MAKING MONEY

Simple math shows how scooters could make big money

The newest scooter unicorn is Lime, which Monday (July 9) announced $335 million in new funding at a $1.1 billion valuation.

The round was led by GV, Alphabet’s investment arm, and included a “sizable” contribution from Alphabet frenemy Uber. That brings total venture funding to scooter companies to about $934 million since investors started funding them in 2017, with $900 million of that coming this year. Uber is joining Lime as a “strategic partner in the electric scooter space,” Lime said in its announcement. The companies will make co-branded scooters available through the Uber app at a date that Uber declined to share.

Scooters are silly and fun to talk about, but it’s possible that they’re attracting such tremendous sums of VC money because the unit economics are actually good. Unit economics describe the amount of money a company makes or loses on a single transaction: one Uber ride, one Amazon shipment, one takeout order. Many of the glitziest startups have had terrible unit economics—burning piles of cash to subsidize their services in the name of growth, and arguing that they’ll make the math work at scale. (The model yet to be proven out by many of these companies. For example, see Uber and its massive losses.)

What are the unit economics of scooters? Here is some quick math on Bird, the original scooter unicorn:

  • In Santa Monica, Bird’s first city, the average Bird scooter does 5-6 trips per day, Bird disclosed at a June city council meeting.
  • The average length of a Bird trip is 1.6 miles (same city council meeting).
  • Bird charges $1 per trip plus $0.15 per minute.
  • Assuming an average speed of 7.5 miles per hour, the average trip lasts 12.8 minutes.
  • In which case the average trip costs $2.92.
  • At 5.5 trips per day, the average scooter earns about $16 a day.

Not bad, right? The Xiaomi scooter that Bird uses sells for about $500 on Amazon but $320 (1,999 yuan) in China. We don’t know what Bird pays for a scooter, but, if we assume Bird is paying the China price or less because of a bulk deal, it would recoup the initial capital cost in 20 days. If we assume the Amazon price (unlikely as Bird has a contract with Xiaomi), then the scooter would recoup its overhead in just over a month.

The real question is what a scooter costs to service and maintain. We know that Bird hires basically anyone to charge its scooters overnight and redeploy them in the morning, usually for $5 per scooter, but sometimes for more. A typical charge takes 3-5 hours, and by farming this out to eager contractors, Bird conveniently avoids the electric bill. That brings our scooter revenue per day down to $11. Here are some other costs we don’t know:

  • The lifespan of a scooter/how fast it depreciates
  • Other maintenance costs associated with a scooter
  • Operational costs like “rebalancing,” aka the amount Bird pays workers to redistribute its scooters each day, averaged out to a single scooter

You can see how all that would start to add up.

A source familiar with Lime tells Quartz that revenue per day, per scooter, in San Francisco is much higher than in Santa Monica, in the mid to high twenty-dollars. This person also said daily depreciation and operational costs are significantly higher, which would make sense with greater utilization. Even so, Lime believes the payback period on a scooter, including initial purchase price, daily depreciation, and operational costs, is less than two months, the person said. After that, each scooter basically prints money, with margins that are much better than those of an e-bike or traditional bike, the source said, adding that Lime believes it can improve on these unit economics.

That leaves the final, less predictable cost: regulations. Cities are still working out how to deal with scooters, and the economics of the business will ultimately depend on the regulatory schemes that governments impose. In Portland, Oregon, for example, the city has proposed a $0.25 surcharge per ride, in addition to permit fees of $5,250 ($250 to apply, $5,000 for the permit, if selected) to deploy up to 200 scooters for four months. At 200 scooters, that works out to an additional $26.25 in permitting fees per scooter, plus $1.25-$1.50 in daily ride surcharges, if you assume 5-6 trips per day—and that’s just for the first four months. Convincing cities to adopt a gentler fee structure will be crucial for scooter companies to make the model work.


An earlier version of this post was published in Oversharing, a newsletter about the sharing economy. Sign up here.

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