Here’s How Scooter Startups Solved the Segway Problem
(Bloomberg) -- It was 17 years ago that inventor Dean Kamen rolled his Segway onto the set of Good Morning America and into the annals of entrepreneurial infamy. Legendary venture capitalist John Doerr and Amazon.com Inc. founder Jeff Bezos were ebullient at the time about the market opportunity for the electric, two-wheeled vehicle. Doerr predicted that Segway would hit $1 billion in sales as fast as any company in history.
He was notoriously wrong about that. With an original price tag of $5,000 to cover all those expensive motors and gimbals (turns out humans are pretty good at balancing all by themselves), the Segway didn’t make it beyond mall cops, tourist companies and the punchline of jokes. But were Kamen and Co. just ahead of their time on two-wheeled personal transportation and its potential to relieve traffic and remake cities?
That’s a possibility I’m considering after watching Silicon Valley investors rush headlong into the brand new field of electric-scooter companies. We reported last week that San Mateo, California-based Lime has raised $250 million from a group led by Alphabet Inc.’s GV at a $1 billion valuation. Bird Rides Inc., a rival based in Santa Monica, is raising $150 million in a round led by Sequoia Capital at about the same valuation. These unicorns didn’t exist 18 months ago.
There’s plenty to question in what Kevin Roose of the New York Times last week affectionately dubbed “tech hubris on wheels.” Riders generally don’t wear helmets, which is worrisome, and most cities are fretting about scooters littering sidewalks, waiting for users to unlock them with their smartphones.
Leaving those issues aside for now, I’ve wondered about the economics that are drawing savvy investors into the scooter fray. Why are scooters suddenly and inexplicably the Next Big Thing? I talked to some investors in the field to get a sense for the math.
Bird and Lime scooters cost $1 to unlock, and then 15 cents a minute to ride. Let’s assume for the sake of simplicity that the length of an average trip is a mile, with the scooter traveling at 10 miles per hour. A trip lasts an average of six minutes and (rounding up!) nets the company $2 per trip. Consider that each scooter gets about five rides a day before it runs out of juice and has to sadly wait for its gig-economy collector to retrieve and recharge it at night. Our scooter has thus fetched $10 per day for the company.
Ignoring bonuses and starter incentives, those contract workers appear to be paid $5 per recharged scooter. So our scooter is now earning $5 per day. If we assume the scooter costs $300 to buy and another $50 to outfit with GPS and security features, the scooter has paid for itself in a little over two months.
Wholesale prices will come down over time; on the other hand, there are fees for maintenance and vehicles that the scooter-hostile hurl into the Bay. Still, this sudden, strange market looks pretty attractive through the eyes of a venture capitalist. People in cities like Santa Monica, Denver and Nashville have embraced the convenience of two-wheeled scooters with the kind of fervor they once showed for ride-hailing services. If you can deploy 10,000 scooters in a city, per our math, you have a business easily generating $100,000 a day in revenue, $3 million a month or $40 million a year—per city!
So a nascent industry that is very easy to ridicule can be generating $500 million in revenue in the blink of an eye. There are regulatory challenges, for sure, with many cities hitting the pause button while they work out the new rules of the road. But this is why so many veteran executives and investors from the Uber-Lyft wars are drawn to the space. They believe they have seen this exact movie play out before.
And here’s what you need to know in global technology news
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J.J. Abrams’s studio launched a video game division with Tencent. Bad Robot Games is working with the Chinese tech giant to create titles for mobile, console and PC, according to the Hollywood Reporter.
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