once you find the scooter you simply unlock it with the app, put on their helmet and drive off. In terms of practicality, it pretty much doesn’t get much better. A personal form of transport that gets you from A to B cheaper than a taxi.

Back in the day when eCooltra launched they had to face a series of issues as a first mover. Issues such as:

  • Absolutely 0 people out of the city’s population know what scooter sharing is. How do we market our service to them?
  • How do we make them understand scooter sharing is practical and probably cheaper than owning a scooter?
  • Will we be able to convince people that have never even tried riding a scooter to use our service?
  • Are people going to to be reluctant to using a helmet worn by so many other people due to hygiene issues?
  • How do we make sure the battery recharging/swapping operation runs smoothly so our scooters have a higher usage rate?
  • How do we keep the scooters clean and in good shape?

Being first is extremely unforgiving

The first mover not only has to figure out how to run their operation smoothly as they go (remember, there is no one to learn from), but they also have to market their new product or service to people. This is easier said than done. Usually people tend to adopt new solutions very progressively. In eCooltra’s case they needed to convince people that sharing a scooter was a better option than taking a bus or taxi or owning a scooter all-together. That’s fighting against people’s habits formed during decades.

When a new product is launched successfully, the traction in sales it gets tends to follow a pattern similar to the one in the chart below.

In essence what happens is sales grow painfully slow until you hit an inflection point at which your solution starts to get massive adoption. At this first stage you’re selling to people who din’t mind trying out novel solutions, hence the name of “innovators” for said audience. The sales at this stage are very little and will never bring you to break-even as at this same point in time any company is also investing heaps of cash to develop and market their new product. In eCooltra’s case these could include:

  • How are we going to convince people that using a shared scooter is better than taking a taxi or owning a scooter?
  • What are the economics that make this business model work? I.e. what’s the minimum city density that makes this business work? Can this solution work in cities that are not used to driving motorbikes? etc.
  • Which technology firm are we going to partner with which will provide the hardware needed to interconnect all the scooters with our service so clients can book them and open them from their phones through our app?
  • How are they going to approach insurance firms and ask them to create a new product for them? Remember that insurance companies have sold insurance policies tied to vehicles and people for decades (i.e. based on the car you want to insure, and the age of the primary driver, your insurance is going to cost $X). All of a sudden they are asking insurance companies to create a new policy covering a scooter and driver’s liabilities but there is no primary driver at all. Instead, it’s potentially thousands of drivers that are going to be using the scooter in wide range of ages. It’s not that an insurance company won’t want to get into this business, but rather that they have no experience in it either so they will also need to learn to see if it’s profitable or not as they go, and it’s yet another partner the scooter sharing company needs to convince.
  • Are there any legal hurdles or regulations they need to take into account?
  • … and many more…

These things are extremely hard to know the answers to before hand. The best way to tackle them is by simply throw yourself into the ocean and navigate around the uncertainty and issues as you go. Ohh, and other entrepreneurs will be watching very closely.

If a company survives this first stage then it’s likely the case they have solved many of the issues they’d have encountered. In a certain way, they have just paved the way and revealed how some of the bigger issues might be solved. They have also made it way easier for other companies to learn from their efforts in opening the market up and short cut the initial process all together and saving a lot of money.

This is the stage where early adopters will start buying into the new solution and sales start soaring. This is also the sweet spot for other companies to also enter the market. Not too early to pay for all the costs associated with opening up and learning how to create a viable business out of it, not too late to be overshadowed by large companies in the space.

Think of it like drafting behind a large truck. The truck is spending an incredible amount of energy to pick up speed and displacing large volumes of air in order to keep momentum going. No one is stopping someone else from getting their bicycle and drafting millimetres away from you at the same speed while using a fraction of the energy.

Wondering how that looks like in real life? Please don’t try this yourself. This guys is a maniac!

Scoot’s late arrival to Barcelona’s scooter sharing scene, and why they are going to nail it

The electric scooter sharing business is a tricky one. Here’s the thing with eCooltra:

  • Yes, they have successfully opened up the scooter sharing market in Barcelona (and other cities across Europe)
  • Yes, they are probably the leader in the scooter sharing scene in Barcelona right now with the largest fleet and strongest brand

But, as I’ve already mentioned in the previous section, being first in many cases is very unforgiving. Let’s do a little “back of the envelope” calculations to see where they stand:

  • eCooltra’s scooters have, on average, anywhere from ~700 to ~2,000 of Kilometres on their odometers from what I’ve seen. Let’s stick to the best case scenario and assume all scooters have been used for around ~2,000km.
  • A typical journey on an electric scooter for me is around 5km in length and takes around 18 minutes on average. That’s 0.31km per minute. Bear with me.
  • eCooltra charges 0.24€ per minute you use the bike
  • Given the time it takes to travel 1km in Barcelona, what eCooltra charges per minute of usage and how much kilometres their scooters have on the clock you can say each scooter has yielded roughly ~1,550€ in revenues. Remember we’re using the best case scenario here.

That’s no where near the cost of the scooter in the first place and I haven’t even factored in operational costs. This is actually not very surprising as this service is relatively new (some ~3 years old) and you’d expect a scooter’s life span to be at least ~5 years after which it could be fully depreciated.

This is important because Scoot has just arrived in Barcelona with newer, faster and longer range bikes. I’ve been lucky to be a beta tester for their service and here are main differences I see between both services:

Top speed

  • Scoot: 80km/h
  • eCooltra: 47km/h

Notice something interesting here. Is eCooltra limiting the speed of their bikes so people can’t go over the urban speed limit, or to make people travel for longer and thus pay more for using the service? I honestly don’t know, but if Scoot has upped the limit to 80km/h I can’t restrain myself from asking…

Acceleration

  • Scoot: Fast
  • eCooltra: Slow… very slow.

Connectivity (how fast the scooter reacts to turning it on/off on the app by the user)

  • Scoot: almost immediate
  • eCooltra: Slow… very slow.

Again, eCooltra is using a third party provider that installs hardware into the scooters that allows them to be started and stopped via an app. This is also a large investment and this hardware and connectivity is painfully slow. When you tap to open the helmet vault, eCooltra takes some 10 seconds to do so and the same goes for starting / stopping the scooter. This is time they still are billing you for “using” the scooter.

Range (probably the most important in terms of making the business profitable)

  • Scoot: ~105km, enough for some ~20 trips. I’ve ran through an entire charge and can attest to that is true.
  • eCooltra: ~35km, enough for some ~7 trips. From my experience this number is even lower in reality. Many times I’ve booked a scooter that apparently had 2/3 charge left only to start it and see it was very close to showing the “low battery” warning. In my experience I’d say it’s more like 4 trips, but let’s give them the benefit of the doubt and stick to 7.

Another interesting fact appears here. Which service will be able to run with less operational costs? One of the main operational costs is the entire batter swapping operation where a team of people need to travel to the scooters scattered across the city and swap batteries, clean the bikes and do any minor maintenance tasks to them.

Given the fact that eCooltra needs to swap batteries almost 3 times as often as Scoot, they likely need a larger battery swapping operation which adds costs that are translated to the end customer. This also suggests Scoot could launch at a similar pricing point even when having substantially better scooters. At the time of writing this article the pricing has yet to be revealed, but if they do launch at a similar pricing point, from a customer stand point it’s an absolute no brainer. The only reason why someone would still use eCooltra would be if there wasn’t a Scoot around nearby.


Conclusion

Scoot has timed the perfect moment to enter the scooter sharing market in Barcelona. Ripe for mass adoption thanks to it’s competitors doing the initial hard work to open up the market and get people aware that there is a new alternative to moving around a city.

The late arrival has also yielded some interesting side effects in that battery and electric motor technology is improving at an exponential rate means that having a 2 year delay into a market is actually great as the industry has had time to develop better, faster and longer range scooters which Scoot is now using. The only way eCooltra can catch up is by investing millions into new scooters all while their current fleet is no where near being even half depreciated.

In a market where switching from one service to another is as easy as installing a new app, I think Scoot has the edge.

Will Scoot be the last in the market? Time will tell, but this is certainly a great illustration of when being first to market is not the best option.