Will Scootermania End With A Crash?

Editor's note: This is an excerpt of Planet Money's newsletter. You can sign up here.

Electric scooters have invaded the world's cities. They whiz down streets and lie abandoned in the middle of sidewalks, bringing both convenience and annoyance to citydwellers. There are now dozens of scooter-sharing companies, and the two biggest, Bird and Lime, are the fastest startups to reach a valuation of $1 billion in U.S. history. Each company is now valued at over $2 billion. Scooteristas claim it's a sign that they're revolutionizing transportation, but... really?

Scootermania

Big Scooter argues that technology — electric motors, better batteries, GPS, and smartphones — has produced a system of shareable scooters that can solve infrastructure problems, decongest commutes, limit climate change, and make investors buckets of money. They're calling it the "micromobility revolution." Last year, there were 38.5 million trips on shareable e-scooters in the U.S., which is more than double the year before.

The business model of these companies is pretty simple: flood a city with hundreds of scooters for passersby to rent. You can locate and pay for them using your smartphone, and they typically cost $1 plus 15 cents per minute. Then leave them wherever you want.

Will Bird Economics Fly?

At a couple bucks a ride, it takes about four to six months for companies just to break even on these scooters, and there's a big problem: the scooters aren't lasting that long. They're typically dead in less than a month or two. They get abused by riders who have no incentive to maintain them — and they literally get left out in the rain and cold. They're also vandalized by people who hate them. The Instagram account Bird Graveyard documents scooter destruction. It has more than 80,000 followers.

In the rush to expand, companies have been using scooters that were not designed for commercial use. (Lime has had to recall theirs multiple times). Last week, Bird unveiled a new scooter, Bird One, which it claims will last ten months. Reports suggest that would be as much as ten times longer than their initial fleet lasted.

Bird launched in late 2017 in Santa Monica, and there's since been a rush of companies into the global scooter market, including Uber, Lyft, and Ford. Even if scooter companies survive price wars and can start making a buck, there's a natural limit to how high their prices can go. If you really love scooting everywhere, you can buy a $300-$600 scooter yourself and save money.

Scooter NIMBYs

Like Uber, AirBnB, and other sharing revolutionaries, scooter companies have already faced political backlash in reliably outraged cities like San Francisco and Los Angeles. They've proven annoying, even infuriating, to voters — and a regulatory clampdown has begun amid rising safety concerns. The city of Austin and the CDC recently released a study that found there were about 20 injuries per 100,000 scooter rides, and that half of these were head injuries that could have been avoided if riders were wearing helmets. Such findings could increase calls for helmet regulations, which could damage the convenience that is critical to the hop-on-and-hop-off scooter-sharing business.

Part of the political appeal of shareable scooters is the idea that they're good for the environment, but that's still debatable. If motorized scooters are replacing cars, then it's clearly a win. But they may be mainly replacing biking and walking, which makes them a loss — especially in markets where the power used to charge these scooters comes from dirty power plants. A recent survey in Santa Monica, Bird's home, suggests that scooters there are replacing a good portion of car trips, but there is still no rigorous evidence to back claims that flooding cities with shareable scooters reduces carbon emissions. There is, however, evidence that to suggest it's wasteful because these scooters are dying so quickly.

Unicorn Stampede

Scootermania isn't just about scooters. It's about this entire bubbly era of tech. Tech watchers have come to call startups worth over a billion a "unicorn." At first it was because they were hard to find. Today, there are four times more unicorns than there were in 2013. Last year, VC funding for private companies hit a high of $131 billion, which is past the heights of the 1990s that ended in a crash in nominal terms and close to it in real ones. The percentage of companies going public — despite being unprofitable — has hit a similar peak. Uber, which remains unprofitable, became one of those companies last week.

The money being poured into money-losing companies is driven by an ideology — sometimes called "blitzscaling" — that values growth over profit. It's a belief that winners take all because of dynamics like "network effects," a notion that a good or service becomes more valuable to users as more people use it and that achieving scale is important because competitors won't be able to catch up. (Think Google vs other search engines). But it's not really evident that the scooter business is winner-take-all, especially because spotting them on the street and downloading a free app is relatively easy. Even the CEO of Bird seems to acknowledge this, telling The Information that he doesn't believe market share is important for scooter profitability. Instead, he says, what's important is to actually stop losing money every time they buy and rent out a scooter.

Venture capitalists are now subsidizing consumers with billions and billions a year with the hope that the money-losing companies they back will become the next Google or Facebook. It has a bonus: you can now rent a scooter for a couple bucks courtesy of rich investors.

Did you enjoy this newsletter? Well, it looks even better in your inbox! You can sign up here. [Copyright 2019 NPR]