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Scooters and Value Chains

Monday, July 2, 2018 3:46

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From http://www.tech-thoughts.net/

In just 6 months, we’ve moved on from cryptopalooza to scooterpalooza. As good of a topic as any to come out of a long hiatus from this blog, at least for now.

Scooter sharing startups in Silicon Valley like Bird and Lime are in the midst of an overheated investment cycle, raising follow-on rounds mere weeks after the initial with 2-3x valuation jumps. Spin, a smaller competitor, is also finalizing a security token offering, combining the hype cycle with the last one. Ignoring the latter for now, is the interest in scooter sharing startups warranted?

The first thing to understand is that the potential of micro-mobility platforms (incl eBike startups) depends on two related factors: 1) Value created by mainstream adoption of micro-mobility solutions, and 2) Share of this value captured by micro-mobility and scooters sharing platforms. Mainstream adoption is a necessary, but not sufficient condition for scooter sharing startups to capture value.

Barriers to mainstream adoption are largely come down to social acceptance and regulations. Social acceptance is less of a problem given that every scooter user acts as social proof for the next one and so on. Regulations are more challenging, as mainstream adoption of scooters requires easy availability, and hence significant volume. But availability of parking space is less certain because these are “net new” assets on city streets, at least in the near-term. This is very different situation from ridesharing, where net increase in supply early on did not necessarily lead to a proportional increase in traffic. But for the purposes of this post, let’s ignore this problem and assume mainstream adoption will not be a challenge.

In this scenario, VC arguments for scooter investments boil down to three factors:

Strong unit economics, at least with early adopters
Used very frequently
Occupies coveted smartphone home screen real estate

The obvious problem with this argument, is one that others have already pointed out. Unlike ridesharing startups, scooter sharing startups have no network effects and, therefore, lack defensibility. This is a problem I’ve highlighted before when discussing the risk autonomy presents for ridesharing companies like Uber.

If scooter sharing adoption even nears critical mass, it would be easy for companies like Google (an investor in Lime), Uber, Lyft, etc. to acquire a fleet of scooters and let users access them through their existing apps. These companies already have access to valuable home screen real estate and the $400 entry price for scooters isn’t particularly daunting. Uber’s recent acquisition of JUMP’s bike sharing service already shows their interest in this space. In this scenario, increased competition is likely to pressure unit economics, not just lowering prices but also increasing the costs these companies would offer users to charge these scooters (currently $5/charge). This completely breaks down the investment case for these services. The prospect of an acquisition is challenging as well, given the low cost of acquiring a scooter fleet.

So if scooter sharing startups are unlikely to benefit from mainstream adoption, who can? If multiple scooter services are in competition with each other, they would also compete to own the largest fleet to improve the user experience, i.e. minimize the time to find a charged scooter. As a result, scooter manufacturers with sufficient scale will find themselves in high demand and capture more of the “leaked” value. This includes some familiar names: Segway, which is owned by another scooter manufacturer called Ninebot, which in turn is owned by Xiaomi.

But the value leakage doesn’t just stop here. Scooters with the largest battery capacity and longer range, provided it doesn’t affect the rider experience, will be in even higher demand. Since scooter startups pay a flat fee for each charge, scooters with longer range have a lower cost per mile. This means that scooter manufacturers will compete to have access to the best battery supplier (or move that in-house). Therefore, it is the battery manufacturers, and not downstream scooter sharing startups, that have the most to gain from scooter sharing going mainstream. Not very different from December’s crypto valuation bubble; innovation and price volatility aside, it only influenced the fundamentals of GPU manufacturers.

Go to http://www.tech-thoughts.net/ for more analysis on the mobile industry

Source: http://www.tech-thoughts.net/2018/07/scooters-and-value-chains.html

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