Electric Scooter

Rolling up to become the next Uber?


The emergence of electric scooters: Rolling up to become the next Uber?
Electric Scooter
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I. The new hit startup that has spread down the American West Coast in just a couple of months

There are currently people riding electric scooters, or e-scooters, all over downtown San Francisco.

  • Since early April 2018, the number of people using electronic scooters around San Francisco has been surging.
  • Users pick up electric scooters parked about the streets, ride them to their destination, and park them wherever before moving on. The next user repeats this same process.
  • Reference video: https://www.youtube.com/watch?v=oemCF7FYoC0

Three startups are responsible for this rapid surge in e-scooter numbers, which has the city threatening to shut down operations over pedestrian safety concerns.

  • These startups supplied e-scooters in downtown SF at the end of March 2018. In about three weeks, over 2,000 e-scooters were roaming the city.
  • The City of San Francisco has warned that scooter-sharing can threaten the safety of pedestrians and is seriously considering regulatory measures for e-scooter companies.
  • That said, scooter-sharing startups may be slated to become the next Uber, as they are growing rapidly, receiving great users’ responses (“it’s convenient and cheap”) and massive investments.

There is also an increase in number of bike-share users during this e-scooter boom.

  • Before the emergence of e-scooters, American startups had begun benchmarking the Chinese business model for bike-sharing in 2017.
  • Many customers use these bikes due to the cheap cost (less than half the price of bicycles previously supplied by local governments) and convenience of parking the bike freely on the street after use.

Uber acquired the bike-share company Jump for nearly $200 million and now provides the bike-sharing service on its app, evidencing that shared bikes and scooters have become the hottest mode of transportation in the American West Coast.

II. The business model of scooter- and bike-shares

The scooter-sharing market is growing rapidly, using the fact that “when traveling short distances of 2-3 miles, you can move around more conveniently, quickly, and cheaply on an e-scooter than in an Uber” as its selling point.

  • Mission: Given that about 40% of all vehicle operations are cases of moving short distances under two miles, companies seek to convert short-distance users of Uber, public buses, and/or personal cars to the scooter-sharing market.
  • Mode of transportation: Electric scooters are used. Their maximum speed is 15 mph, and they can travel about 24-30 km on each charge. Xiaomi produces and supplies the majority of e-scooters.
  • How to use: Customers can ride any share scooter on the street and simply leave it behind once they’ve arrived at their destination. A different customer rides that scooter and then leaves it wherever. The fact that you can leave the e-scooter anywhere and carry on with your day is the core of scooter-sharing: convenience.
  • Mobile app: Customers can easily sign up through the app. Using the app’s map and GPS system, you can figure out the scooter’s location and pay through the app once you arrive at your destination. Once on the move, the app can also navigate you on the road.
  • Price: It costs $1 to sign up and 15 cents per minute of scooter use. A 10-minute trip costs $1.50.
  • Charging e-scooters: Electric scooters can be used for 3-4 hours, if charged fully. Each company relies partly on the gig economy, offering residents $6-10 per charge to charge scooters in their homes overnight and set them on designated sidewalks in the morning.

Three companies are engaged in fierce competition over the scooter-sharing market and expanding the market scale.

  • Bird: A company founded in Santa Monica by Travis VanderZanden, the former COO of Lyft and the former VP of Global Driver Growth at Uber. VanderZanden is fully utilizing his experience from Uber and Lyft, expanding aggressively and ignoring each city government’s warnings about fines or even a business suspension. He started operating in LA and San Diego, and recently successfully dominated the SF market. Recognized for these accomplishments, VanderZanden had about $300 million corporate value in March 2018 and received funding of about $100 million. Following the precedent of growth set by Uber, he is pursuing rapid expansion into 50 U.S. cities beyond the West Coast.
  • LimeBike: LimeBike is a company founded in San Mateo by 4 Chinese people who brought the dockless bicycle-sharing model popular in China to the U.S. Co-founder and CEO Toby Sun, using his corporate experience from China, received his MBA from Berkeley Haas Business School, and co-founded LimeBike with three of his friends while working at a Chinese venture capitalist (VC)’s Silicon Valley office. After 2017, they started their bike-sharing service at the University of Southern California (USC) and then found huge success in Seattle. With this groundwork, they continued their success in the major cities of California and Florida, and received a cumulative funding of $130 million, with around $250-300 million in corporate value, on February 18. They are not only pursuing the bike share business, but also aggressively entering the share electric bike (Lime-E) and electric scooter (Lime-S) businesses as well.
  • Spin: Spin, too, is a company founded in 2016 by Chinese Americans after benchmarking China’s bike share business model. Co-founder and CEO Derrick Ko is an engineer who graduated from Purdue University in computer science; he was a product manager at Lyft when he co-founded Spin. Though he’s operating the same business model as LimeBike, Spin is growing at a slower pace. As Spin also recently entered the e-scooter sharing market, it is competing in a three-way race between LimeBike and Bird.

Bike shares are being operated similarly to scooter shares, but being beaten out by scooters.

  • Bike-sharing companies are operating at a similar price and method as those of e-scooters. Users can track the bike’s location through the app and conveniently park it anywhere.
  • Though bikes were spreading at a fast pace before the emergence of e-scooters, they have since been pushed out, their rate of user growth slowing. Spin and Lime, which used to be just bike-sharing startups, have entered into the scooter-sharing market and are investing the majority of their resources into controlling said market.

III. Impact on other industries

The existing traditional bike-share services are taking a hard blow.

  • In the case of bike rental services operated by city governments, they are surely being pushed out by bike- and scooter-sharing services due to their excessive prices (e.g., $20-30 for 3-4 hours) and inconvenient use policies (you must return bikes to their designated parking rack, but there aren’t that many racks).
  • The companies that provide 1-day bike rental services for tourists, too, are rapidly losing customers as tourists begin to use bike or scooter shares.

Simultaneously, the global rideshare company Uber is also taking a blow to its business, as short-distance commuters within the city are taking the scooter instead of Uber.

  • When traveling short distances under 2-3 miles, Uber and Lyft’s average cost is $5-7. For share scooters, however it’s possible to travel the same distance for $1-2. It is also common for the total travel time to be shorter on e-scooters than using Uber.
  • Uber is not free from traffic congestion, and you may have to circle around a bit when using Uber’s carpooling service. On share scooters, however, you can travel the fastest route without worrying about traffic.
  • Due to the large ratio of Uber/Lyft users who travel short distances, Uber and Lyft are looking for multiple ways to limit and control scooter-sharing companies, such as mergers and acquisitions (M&A) of target companies or lobbying to halt company operations.

IV. Different perspectives on the possible future growth of e-scooter companies

However, it has been evaluated that scooter and bike sharing businesses can only succeed where the weather is temperate year-round and the air quality is good.

  • Bike and scooter share successes are concentrated in regions like the West Coast, Florida, and Texas, where there is low rainfall and no cold weather year-round.
  • Regions like Boston, New York, and Chicago are very cold for half the year, so bike and scooter sharing companies have yet to enter those markets; even if they did, large-scale success is doubtful.

However, customers have the perpetual need for cheap yet convenient transportation, and scooter-sharing companies are offering modes of transportation that can replace cars.

  • Though not many experts predicted the emergence of a transportation service eclipsing Uber, e-scooter and bike share companies have proved that there are partial alternatives to Uber.
  • The key reasons why scooter-sharing companies could beat out Uber in short-distance transportation are enhanced convenience, cheap prices, and even shorter travel times, which are relevant to the essence of transportation services; therefore, scooter-sharing continues to threaten Uber and traditional transportation, gaining recognition as a fast-growing model.

Many agree that the key factors of scooter-sharing companies’ future growth are the direction of government regulation, the companies’ management of lost or broken scooters as the number of scooters increases rapidly, and their responses to collisions between users and pedestrians.

  • Scooter-sharing companies are constrained by concerns such as 1) licensing as a transportation business, 2) application of the Road Traffic Act to electric scooter users, and 3) pedestrian safety violation.
  • Though e-scooters legally have to operate on car roads or bike lanes, many users still use the sidewalks, causing great inconveniences to pedestrians. Many pedestrians continue to complain about this, and Bird agreed to pay more than $300,000 as part of a settlement with the city following an incident in Santa Monica. The City of SF ordered the three companies to present detailed plans for solving this problem with an impending suspension order if the plans prove insufficient. At the same time, there is also an increasing number of users who are getting fined by the police while using scooter shares. Various city governments have said they welcome bike shares, but are worried about e-scooters; they show more interest in regulation than support.
  • For Uber, maintenance risk falls onto their drivers. Scooter-sharing companies, however, take on maintenance risks themselves, which include careless maintenance resulting in major accidents and the financial risk of missing scooters.

How will the future of scooter and bike share companies play out? Talk to your Ringle tutor about e-scooter startups and receive feedback on your English usage.

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