Scooters Are Here. Why Are They Here?
What’s something that you thought was true, but realized you were wrong about? For me, it is whether the new wave of electrified scooters (e-scooters) coming to our cities are a worthwhile addition. I was initially very skeptical of what I considered to be a fad, but I’m going to explain why I’ve changed my tune.
First, some background: e-scooter companies (and their cousins, dockless bikes and e-bikes) have been growing dramatically over the last year, fueled by venture and corporate strategic investments and acquisitions from ride-hailing companies. For example, Uber has invested in Lime (which provides dockless bikes, e-bikes, and e-scooters) and acquired JUMP (which offers e-bikes). Bird and Skip are other e-scooter companies with a growing presence.
These e-scooters typically have a top speed of about 20 miles an hour, have been deployed to generally positive reception in cities like San Francisco and Los Angeles, and are expected to be deployed soon in my home city of Chicago. However, much like ride-hailing services before them, cities are taking different approaches to deciding whether and how to regulate these new vehicles.
As I learned about the e-scooter trend, my first thought was, “why?” As a frequent bike commuter, I didn’t understand why a battery powered scooter had real advantages over owning a bike, or a subscription to a bike-share (like Divvy Bikes).
However, as I learned more about the economics and the adoption of these devices, I started to understand what the fuss was about: it boils down to lower barriers to entry and economics.
Barriers to Entry
While it’s true that bikes are cheap and easy to operate (I swear, getting the hang of it is just like riding a bike…), they are not an appealing form of transportation to everyone. Pedaling can take some exertion; people may not want to sweat on their way to work in formal clothes. Further, some folks are also worried about doing something wrong on a bike, crashing, and injuring themselves.
With scooters, there’s essentially no learning curve — you just hop on and go. Since they are battery powered, one can use them in formal clothes or in warmer weather without getting too disheveled. And, because people are in a standing position on them, there seems to be less of a perception that you could get your legs tangled in a crash.
Economics
For riders, it’s a compelling proposition: there are no subscriptions, so you just unlock an e-scooter and go. An average ride is comparable to public transit in cost and certainly cheaper than any rideshare or taxi.
For companies, the takeaway is that scooters are a potentially very profitable asset. While no e-scooter companies are public, there is revenue and cost information available anecdotally. The average ride is about $3 ($1 to unlock, .10-.15 cents a minute); these scooters have a list price of $1,000 or less, and e-scooter company representatives suggest scooters can be profitable in 4–6 weeks (incredibly quickly).
This implies that a scooter needs to be used about 8 times a day to be profitable in 6 weeks (on a per-scooter basis, not the business as a whole) — this seems like a reasonable estimate if more scooters are used a couple times during the morning and evening commute, and occasionally during the day. If you assume some costs due to theft, maintenance, personnel, and charging costs, then maybe you double your costs estimate and you’re still talking about being cash flow positive on a per scooter basis in months rather than years.
Importantly, unlike ridesharing services such as Uber and Lyft who generate substantial revenues but are not yet profitable, e-scooter businesses have the potential to become profitable quickly (although Uber makes less money on an e-scooter ride than on a ride-share ride). The capital costs of a scooter are dramatically less than that of a car, and you essentially don’t need to pay a driver (yes, you do need to get the scooters organized and charged overnight, but the companies crowdsource that work for about $5 a scooter a night).
Fools and Rideshare Companies Rush in
Based on the mutual interest of customers and investors, it’s no surprise that there is a lot of excitement and investment from rideshare companies in the e-scooter space, who see an opportunity to broaden the scope of their businesses to be mobility companies and build stronger networks. Is there any synergy between these modes of transportation? It appears so. After Uber’s acquisition of JUMP, overall trip frequency increased from riders who tried out JUMP, and some Uber trips during congested periods were replaced by JUMP trips
Of course, this does not mean that people are not still going to lose a lot of money investing in e-scooters. One reason there is so much money flooding into this space (besides there being a lot of dry powder chasing deals in general) is that given the importance of strong network effects of having a large scooter network, it is likely there will be a small number of winners in the category (1 or 2), similar to rideshare businesses. As with many rapidly evolving markets, we should not be surprised by some consolidation and some bankruptcies as these companies compete for the best networks.
That said, even if individuals like these e-scooters, how should we think about this from a societal perspective? Should they be regulated? What does scooter use mean from a carbon emissions standpoint, and how will it impact our infrastructure?
Regulation
I said earlier that e-scooters are able to turn a profit quickly, although that doesn’t price in externalities like regulation. However, even if you require e-scooter companies to pay a hefty licensing fee or per-scooter tax, it’s hard to imagine screwing up these economics too much. As a reference point, Chicago has the highest cigarette taxes in the country (which I believe is the product with the highest levies against it) — over $7 in taxes on a $5 pack of cigarettes, or about 150%. Even a 150% per scooter tax could be recovered in a few months of operation, using the assumptions above.
It is my hope that there is early and active regulation in this space. Dockless mobility services have had a much rougher go of it where there has been too LITTLE regulation rather than too much (see: China). Setting some minimum standards around operation will be important to minimizing nuisances from this new transportation solution.
At the same time, it is important that these operators have a chance to offer their solutions at scale. Some cities approach regulating these mobility services by capping the number of bikes or e-scooters that can be offered to an arbitrary and low level. While some limitations are reasonable, it’s also important for the health and profitability of the networks to have sufficient density where they can attract robust ridership. I was a member of a very early bike-share network in Washington, DC in the early part of the decade which only had a handful of stations and bikes, which limited its effectiveness. It was not until Capital Bikeshare was deployed at scale that it became a popular and frequently used method of transportation.
One approach to regulation that I find interesting is to use market dynamics to determine how many scooters should be allowed — regulators could set a dynamic cap based on the actual usage of the scooters (based on, say, the number of trips taken per day). This would allow enough scooters in a city to enable economies of scale for both users and scooter companies, while also ensuring that areas don’t become dumping grounds for heaps of unused scooters (which is what happened in many Chinese cities, more or less).
Also, I should point out that I think the purported reason a lot of the regulation ends up happening — sidewalk clutter — is a bit silly. Yes, we need some standards in place, but this useful post reminds us that the sidewalks are just one small part over the overall streetscape, which we can use for a variety of different transportation modes. I expect the licensing fees for many scooter programs to go directly into streetscape improvements that make our streets better to navigate for everyone (the buzzword here is “complete streets”).
So, while the fundamentals of e-scooters look relatively sound, one takeaway is that regulation is an important aspect of the e-scooter business model — too much or too little could cause a lot of trouble (either from blowback due to an over-abundance of e-scooters and dockless bikes creating nuisances, or from a lack of efficient scale).
Carbon Emissions and Infrastructure
The direct and indirect carbon emission impacts of e-scooters can be boiled down to this: it depends on what sorts of trips people are taking on them, and what they are replacing.
My colleague Paul notes that it really depends whether scooter trips replace car trips or public transit trips. Scooters replacing public transit is not necessarily bad for the environment, but it takes revenue away from transit agencies that is needed to maintain infrastructure. My colleague Ben believes that scooters will mostly replace walking or short bike-share trips, and may encourage some additional use of public transit. However, additional ridership could also hurt public transit in certain areas.
I now consider myself quite optimistic — I think scooters are a definite positive from an emissions perspective because they add another low-carbon transportation tool to the mix. It is true that this could cause public transit revenues to take a hit, but this can be addressed through regulation by requiring licenses to operate the scooter networks and using license revenues to support transit.
However, I think the biggest and most exciting change that will occur is that as more people spend time on small personal vehicles (e-scooters, but also bikes, e-bikes, electric skateboards, these things, and other devices that haven’t been invented yet), we’ll shift our infrastructure to accommodate these usage patterns. As a biker, I am more than happy to share the bike lane with these other transportation modes, and more people on scooters means more people that will be interested in high-quality bike lanes. As we shift how our public thoroughfares are used over time to provide more space for small personal vehicles, we should expect to see more people opting for these modes of transportation, whether they opt for e-scooters or bikes (just as more people cycle when good bike lanes are in place).
Takeaway Thoughts
E-scooters haven’t even hit the street in many cities, but they’re inspiring a great deal of attention and excitement. While I completely understand not “getting” scooters, particularly for people who typically drive and have easy access to parking, I believe that with a little foresight and sensible regulation, these e-scooter networks will be profitable for operators, popular with consumers, and good for our cities.
Special thanks to the Strong Towns podcast for helping to inform my thinking on this subject, and to my colleagues Paul Seidler and Ben Gaddy for their perspectives.
