The dockless scooter wars are in full swing. With the announcement of huge funding rounds at billion-dollar valuations, deals with ride-hailing companies and a spate of local regulatory action, there is a lot of attention being paid to the scooter market, and a lot of wild predictions being made by industry watchers.
As timelines for commercial-grade self-driving cars drift further into the future, scooter companies are absorbing some of the energy. Yet that doesn’t mean scooter companies have it made. While I strongly believe that on-demand scooters are going to be a great mobility service for customers, and might generate some good returns for lucky VCs, ultimately I don’t think it will be a good business.
On-demand scooters are a great service for dense urban environments. Ironically, at least partially because on-demand ride-hailing companies have caused traffic to swell in major cities, scooters can be the fastest and easiest way to get around.
The early consumer adoption statistics I am sure look great for the major players. The enthusiasm for scooters in places where they have been deployed, such as Santa Monica and San Francisco, is palpable.
Scooters make a lot of sense, and unless something very unfortunate happens, they will continue to operate. They are too useful not to.
Ride-Hailing Companies Will Look to Fill a Self-Driving Car-Shaped Hole in Their Strategic Narrative With Scooters, Which Is Good for VCs
Those who have followed my writing know that I have been very skeptical of commercial-grade self-driving cars for many years. In the last 6–12 months, it seems like the consensus has swung to the realization that there isn’t a near-term future where Lyft and Uber become integrated transportation companies using true self-driving technology on the road. They are firmly in the human-operated ride-sharing business.
As the self-driving narrative has faded, it is pragmatic for ride-hailing services to integrate scooters and bikes into their overall transit narrative for Wall Street as an alternative driverless form of transportation. It also isn’t unreasonable for them to try to use their app distribution to help drive awareness, adoption and value for these scooter companies.
I would argue that it is likely that ride-hailing companies will look to acquire some of these scooter companies for the sake of their transit narrative. If they can sell that, they have consumer leverage in distribution, and potentially access to a pool of workers—drivers—who could be detailed to help charge and redistribute scooters during off-peak times in ride hailing. If ride-hailing companies also can better optimize routes with scooters in the mix, then there will be some nice exits of scooter companies back to ride-hailing companies.
The decline in the self-driving narrative and the rise of the scooter narrative is more tied together than people might expect. With several enormous global players in the transit space, there has to be a “next step” to get excited about and invest in. Some will make money on the game—but that doesn’t mean it will be a great business.
There Will Be Zero Customer Loyalty to Scooter Companies, Making Margins Hard to Maintain
If ever there was a commodity service, it is scooters on the street. Sure, I might prefer one brand, and perhaps someday there will be transportation bundles or subscriptions that encourage me to use one scooter over another. But as long as prices aren’t completely unapproachable, there is no chance that someone will walk an extra block to pick up their preferred scooter company’s vehicle if a competitor’s branded product is closer.
People say that in ride hailing all that matters is how long customers wait for a vehicle, but that after you get under a certain ETA level, other factors come into play. In the scooter world, the ETA equivalent is “how many blocks” do I have to walk, and literally every extra step is very expensive.
What is far more likely to happen is that scooter companies will look like credit cards. Everyone will have several apps installed on their phone, and the race will only be to “top of wallet,” the first service that people select when all else is equal. That, sadly, is a race to very low margins and a poor business.
Municipalities Will Tax These Companies to the Point of Perpetual Life Support Because Cities Own the Infrastructure Being Used and Are Cash-Strapped
The cost of providing dockless scooters isn’t the cost of the device and recharging. That is inexpensive. The real expense is building and maintaining the roads and sidewalks that the vehicles travel over, and those are paid for by the city.
I love the saying “Fool me once, shame on you. Fool me twice, shame on me.” Sadly, that is how municipalities feel about technology companies in the mobility space, and will inform how they treat them. Most missed controlling and extracting value from the ride-hailing companies, and they are determined not to make the same mistake twice.
Cities are going to want to get seriously paid this time. And they probably will succeed. The most likely outcome for scooters will become in some ways the opposite of what happened in ride-hailing. Municipalities will keep them in a tight box, which will make it very hard to make money.
Interestingly, this is already happening. I think, for instance, that San Francisco has thus far handled the scooter situation very well to their own advantage. The model of forcing scooter companies off the street in order to apply for trial licenses, thereby resetting the playing field and consumer expectations, is the right way to manage the situation. It is, as I understand it, the same approach people are taking with controlling marijuana dispensaries. You don’t ban anything, but in the process of establishing the legal path forward, you make sure to weaken each existing company.
Scooter Companies Employ Too Few People to Be Able to Push Back
The fact that Uber and Lyft employ so many people gives them an important point of political leverage in cities, by providing income and jobs. That’s something scooter companies don’t have. Sure, there are some people who will make some money recharging the scooters, but likely that won’t be a big enough employment lever to be useful in local political situations.
Many investors and pundits in the on-demand ride-hailing space miss this point and like to talk about how profitable and economically efficient ride-hailing companies will become when they can transition to self-driving vehicles. The reality is that, as I have written before, it is the very fact that they employ so many people that allows them to survive politically. If you take that away, they would be dramatically weakened as businesses. (For more on this, see my column on why Uber is politically more defensible than Airbnb.)
The ‘Integrated Mobility’ App or Service Dream Is Unlikely, Unless Google Maps Does It
Some people make the argument that the whole transportation industry is still firmly in a loss leader mode, trying to acquire customers into an integrated transit app experience. The idea being that once a person is hooked into an Uber or Lyft subscription-transportation app stack, there will be plenty of time to make money.
I just doubt this will happen. Google Maps has the user base, and, potentially, the platform to do it as a non-vertically integrated search and routing layer. That is possible, though the reality is that from a valuation and control perspective, it would be a very poor move for ride-hailing and scooter operators to let Google aggregate them.
It is possible that one app will become so dominant that it swamps the rest, but I think it is unlikely in a world where ETAs and price matter so much to people. Businesses that lend themselves to total vertical integration and winner-take-most dynamics tend to lack the day-to-day and moment-to-moment pressure of needing to perform against ETA and cost. When you add those in, and everyone is a price-time optimizer, it is hard to imagine not having several relationships and experiences running in parallel and constantly forcing margins to be rock bottom for operators for years to come.
Tough Path Ahead
If dockless scooter companies were going to be more than a great service (which they are), they really need to own at least one of the four different constituents interfacing with the market.
They could own the “audience” of users, which is the argument that the ride-hailing companies might try to make to integrating them. But as I have noted, it is hard to believe that there will be any real customer loyalty to these services.
They could own the “supply” of scooters, which is perhaps even more unlikely. For ride-hailing companies, having access to a supply of drivers has been challenging. For scooters, it is basically just a capital issue (as in theory would be the case with self-driving cars), so it is hard to see this as an option. There will always be another competitor willing to spend some money to try it.
They could own the routing software. If their algorithms were dramatically better than everyone else’s, that could be the angle to a successful business, but this is unlikely.
That leaves the last option: owning the roads. Of course, those are already owned by governments, which I expect to locally get their approach together and then extract their fees.
Not everything has to be a huge business. I think scooters could be. I want them to be. But a rational analysis says to me that no one should be holding their breath on this.