Scooters: The Next Big Thing Will Be a Toy… and Acquired.

 

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Courtesy of CBInsights.

 

Most people regard scooters as fun and playful, a toy. Scooters are now the latest disruptive innovation redefining first and last mile travel.

Ride-sharing transformed societal expectations of mobility by replacing taxis. Today, there is an increasing demand for more efficient modalities to mobility besides cars. Urban migration makes cities more congested. Climate change makes society more conscious of energy consumption. Short-distance travel already accounts for 60% of trips in the United States. So, scooters address dynamic customer and environmental needs in transportation.

Most investors see the opportunity. The battery costs for electric vehicles have fallen. GPS, mobile payments, and networking technologies are commoditized products. As a result, scooter companies can scale with attractive unit economics. Scooters are high-frequency products—and viral, achieving adoption with low acquisition costs. The real world virality feature is one of the primary reasons why the valuations of Scooter companies like Lime and Bird has soared.

I’m excited about the businesses, but I see challenges. I think they are remarkably seasonal, an obvious point that has not been discussed enough. However, the most significant concern around scooter companies is if they can erect any meaningful moats over time. The barriers of entry are low, and there are questions if the margins are sustainable long term. 

I imagine that many scooter companies are creating subscription plans to build lock-in with customers and manage supply-side liquidity. Subscription economics didn’t work for ride-sharing considering surge periods according to Andrew Chen. But Scooter companies oversupply. For scooter startups, nailing down the unit economics and supply liquidity are key for the survival of the business. A foreseeable outcome to scooter companies is the China e-bike bubble.

 

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Courtesy of Reuters. I discovered this picture from “The Bike-Share Oversupply in China: Huge Piles of Abandoned and Broken Bicycles” on The Atlantic. That article was insightful.

 

A potential moat that has been cited is evading regulatory capture and even strategies to prevent “scooter vandalism.” I’m not sure this is a sustainable competitive advantage for the business since it would apply to all scooter companies. I’m not entirely sure if insurance of the person and scooters can be a moat, but there are some operational aspects of the business that brings me to my final point.

 

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Courtesy of KPIXTV.

 

Ride-sharing incumbents like Uber also want to capture the scooter (and bicycle) opportunity. They enjoy massive distribution and economies of scale to do so. I predict incumbents will be particularly aggressive in competing against scooter companies given the low barriers of entry and some serious M&A activity and buyouts to occur in 2019 and 2020. This would be beneficial for the companies considered the operational challenges—charging, repair, collecting—that scooter startups are facing.

I think it’s fair to say scooters represent the future of short-distance transportation. But it’s equally fair to say they likely will be acquired then become the enduring businesses of our time.