Two electric scooter start-ups, Bird and Lime, have been valued at $2 billion and $1 billion respectively in recent months. Advocates believe their potential to revolutionise personal travel justifies their hefty price tags, but their numerous downsides don’t support that claim.
Bird and Lime operate fleets of dockless scooters that customers can reserve via an app, ride for a fee, and discard when they’re done. Bird has raised $400 million in funding in the past four months, making it the fastest company in history to secure a $1 billion valuation. Lime has deployed its scooters in around 60 cities and university campuses in the US as well as five European cities. E-scooters are riding the surge in electric vehicles, from the Chevy Bolt to hoverboards to electric bike companies such as Ofo and Mobike in London and Uber-owned Jump in San Francisco.
Investors are excited about electric scooters for several reasons. They’re size, nimbleness, portability and ease of use make them popular among those navigating crowded spaces or seeking to avoid inner-city traffic or the subway. They also offer a cleaner alternative to driving or public transport, and users don’t need to don lycra or arrive tired and sweaty at work. Moreover, they satisfy people’s demand to travel a few miles without a car, by themselves and avoid parking on the street. Stellar access to financing and the lower infrastructure costs of the dockless model are part of the appeal too.
However, e-scooter companies face multiple challenges. The dockless model results in scooters being strewn across large areas, making it a chore to charge and redeploy them. However, enterprising locals have created a subculture of ‘Bird hunters’ who gather the scooters and charge them overnight, in exchange for $5 to $20 per scooter from the operators. More importantly, the likes of Bird and Lime have higher costs, weaker network effects and narrower competitive moats than fellow unicorns such as Uber and Airbnb: they buy and distribute their vehicles rather than connecting drivers with passengers or landlords with tenants, users barely benefit from others using the service, and competitors can move into their markets without investing in docking stations.
The companies appear to be following Uber’s model of asking for forgiveness not permission and prioritising growth over avoiding mistakes. City regulators may not react well to being bypassed then receiving complaints from locals of abandoned scooters crowding public walkways: San Francisco has capped the number of dockless scooters permitted in the city at 1,250, while London continues to ban electric scooters on roads and pavements. Meanwhile, Lime’s biggest gaffe was programming its scooters to blare “unlock me to ride me, or I’ll call the police”, amid a wave of unjustified police shootings and cops being called on black people without cause.
Bird, Lime and other e-scooter start-ups offer a valuable alternative to driving or public transport. But their substantial costs, vulnerability to competition and regulation and cultural myopia mean their current valuations are significantly overblown.