Earlier this week, Flash, the scooter startup from Delivery Hero founder, re-branded as ‘Circ’ and announced 1M rides. 24 hours later, Tier, the Berlin-based e-scooter rental startup, unveiled new hardware and announced 2M rides.

The scooter craze hasn’t slowed down for a second. Scooter startups have raised €1.24 billion, and cities like Paris have 20,000+ scooters operated by 12 different companies.

Source: Sifted

What started as an intriguing fad is now one of the biggest opportunities in the market. The crown is still up for grabs, but something is clear: there won't be twelve winners.

I believe that the three things that will define the winner(s) are seasonality, hardware, and playing nice with city regulators.

Let's see.

Seasonality as a moat

No one likes riding a scooter in the snow. It’s cold, it’s dangerous and you’d rather be watching Netflix.

Seasonality has been the elephant in the room for scooter companies for a while, particularly after a worst than expected winter. But each company handles seasonality differently.

“Seasonality is a big part of the business. In certain places, electric bikes are great all year round. In places [with] snow or precipitation, we can move our fleet around down south then come back during later months.” - Caen Contee, Lime’s Head of Global Expansion

I think that seasonality  is not a fundamental business problem— it affects hotels, clothing and a bunch of other industries.

The key is being able to dial back variable costs during these periods. Like most complex problems (for scooters that's theft, charging and repair costs), once you figure it out, it makes it extremely hard to out-compete you.

This means that in the end, seasonality is a moat that protects the incumbents who have enough resources to throw at the problem. Small operators can’t survive a bad winter, whereas Bird or Lime are geographically diversified and have the logistics capacity to rebalance supply across cities.

The right hardware play

Travis VanderZande told TechCrunch he knew that in 2017 he had to move quickly to beat copycats to the market and gain first movers advantage. Operating under Reid Hoffman’s blitzscaling philosophy, he “dispersed hundreds of Alibaba-imported electric scooters that were, well, pretty shitty.”

I can attest to the shitty-ness of those scooters. But blitzscaling paid off, at least scale-wise.

Blitzcaling: increasing the capacity of a system by a large magnitude in a short amount of time.

Blitzscaling often refers to quickly expanding a service as the product becomes extremely popular. The key reward of blitzscaling is the first-scaler advantage. The first who succeed take all or most of the market which gives them a lasting advantage hard to overcome. So if your market is big enough, being first to global scale is more important than short-term unit economics.

This is only true when:

  1. you have cash (or the capital market is liquid enough to provide it)
  2. there is light at the end of the tunnel (i.e. positive unit-economics in the future)

The funding is there. As I said, scooter startups collectively raised more than 1 billion. But unit-economics? We’ll see.

Scooternomics have four key variables that define whether the numbers work or don't:

  • Durability - how long can a scooter be used over its lifetime
  • Battery life (and charging logistics) - how long can a scooter be used before having to recharge it.
  • Occupancy - how much people use them.
  • Theft rates - how many scooters remain active overtime.If you have a crappy scooter that doesn’t last enough to recoup the initial investment because it spends more time being charged than on the streets, then you can't win regardless of scale.

For the first few years, Bird used off-the-shelf scooters that weren’t really built for long-term commercial use. They lacked spare parts, they broke down more often than anybody would have liked and they had insufficient battery lives.

Based on open data from a US pilot, the average lifespan of a Bird scooter is 28.8 days, or just shy of a month. Over those 28.8 days, the average vehicle went 262.8 kilometers over 92 trips. The average trip lasted 18 minutes, and the average scooter did 3.49 rides per day.

At 18 minutes, the average trip generated $3.70 in revenue. At 3.49 rides per day, the average scooter generated $12.91 in revenue per day.

According to The Information, we can assume that each ride costs Bird $2.75 in operating cost, which means that each ride generate just short of a dollar per day.

3.49 rides * 3.32

Based on open data from Louisville, the average lifespan of a Bird scooter in Louisville to be 28.8 days, or just shy of a month. To state the obvious, that’s not very long.

Over those 28.8 days, the average vehicle went 163.2 miles over 92 trips. The average trip lasted 18 minutes, and the average scooter did 3.49 rides per day.

At 18 minutes, the average trip generated $3.70 in revenue. At 3.49 rides per day, the average scooter generated $12.91 in revenue per day.

Based on reporting by The Information, we can assume that Bird spent $1.72 per ride on charging costs, $0.51 per ride, on average, on repairs, $0.41 on credit card fees, $0.06 per ride on customer support, $0.05 on insurance.

Multiplied by 3.49 rides per day is $3.32 in net revenue/scooter/day or $67 over its lifetime.  Considering that each scooter costs $551 (including setup), then the math doesn't add.

Sure, this data is from one US city during a 90 day period. But it is nearly identical to the $3.65 in revenue per ride Bird reportedly told investors it was averaging as of June.

So unit economics weren't working for them...

The only way of improving unit economics is to move away from the off-the-shelf Huawei scooter and build proprietary technology with improved durability, battery life, and theft protection.

Some companies are starting to do it.

Bird unveiled Bird Zero in October, equipped with a digital screen to display riders’ speed, a tougher exterior, and improved battery life.

With 65% improvement in battery life, the unit economics improved dramatically and with longer-term between maintenance and lower theft rates it has been a huge boon to the company’s finances. They also were exclusive to Bird so they gave the company a competitive advantage.  

Tier is doing something similar: a modular design with a removable battery that can be adapted to  different city regulations.

"The new Tier scooters produced via a strategic partnership with Okai utilize a “modular” design — something that Voi is also doing — so that they can be customized for different (regulated) markets, iterated more frequently and for easier maintenance." - Techcrunch

This would allow them to make fleets easier to maintain logistically (many of the companies have to collect scooters when they run out of steam and take to a charging facility) and accommodate multiple regulations without investing in new hardware.

For instance, France only allows scooters up to 25 kph, while Belgium caps scooters at 18 kph.

The real question: with the new hardware, does the math makes sense? We don’t know. But they are trying to figure it out.

“2018 was about scaling. 2019 is about really focusing on the unit economics of the business.” - Travis VanderZanden, CEO of Bird

The hypocrisy of progress: Scooter companies must play nice

Cities are already starting to clamp down on scooter companies, which means they will have to play nice, or at least nicer than Uber (and bikes).

Paris is starting to regulate scooters and is looking to hand out only two or three licenses to operate in the city (remember, there are 12 companies right now, from 8 in March the last time I was there). A

Last year, Madrid banned scooter for four months after a fatal crash. Last week, another accident caused the Stockholm authorities to question the legality of scoters.

The hypocrisy is that in 11 months of 2018, a total of 287 died in road accidents, figures from the Swedish Transport Agency show. That's a significant increase from the whole of the previous year when 224 people died, and I don’t see them pushing to ban cars.

"We have unfortunately just been waiting for a serious accident to happen, and of course it is even more tragic that someone has died" – Hans Cassepierre, investigator for The Swedish Transport Agency.

Well, fuck you, Hans. Were you really waiting for a serious accident to happen? This just shows the regulator mentality.

“Something new showed up, it's probably bad so WE MUST do something to justify our salaries!” With regulators waiting for the revenge (after all, Uber surprised everyone), whoever uses the Lyft playbook and start playing nice will build another moat around their company.

Circ says it has joined the Union Internationale des Transports Publics (UITP), the worldwide association for public transportation and formed a partnership with Swiss public transport operator Swiss Federal Railways.

It's not enough, but it's a start considering that cities will (and should) cap the number of companies to a reasonable amount to prevent saturation, like Paris. Getting licenses could well just be an unsurpassable moat for some (small) players, and it seems like Circ is doing it right.

Ultimately, is "scooternomics" a zero-sum game?

We don’t know where the scooter market is going, and how much it could grow. Sizing the market of a disruptor by sizing the market of the incumbent (whatever that might be right now) is inaccurate.

You could make the case that when a company significantly improves an offering, and creates new features, functions, experiences, price points, and even enable new use cases, it expands the market in the process.

The problem is that VC unit economics + market dynamic are forcing an "all-out race" for the crown. At those insane valuations, venture capitalists are expecting a huge return, and those returns don’t come when twelve players co-exist peacefully in one market.

As I wrote a few months ago: "to deliver the expected returns, one company will be forced come up with a new innovation, feature or use case to differentiate themselves, or lower prices enough to drive competitors out of the market so they can, eventually, reap the benefits of a new, expanding market by themselves.”

I expect to see some mergers (Bird is in talks to acquire Scoot) and some casualties soon, and more than a few agree with me.

“One thing I’m certain of: we’ll see less players in Europe by the end of this year.” - Sifted

Joining forces would enable European startups to get better deals on hardware orders (or share IP over in-house designs), cut down on marketing costs, share the load of negotiating with local authorities, and increase daily utilization (by killing competitors).

But we are missing the fun part...

If you read the Uber and Lyft S-1 filing, you may also have realized that both businesses have a meaningful part of their business tied up in rides that are 1.5-4.5 kilometers.

So will they jump into the scooter biz to cover the 0 to 1.5 kilometers range missing? Of course. It’s too lucrative not to.