Scooter Sharing is for the Birds

Thoughts on the owning-sharing tradeoffs

There has been a great deal of activity around shared scooters in the last two years, and justifiably so. Scooters are greener, cheaper, more flexible, can avoid traffic gridlock, and, frankly, they are just more fun than cars for “last mile” trips. As cities finally start to embrace small electric vehicles (skateboards, scooters, bikes) and consider what their transportation infrastructures could be in 10–20 years, it is also becoming more obvious that reducing the use of cars, and promoting better modes of transport should happen sooner rather than later.

At Inovia Capital we always try to look at the world through a “people first” lens, and urban mobility is no different. If you step out of the hype cycle for a moment and agnostically consider what will likely emerge as the dominant business model, you find that many people will want to own scooters, not share them. This is not to say that sharing services will not be useful — they certainly will — but we believe there will be more demand for ownership than the current trend around sharing services would lead one to believe.

Why buy?

In general, the bigger, the more expensive, and the higher capacity a mode of transport, the more it will be shared versus owned. On the inexpensive end, people don’t typically share their shoes with others; at the expensive end very few people own their own 747’s — and in the extreme, perhaps no individual owns an entire cruise ship. This is partially driven by economics, but is also related to convenience; most likely you go to your closet for shoes, to the bus station to catch a bus (which comes frequently) and to a port for a ship (which are infrequent).

This makes for a fun graph:

Understanding this to be a linear progression, as drawn, is simplistic, but it does lead us to think through the possible exceptions. For example, if cars had been allowed to follow a natural adoption path (rather than their use encouraged by incentives from the national highway investment, the oil and gas industry, and the marketing of the ‘house in the suburbs’ dream), would there be a more organic balance between sharing and ownership? It’s quite possible that we are just now seeing the true demand for sharing in densely populated areas with the onset of the ride-sharing economy. Perhaps the “business model” for cars hasn’t matched the natural needs for a long time; the switch to a more natural model is accelerating.

Is something similarly unnatural going on with scooters and bikes? Is the sharing business model so compelling that we have already over-rotated to sharing despite what users really need? Perhaps sharing is a great way to teach people about the advantages of scooters and bikes, but will ultimately lead to more people purchasing these small vehicles directly?

How can we unpack this? It helps to start by thinking about users’ needs rather than from a pre-assumed business model. Looking at it through our “people first” lens, it is reasonable to expect that different people will optimize across a number of variables, such as convenience, consistency, cost, cleanliness, and personalization / sociability. Some will be motivated by cost consciousness and others will prioritize branding themselves through customization.

Cost

Some back-of-the-envelope calculations can help us work through this thought experiment. A good quality electric scooter, that can last three years, currently costs from $250 to $1000; let’s assume a user invests at the high end, and spends $750. Owners also need to charge their own scooters and perform basic maintenance; with a total cost of about $0.11/day, or an extra $40/year. Thus, the cost of ownership is about $290/year or $0.79/day.

Sharing providers are betting that they can optimize their business models at scale, and reach profitability. That does not, however, give them a lot of downward pricing ability, so the $1 + $0.15/minute model will probably remain for a while. That makes the average ride between $2.50 and $3.00.

This already gives us a hint of the breakdown we will see in ownership versus sharing. If a user makes more than two trips a week, it is more cost effective to own.

Convenience and Consistency

Of course, the cost is not everything; people still spend more on bottled water or cafe coffee because it is also convenient.

For many, owning a scooter also provides a more consistent and reliable experience, which will drive more purchasing behavior. People will turn to ownership when no shared scooter is available, causing them to be 30 minutes late, or having to consistently take a much earlier train to ensure that there are still some scooters available at the destination station, or needing to walk a few extra blocks to find your sharing provider when you’re in a mad dash to get home.

This leads us to speculate on the following use cases:

1. Long distance commuter: Priorities are consistency and cost, probably in that order — since time is so valuable, having a consistent and reliable commute is highly desirable, and worth paying a bit more for. A long-distance commuter may be traveling by car or public transit and walking, driving, or scootering for the first and last mile. Commuters face the last/first-mile commute daily, meaning the cost of ownership will be significantly better than sharing. We expect most commuters to end up owning their scooters.
2. Inner city ‘wealthy’ commuter: When given the choice, and the cost is not a material consideration, users will typically prefer personal instead of shared transport. It is cleaner and more reliable. Even if there are shared scooters nearby, ownership (or longer term leases, as with cars) will still be a big part of this market.
3. Inner city ‘cost-conscious” commuter: For people who can choose to walk or scoot, they may only use a scooter when time is short when the weather is tough, or other ad-hoc reasons. This group of people will most likely use sharing services. They may also not be able to easily make the purchase decision, despite knowing that it provides better long term value. As the scooter market matures, this demographic will provide demand for used scooters.
4. Visitors: Will use shared scooters. You don’t buy a scooter every time you visit a new city.
5. Ad-hoc appointments and meetings: If a person owns a scooter for other reasons (commuting), they will use it; otherwise they will use sharing services. This use case will be a mix.

We should expect that there will be both healthy sharing and ownership demands for scooters, based on personal usage needs and cost thresholds. Not everyone will own, and not everyone will share… but it is not unreasonable to assume that in the long term, ownership will surpass sharing.

But, (there is always a but), the picture we have drawn here becomes more complex as multi-modal shared services emerge that make it easier for users to cross-over among various vehicle types. — for example, if Uber and Lyft add scooters and bikes to their portfolio. In that case, both the cost-per-ride and convenience- per-trip become a complex blend depending on the mix of vehicles that an individual uses. That usage mix, generally, favors short trips which imply bikes and scooters (and walking). This may imply that the sharing services that capture scooter users can more easily extend to larger vehicles, rather than car sharing services extending their services down to scooters. This scenario might, unexpectedly provide the true long term value for existing scooter sharing providers and act as a gateway to larger service offerings where scooters are the lost leader.

Any sharing provider should expect competition from cities when they realize that bike / scooter lanes and sharing services will form an integral part of their transport obligations. Both the cost and convenience of small electric vehicles give superior user experience to buses or short-trip light rail.

All of this is intended to remind entrepreneurs that we are in the very early phases of figuring out how the future of transportation will look, and that there are numerous unexplored models between today’s pure ownership and pure sharing models…not just for cars, bikes, and scooters, but also for buses, airplanes, and cruise ships. Companies that figure out how to please all the stakeholders, will have huge opportunities — not only for monetary ROI but also to help make cities “people first.”

Investment Note: The Inovia Growth Fund is an investor in Boosted, arguably the preeminent brand and product for electric skateboards. As Boosted extends their product line into a wider range of light electric vehicles, including the recently announced scooter, Inovia is proud to be supporting a company that is building exceptional quality products that make people happier, helps cities with traffic issues, and helps with environmental concerns.