Can Scooters Turn Popularity Into Profitability?
As China’s bike share fails, scooters could suffer the same fate
In the realm of urban transportation, there can be little denying that 2018 was the year of the dockless electric scooter. After first hitting streets in the latter half of 2017, scooters spread across the United States and much of the rest of the Western world throughout 2018. Bird and Lime, the two biggest scooter companies, expanded internationally in 2018, and a number of smaller companies were launched with a more regional focus.
But, as we look ahead to 2019, there’s an obvious question: will this growth continue or will the scooter business model collapse? There are credible arguments on both sides of the question, but one thing that cannot be denied is that the companies that inspired the scooter boom are going under — and their fatal mistakes need to be addressed if scooter companies are going to survive through the coming year and beyond.
The collapse of Chinese bike share
The dockless mobility phenomenon was initially a Chinese one. Ofo and Mobike, in particular, led the way, flooding the streets of China’s rapidly growing cities with bikes that could be unlocked with a smartphone. The services made cycling even more convenient and became so popular they’ve been associated with a 7.4 percent reduction in inner-city car trips, until the flaws of the model finally caught up with them.
As detailed by recent report in Reuters, Ofo is facing a cash shortage as it struggles to pay suppliers and process the 12 million refunds that have been requested by Chinese customers. The report links Ofo’s struggles to its overambitious international expansion, which it had to significantly roll back, and its inability to replace damaged bikes. Photos of the mountains of damaged bikes captivated Western audiences earlier in the year, but it seems Ofo was unable to properly address the problem: such a high percentage of bikes aren’t working that people stopped using the service and want refunds.
Just as Bird and Lime are attracting investment at valuations in the billions of dollars, so too were Chinese bike share companies less than a year ago. They were darlings of China’s growing tech and startup sectors, having a significant material effect on the country’s metropolises — positive in how they promoted cycling and negative for those who didn’t like how much sidewalk and street space they consumed — but they were unable to overcome the bad economics of the model and now seem on the verge of collapse. Many of those aspects also apply to Bird, Lime, and the other scooter companies, so it remains to be seen whether their business model will also catch up to them.
Popularity does not mean profitability
Whereas bikes have so far proven to be more popular in China and Europe, Micromobility podcast host Horace Dediu has suggested that scooters will be more popular in the United States, based on the higher scooter utilization rates when compared to dockless bike share. But just because these services are proving popular to American users does not mean that they’ll turn a profit — a necessity for the private companies which are operating them.
Bird and Lime have been frequently compared to ride-hailing giants Uber and Lyft for being tech startups determined to change the way people move, achieving swift growth and massive valuations, and their initial “ask for forgiveness, not permission” push into U.S. cities — though they’ve since changed their attitude.
However, that comparison is probably not one they’ll want to embrace, especially considering Uber is still a wildly unprofitable company — a fact frequently downplayed by the media. Uber lost $4.5 billion in 2017, and is set to post another major loss in 2018 after reporting a $1.1 billion loss in the third quarter alone. While Uber’s problem remains driver pay and its higher costs when compared to a traditional taxi company, the scooter companies have a similar task to the Chinese bike share companies: bring the cost of scooters down and make them last long enough to turn a profit. It’s a bigger challenge than it might sound — but one they’re all working on.
Making an enduring scooter
An October report on the economics of Bird in The Information suggested that it currently takes about three months of use for a scooter to offset its costs, but they tend to be replaced every month or two — an unsustainable model if costs don’t come down, scooters don’t become more durable, or a combination of both.
To address this problem, both Bird and Lime are rolling out new scooters with bigger batteries, larger wheels, more durable construction, and other tweaks aimed at making them last longer and provide a better ride experience. However, it’s unlikely that these nicer scooters will also be less expensive than the previous ones, which means they’ll need to stay on the road even longer if they’re to generate a profit. More and more cities are also placing licensing fees on scooters, adding another cost that will need to be recouped.
Economics will be one of the key aspects of the scooter story to watch in 2019, particularly whether the longer lasting scooters will be able to pay themselves off. The Information also reported that $1.72 of the average $3.65 of scooter ride revenue goes to pay the people who charge the scooters, and given that these chargers are gig-economy workers in the United States, the companies may try to slash their rates as Uber has done to its drivers.
But what if they don’t work out? What if the private scooter companies can’t find a sustainable business model? Does that mean that scooters are not workable in the urban environment? Not necessarily; there are alternative models.
Is scooters’ future part of the transit agency?
From New York’s subway to Montreal’s docked bike-share system, plenty of public transportation services began as privately provided services before the local government decided that they were essential to mobility in their respective jurisdictions and made them part of the public system, regardless of their ability to turn a profit.
Silicon Valley is trialing plenty of new mobility solutions, including ride hailing, microtransit, dockless bike and scooters, and various trip planning apps. That doesn’t mean they’ll all turn out to be an essential part of the urban mobility in the future, but some of them may.
Just as the transit authority should control urban transportation data and the dominant platform which organizes the mobility options that are available to residents, scooters may prove themselves to be an essential part of urban mobility, particularly for those last-mile trips to more efficiently connect people with the transit system.
In China, bike share has suffered in part because it’s so easy for rival services to launch: there’s no brand loyalty because people are just looking for the cheapest and most convenient option. Alternatives are already rolling out to challenge Bird and Lime, and if the transit authority ever decides it wants to get involved, it can do the same and tie scooters into existing transit and docked bike share, making their service the most attractive of them all.
Whether the transit authority should launch a scooter service remains an open question, and it will likely depend on future research on whether they provide mobility benefits to residents. But before the transit authority gets involved, it will surely wait to see whether private companies can operate them at a profit. And that answer may come in 2019.
