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A Few Open Questions About Dockless Scooters

I’ve been thinking a lot recently about scooters.

But it’s not without reason! Not totally crazy.

So, in no particular order, here are what I consider to be some unanswered questions regarding dockless scooter companies.

I want to clarify: these are not “subtle neg” questions. That is, I’m not asking these questions to subtly suggest that I think the answer is negative (similar to those annoying Twitter trolls who post stupid political stuff and say “interesting”). They are questions I consider to be open regarding not only the viability but also the potential scale of these businesses.

Right now dockless isn’t really a marketplace…it’s a service. How should that change how we think about this market? And how does that touch barrier to entry?

Marketplaces are hard to build and harder to kill. See this awesome Simon Rothman piece in Techcrunch. Why? There are a lot of theories. If you’re partial to aggregation theory, marketplaces capture a ton of value because they collect eyeballs and so they accrue value that once went to the previously most valuable layer (distribution)…and that’s what makes them valuable, indeed more valuable that a company that achieves dominance but by taking value from a less profitable segment. Another good one is W. Brian Arthur’s classic work on network effects, which he called “positive feedbacks” at the time.

Does this increase or decrease barriers to entry? This might seem stupid (marketplaces almost always win because of network effects), but in ridesharing this just hasn’t been true. Lyft persists because for a driver the barrier to having another app open is low. And new competitors, like Gett and Via, continue to raise money. (The reason, I think, is that this isn’t a pure network effect scenario but a marketplace scenario—in tech we tend to talk about them like they’re the same, but they’re subtly different. That’s another blog post for another time.) So less stupid than I initially thought.

Since this isn’t really a market and I don’t think there are network effects, this could go either way. On the one hand, since there’s no real network or market, the traditional moats tech companies rely on disappear. On the other hand, owning the scooters means significant physical capital investment…which is the moat that non-tech companies typically rely on. What will this mean for market concentration—will you see the same superstar effects?

A subquestion is whether the charging contractors are a real network. I don’t really think so. If I had a van I’d just have a bunch of every charger and not give a crap which brand I found. It’s not even clear if this is the optimal strategy for a company at Bird or Lime scale. They might find this is a mental trap from trying to fit ridesharing and that they should just have dedicated employees.

What is TAM?

The best companies pivot and create markets that didn’t exist. For god’s sake, Uber’s original ubercab deck looked at the black car service. Uber Eat’s Q42017 run rate alone is almost the size of their original entire total addressable market. But I’ve realized that even though they’re always wrong, thinking about the size and structure of the market you’re entering initially is a good exercise. It forces you to really think about product and the business. Plus, if you can’t answer the question “how big can this get, really?” with “well, at least really big” you have a boring company.

Once you start to get some market data, determining TAM becomes an exercise of evaluating not just market structure but business and product structure. With scooters, there’s so much we don’t know! No scooter rental company has ever seen snow or rain. Seriously. Think about it—until recently they were all in Santa Monica and the Bay Area, and their explosion in popularity in other places all took place during the summer. I can’t wait to see how this winter plays out.

To my mind there are a ton of unanswered questions regarding TAM. Here are a few:

  • Minimum city size
  • % of cities that can viably be owned
  • Final unit economics
  • Necessary density for minimum acceptable liquidity
  • Minimum city street quality
  • Maximum viable hilliness
  • Weather requirements
  • Road safety questions
  • % of year scooters can be deployed

I also wonder how we can comp this. With ridesharing, do you comp with cabs? Black cars? Total car sales? The same questions apply to dockless.

What are the right metrics, anyways?

Looking at the TAM questions above, you’ll notice that almost all of those metrics apply to ridesharing too. They’re very different businesses, but they seem to at least have that in common.

I do feel, though, like my views on this are somewhat tainted by having used ridesharing for so long. Like it’s framing my whole perspective.

I’m really looking forward to seeing what turns out to be uniquely important for scooter renting.

Like, take Uber. There were a lot of things they did that any mobile company knew they needed to do, like load quickly and be cheap. But they also quickly learned that there were some things that were unique to them. One of these is liquidity. I once heard from someone that Uber immediately figured out that wait time was one of the most important factors for the business, and that they also quickly learned that the cutoff point was 5 minutes. Supposedly, that became an internal goal for the company. It became so important that fake wait times became an attack ad against Bill de Blasio. What will these be for dockless scooters?

This was "de Blasio" mode. It worked!

Sidebar: for liquidity itself, I suspect it’s generally proportional to expected travel time generally. So since scooters are for short trips I expect that people want to have a scooter no more than a 3 minute walk away since the ride won’t be more than 5 minutes.

Does long-term viability require vertical integration?

Right now most people have a separate dockless app and a separate rideshare app. Even if you use Uber and Jump, which it owns. For the most part the major dockless and rideshare companies are separate (though Uber has made some moves on Lime). Is this the future?

Dockless clearly cannibalizes short haul ridesharing, as the data shows. How much? Does that kill rideshare margins? Does that make it necessary to merge?

Also, if that’s true, will that make each ridesharing service more “sticky” because it’s annoying to change apps? Will it become the front-end map aggregator people use for directions more generally? Will customers prefer this—and therefore use the merged service more than each individually?

If mobility companies vertically integrate, what’s the combined model? Is dockless the “appetizer” (drives margins) while rideshare is the “main course” (drives revenue and traffic)? Is it just a normal bundle? How does public transport fit in? What about antitrust?

Related: where is the value add? What else does this allow companies to eat?

Like, the value has to accrue from somewhere. Deepmind was bought because of its algorithms and talent. Github was bought for its community and brand equity. Companies buy each other all the time for users or patents. What’s going to do the work for scooter companies? Is it that they already have half a million credit cards?

If you have a really good company with a massive value driver, it tends to be extensible just because of the sheer size of it. That lets you build a platform but it also lets you just eat other stuff. I tend to think that if Uber Eats and Caviar really wanted to they could eat Yelp, for instance. They’re growing like crazy and people are already on there looking for somewhere to eat. Why go somewhere else to learn what’s good? In fact, why isn’t Uber Eats just Uber eating food delivery? I’m old enough to remember Uber saying around Series D that they wanted to turn into the world’s distributed logistics network to take on Fedex. (They didn’t successfully do this (yet) but they were right! Amazon uses a ridesharing style gig arrangement for at least part of its logistics network).

If the long-term equilibrium is vertically integrated transportation companies it might just eat most map apps. There is clearly cannibalization of ridesharing by scooter rentals, so there’s some gluttony going on there. I could also see some small delivery (things that aren’t profitable when you have to pay for gas but need a vehicle) happening on Lime or whatever (limes for Lime?). What else?

Will safety issues kill the scooter?

This gets downplayed by dockless boosters, but I think it’s actually one of the biggest threats to scooters. Not because of the news reports but because of history. When I was a kid scooters became more popular than bikes (or at least they seemed that way). Then they stopped. I always wondered why. Turns out research shows they were significant contributors for a 40% increase in childhood injuries in the 90s and 00s. And today hospitals are talking about an uptick in ER visits (thanks to scooters).

Scooters are generally easier to regulate than cars (see below). I think the demand is high enough to show that these probably aren’t a fad. But bigger things have been killed or delayed by fear. Automatic elevator usage was low until the 1950s, for example, because people were afraid of them (an elevator operator strike changed that).

Will this kill the scooter? Will it limit the market? If this becomes an issue will it just become an important expense (insurance, helmet programs, lost sales, fines…)?

How important will custom hardware be? Will this drive unit economics?

Bird’s building a custom scooter now. This can be a perilous path—ask Airware—but it can also be smart, especially since the dockless companies already actually own the scooters. Is this smart? Is it necessary? How much does this improve the product from the user’s perspective? How hard is this to develop (probably not much)?

There’s actual depreciation now because the dockless companies actually own the scooters. What should the schedules be for those? What is the actual depreciation? What percent are destroyed or stolen, and is that low and consistent enough to manage? Right now scooters supposedly get profitable within 2 months. Can that last? Is it on the hardware economics or is the demand just so high that hardware questions are just margin padding?

Whither the bikes?

Scooters have beaten bikes for now. Will this continue to be so?

Chris Anderson asked why it was obvious that electric scooters would beat a bunch of other transportation options. Considering that the other options were the Segway, hoverboard, and electric skateboard, well…not a hard question. One form factor is the right mix of fun and easy to use and the others suck.

In my view that’s a less interesting question than bikes vs scooters. Bikes and scooters were by far the most popular by-foot wheels even before dockless. There are some pretty distinct tradeoffs. Bikes are sturdier, safer, require a little more work, usable on hills, and are optimal for short to medium distances. Scooters are cheaper, slower, easier to use, lighter, and optimal for short distances only. Scooters are crushing bikes right now. Will they continue to? If not, what would dent their meteoric rise?

Say scooter beats bike. Does it win in cities that have strong biking cultures, like Seattle or Amsterdam? Why did bikes beat scooters in China? Will they have scooters too, especially since they’re all made by Xiaomi anyways? Will dockless bikes just disappear?

I like bikes more than scooters so I hope they stay.

What is the ultimate government equilibrium?

The hardest thing these scooters have going for them is that they’re easy to regulate because they’re easy to confiscate. With ridesharing, the city had to contend with the difficult enforcement fact that it’s tough to tell ahead of time where people are going to go in their cars, which are not clearly marked in a way that shows they’re on the way to pick someone up, and with no way to impound or stop the car once you find someone lawbreaking. All they could do was issue a ticket. Which Uber happily paid. On the other hand, each city has hundreds of scooters that are small and easy to pick up. Plus dockless companies own the hardware so there’s more pressure to implement regulatory tools. I personally seethed with rage this summer as SF, where I lived, sent people to pick up scooters but not trash (like human waste or needles) that were right next to the scooters. Talk about priorities!

And that’s really what this is all about. Even a way-too-regulated place like SF won’t totally ban scooters. My hometown of LA is even seeing scooters enter their most snooty family neighborhoods, like Westwood and Beverly Hills, because they can’t really stop them. What the city can do is regulate the market enough that it’s kneecapped, or doesn’t get too big, or has too few competitors (so it’s too expensive), or just doesn’t have the freedom it needs to innovate stuff we can’t even imagine right now.

For those who think we can never change, you’re simply wrong. I was shocked to learn that Amsterdam used to be full of mostly cars, not bikes. So the question is not can we but will we.

So what’s the equilibrium? How regulated will these be, and how high will the variance be between cities? What will the common regulatory questions be? Is the current regulatory climate a speed bump or an opening salvo?

Equilibrium has two sides, though. Just as sticks have carrots, towns have infrastructure and subsidies. Will governments build infrastructure as they try to be light mobility friendly, or invest in road improvements specifically due to dockless? Will they make…wait for it…SCOOTER SUPERHIGHWAYS?! Will they change liability rules? How strictly will they enforce minor scooter laws and helmet laws? How long until someone just sues Bird?

Anyways, have an opinion? Shoot me an email!

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