Low (No) Barriers To Entry
There are a dozen electric scooter companies operating in Paris right now. There are so many that the Mayor just announced that she will reduce that number to three with new rules for electric scooters in Paris.
But before we get into the new rules, I want to stare at that first sentence for a bit.
In less than a year, twelve companies have started operating electric scooter services in Paris.
Paris is the largest electric scooter market in the western world right now.
To enter this business, you need capital to purchase the scooters from China, you need a mobile app on iOS and Android to allow users to locate, unlock, and pay for the use of one, and you need a small team to handle the local logistics.
Apparently those are not significant barriers because a dozen different companies have been able to do it in less than a year.
There are many things that are attractive about the electric scooter business. It has taken off as a transportation option for consumers and is the fastest growing new transportation technology in terms of revenues in history.
Electric scooters also are a much cleaner way to travel than cars or other gas powered technologies.
So there is a lot to like about this business.
But if anyone can open up shop and compete with you with little to no differentiation and your only defensibility is the time it takes to download a new mobile app and put in your credit card, well then one has to ask if this is or will be a good business.
And that is where the Mayor of Paris comes into the picture. She wants to limit the number of scooter providers to three, by requiring licenses and issuing only three of them.
That will sufficiently lower the competition in Paris, lead to a triopoly which may stabilize pricing and margins, and possibly reduce the number of scooters littered all over Paris.
Winning a license will be a political process and there are many issues with that. And the three companies that win a license will become acquisition targets for the big players which are increasingly the ride share companies (who themselves have very low barriers to entry but now have public currencies to buy with).
There are many who have wondered whether ride share will ever be a good business. The public market caps of Uber and Lyft suggest that it will be or that there are plenty of people who currently think it will be.
Scooters are ride share on steroids. Even easier to get into the game with possibly a larger market opportunity.
It will be quite interesting to see how this plays out and how much regulation will be needed to tame this market.
Look for this company to jump in, in a big way now: Flash, re-branding to Cirq:https://www.linkedin.com/co…Berlin-based with Rocket Internet involved. Launching now all around Europe, not sure about Berlin yet.I’m hearing things about Berlin about to making similar crackdown cuts you’re seeing in Paris, although from the perspective of someone spending a lot of time here, I think so far the Berlin sidewalks have absorbed all this super well. I also know the authorities here have had issues re standup scooters (not sure what issues, none are here yet, I know for sure that Bird has tried hard).
If these ever wound up in Berlin, we’d probably find a lot of them in the Spree.
Rocket. Have they ever not copied someone else’s idea?
I’m surprised about fred saying that there’s a need for a “SMALL team to manage the scooters”.It’s not small, it doesn’t scale well across markets unlike software engineers ,buyinga container from China, etc.. It’s the sole definer of how fast these startups grow and the sole definer of their economics.I bet most of the readers here would have an hard time estimating how many pickers are needed per 1000 scooters although you can estimate the number of developers needed.– from a guy with a company that picks up scooters
Based on what I see, my guess is that a picker touches every scooter (on average) after 2 paid scooter rides.
1 small irrelevant detail, but unlike with bicycles, where just about all are made in China, lots of sit-down scooters are made in Korea (Coup in Berlin and Paris), and in India (Scoot in SF).The Korean maker, Gogoro, and local (non-rental) market has a really neat innovation where there are advanced physical networks of battery charging banks– instead of pulling up to a gas station, you go to 1 of these, lift your seat, pull out your battery modules and swap them for freshly charged ones (I’m way off-topic here though: you don’t do this with these scooter-share models, only the privately sold ones).
Why are you shilling these scooter services so hard?These scooters are all meant to be ridden into the ground and then thrown into a land fill.They are a ridiculous health and safety issue, not just for pedestrians of all ages, but for the mining of heavy metals for something that doesn’t need them.It’s a tragedy of the commons that public space is being used and degraded to platform this private enterprise, meanwhile the international company operating the service will be able to avoid tax obligations through obfuscation.The dirty secret about this business is that the scooters are cheap enough that anyone who wanted to, could purchase one of these scooters on their own for less than 200 wholesale. It’d still be an effective purchase that would pay for itself, even better the scooter would last longer and not be aburden on the environment and community. But that’s not the premise that VCs look for anymore.Both Adams Smith and Karl Marx warned that rent seeking would be the ultimate conclusion of capital investment, providing worse and worse services, creating greater externalities, and then getting out of Dodge before the chickens come home to roost.You’re complicit in this.
i don’t see the shilling here, Fred clearly points out it’s an interesting market but that he’s not convinced and not participating.also don’t see it a dirty secret that you could just buy one, Bird itself does offer directly a model to buy: https://shop.bird.co/ Sure, that’s a high-end priced one, but surely they’re helping promote the notion that you don’t need to use their network. I do however buy their positioning that even if you do own one, it won’t be with you wherever you go, and so buy one and you get to use their network when out and about.
There is a point there, I recognize this is Fred’s blog, and it’s a place he can air his ideas and get a conversation going. He may not be directly involved in it, but wants to have some insight in to it.But it shows a psychology here, he’s promoting an idea, and considering it for it’s strategic play. The suspect VC mentality here is how much they down play the externalities and costs of a product and redirect the concerns. Because the motivation here, as he says, is that “It has taken off as a transportation option for consumers and is the fastest growing new transportation technology in terms of revenues in history.”
ForIt has taken off as a transportation option for consumers and is the fastest growing new transportation technology in terms of revenues in history.In simple terms, can do that easily enough: Start up and get revenue of $1 in the first month $100 in the second and then claim the title.In more serious terms, we’re estimating a derivative with the intention of assuming something like linear growth, at least for a while, with the derivative the slope of the growth line.This little dance is dangerous: Quite generally, without some solid additional circumstances, a derivative just does NOT extrapolate worth a DARN — the simple view is a hint.For some more, can sit down for this one: In the set of real numbers R, there is a subset C, a Cantor set after Georg Cantor, of, say, the closed interval [0,1] that is closed in the usual topology of the real line and has total length 0 yet is dense in the sense that its closure (in that topology) is all of [0,1], that is, for any x in [0.1] but not in C, there is a sequence in C that converges to x.Then there is a function f: [0,1] –> [0.1] so that f(x) = 0 for all x in C, f(x) > 0 otherwise, and f is infinitely differentiable.So, at any x in [0,1], can take the derivative of function f, that is, find f'(x), can take that derivative k times for any positive integer k, and get a value. But that value does not extrapolate at all and, indeed, is wildly wrong at point v in [0,1] for v as close to x as we please.Net, again, in easy cases and in deep senses, derivatives just do NOT have to extrapolate at ALL, not even a little bit, even for functions that are so smooth they are infinitely differentiable.This result also generalizes to n dimensions, that is, R^n for any positive integer n. In particular there is such a function 0 on the Mandelbrot set, strictly positive otherwise, and infinitely differentiable. Again, derivatives do not have to extrapolate.This result is mine; I published in Journal of Optimization Theory and Applications, JOTA. I used the result to settle an old issue in non-linear programming. Later I discovered that my result also settled such an old issue in a paper by Arrow, Hurwicz, and Uzawa. I did the work as a grad student.
Zero macro infrastructure costs. All exported to the public burden. The typical private profit model.
He also said that his wife is an investor in a scooter co.
Yep– and one that (per news that same day) just got bought by Bird.Tough to knock your point here, although I know both parties, and I haven’t seen them known to cross-shill, fwiw.
I appreciate any insight fred offers but he plays the blog light a fiddle at times. His early post on bird this week is an example.
a bit too harsh for my liking but your comments on the environmental issue is a huge one that seems to never be front and center.
Everyone is an environmentalist until they aren’t.
MSM does not represent the interests of this planet’s ecology. It represents this planet’s corporations and elites and the politicians serving them
Interesting summation.What other segment/industry is there that has that unique combination of a very low cost to entry, almost instant commoditization yet massive market upside with dominance?I really like scooters and ride constantly when in LA monthly. Though never thought to buy one and use in NY.Need to wrap my head around it. Thanks for the nudge.Enjoy Paris! Such a great town.
Take a walk vs Break a leg (why in the world would a man 50 + ride take on the risks of riding a scooter ?)Everyone is a scientist until their opinions and peer pressure trump science
When did walking go out of fashion?
Ha ! We think alike.Was in Paris thrice in the last year, saw this trend, and did not have the slightest inclination to analyse or educate myself on the market.When a man has tired of walking in Paris, he has tired of life ? (due apologies to Samuel Johnson).
I know we do :)Of all the cities in the world Paris is the one that must be walked. Anne Hidalgo should immediately ban all scooters.
And as corollary to that line by Samuel Johnson about London which I “modified”… if you do get tired after a lot of walking in Paris, you are never far from a metro stop.
Had a meeting with LAPD recently, the consensus is that significant changes are coming when the pilot period for scooters expires.Most rides are recreational in nature, take away badly needed resources from public transportation and expose kids and pets to 15 mph bettering rams.But hey VCs never said they were ethical or scientists.
Sunday is, by far, the heaviest scooter usage day in Los Angles.Myth: this is a transportation deviceFact: this is a entertainment deviceVC hate facts that go against the “are we wonderful” story
Don’t you think that it is a scale economy business similar to Uber and Lyft but just with lower capital requirements? What I am trying to say is that I think also Uber has low barrier to entry but they managed to grow significantly that it is more expensive to copy them. I think same applies to scooters and maybe the biggest will eventually win and all the rest will die.
Prices of Uber Black reflect the real market price. Want to know the real demand for Uber ? Use Uber Black as a base.
Regarding: “The public market caps of Uber and Lyft suggest that it will be or that there are plenty of people who currently think it will be”.The public market caps of recently IPO’d companies may not be a good signal at this time. Reasons;1. The last private valuation + pre-IPO rumoured target valuations create an anchoring effect. I have heard 2 people over the last month say – compared to the rumoured target valuation of $120 Billion just 4-5 months back, the $75-odd billion market cap of Uber looks much more reasonable. That is dangerous thinking. Uber is losing increasing amounts of money with no line of sight to how it will make money.2. The US economy is 9 years into a growth cycle and interest rates are still low compared to historical levels at this stage of the cycle. The search for yield remains, increasing risk preference. Meanwhile, the supply of public companies has dropped significantly.The last several years have shown how inefficient private markets can be. Latest exhibit – Wework’s valuation.The next recession will expose many business models.
Public markets don’t lie, private markets do. Who’s funding these 12 non-differentiating scooter companies? If you’re 3rd or 4th to market, and your company/product doesn’t have a legitimate point-of-difference, your prospects are pretty bleak. If you’re operating or investing in 8-12, then you need to scooter over to the nearest clinic.
There is no question that Ubers models is profitable (car services have been around for 50 years).The only issue to be determined is where the supply and demand curves settle as the price of a ride is allows to be market determined
Uber is burning a lot of cash. Rev increasing, but no real path to profitability. This isn’t Amazon that eventually and successfully stumbled into non-core biz like AWS and advertising. Uber’s model isn’t stable and lacks a clear path out of the red.
Uber Black could be. Uber X at 2X price could be.
I can see enhancing the value prop around Uber Black than Uber X, which fundamentally is a commodity biz. Uber Black is a luxury brand. Uber should create and test an adhoc network of high end restaurants where riders receive a small credit on their Uber account for dining patronage and travel by Uber Black (or something to that effect).
They have don’t a awful job of marketing UberBlack – (from safety – professional driver – to experience – comfort any luxury) – particularly for the infrequent user.
But the last is exactly the question, right ? Demand will settle elsewhere with a higher market price that supports profitability. Will that demand and size of business support a $7X billion valuation ?This is a business with zero brand loyalty.
Uber Black is a brand with loyalty? Lyft – no there is a company without a brand
Haven’t done the dcf valuation, it’s too early to know – Uber has a lot of user touch – it reminds me of amazon – I could see packages offered etc. – tickets & ride for events etc. Uber Freight …
Possibly…Attached is a detailed valuation by Aswath Damodaran in April. He had done one about 5 years back as well, which had prompted a rebuttal from B Gurley (there is a link to the old valuation analysis as well in this post).http://aswathdamodaran.blog…
Uber is a, uh, taxi cab company. What they have that is better had little or no barrier to entry. Also, they are trying to be an international company when the taxi business is overwhelmingly a local business.Might as well try to have a international company for grass mowing.
It may take a recession to let some of these recent IPO back in the retail side. I would have a hard time buying at those valuations even as an institution.
Mayor Anne Hidalgo has been keeping an eye on the scooter trend for a while, with the instigation of an annual operator fee per scooter several months ago, and additional regulation pertaining to speeds, and allowed usage (eg no sidewalks or you pay a €135 fine).The way this would raise the barriers to “staying’ is by requiring the companies to show proofs of sustainable maintenance and repair practices, how they pay their employees, including how they treat the ones that work during the night to clean things up. This is part of a new “Mobility Law” in the works.Interesting that 1/3 of the users of these scooters in Paris are foreign tourists, and that a good number of damaged ones end-up being thrown in the Seine river, forcing clean-up operations to dig them up.
Thrown by whom, user or operator?
> It will be quite interesting to see how this plays outThink hula hoop.
In this case, as in some others, for the “barrier to entry”, to have it really low, all it takes is just a few, maybe just 1-3, people who have figured out the details of setting up such an operation. Likely they were part of the first effort. Then, with that effort done, others in the company just observing could learn a lot. Then suddenly have maybe a dozen people who know a lot about doing that with 1-3 really good at it. Then there are plenty of people to do efforts 2-5 or so. Then there are plenty of people to get to a dozen.That’s just a special case of a phenomenon in our economy: I did that once. I was a grad student going for my Ph.D. My wife got delayed in her Ph.D. program, so I essentially dropped out for three years and took a job in military operations research to support us until we both finished our degrees.In that operations research, we needed good computing. All we had was IBM MVS TSO time sharing, and it was slow, clumsy, and expensive. So a guy, Joe, went shopping for something better. I helped in the shopping. I’d done computer shopping at FedEx, also. We settled on a really nice time sharing system based on the MIT Project MAC system Multics — still important for both hardware and software. Soon Joe left, and I became system administrator in addition to the operations research work. Wrote some nice applied math code on that computer. The computer was so successful for our little group of 45 that the whole company of 300 wanted something, too. So, I on a committee I did more shopping. Then I got my Ph.D.With my Ph.D., to help my wife recover from her Ph.D., I took a job as a B-school prof. I found that the computing was worse than even just TSO. So, the college knew the computing was bad and had a computer committee doing a study. They’d been doing that for about two years. At the first faculty meeting, they gave their report — sad. I stood and outlined a solution — get a box and put it in a large closet in the basement. The Dean asked for details and assigned a full prof to accompany me (“adult supervision”). I re-did the shopping. I was bitterly opposed by some special interests but won anyway. What I proposed was installed. I was made Chair of the college computing committee.For about a month, I served as system administrator. But there were some quite bright students working part time, and they took over the system administration work. Done.So, the pattern is: There is some relatively new practical need. The solution is not some high end, obscure, triple tricky original research but just some shopping for COTS (common off the shelf) but relatively new products and some usage experience. So, the work is not very advanced but (i) at some times and places there is a fairly strong need, (i) not many people are in place with been there, done, that, got the T-shirt qualifications, and (iii) as the qualified people execute via repeating “been there” others observing also get enough experience. Thus the number of people with the T-shirt can grow quickly.So, the T-shirt can look important for a while, but after a year or so there are plenty of T-shirts. So, the T-shirt is not really the basis for a career.Well, can do the same with the electric scooters and lots more such things.In part, are field crossing, that is, in one field noticing the practical need, in another field seeing a solution, and then combining those two, getting some experience and success, and have the T-shirt.
Similar to the hemp, cannabis business. Political muscle will determine the licenses. That means kickbacks, bribes, and corruption (at least where I live in Illinois which is the most corrupt from top to bottom).
Free Riders. One of the problems of a free market that VCs (this includes USV this time) routinely take advantage externalities (costs passed into naive third parties) – in the extreme I call this blood/ransom money. Sure it’s easy to justify, but society would be better if we paid for our own mess.
Import profit, export cost. Very Clever. But Selfish
I tend to think it is more important to regulate how they compete than the number of players. The whole bike sharing scene in China is going through drastic changes. It used to be that companies raised a ton of money and flooded the city with bikes everywhere. The business model never really made sense because the cost of local operations significantly exceeded gross profits and there was little to no room to achieve any economy of scale. When these companies ran low on cash, they started asking customers for security deposits and dipping into those deposits as free working capital. When the capital finally dried up, they started closing down the business, leaving many bikes unattended all over the city. The competitive strategy deployed by every player is in essence “dumping”, which would be considered illegal in many other business scenarios. I tend to think the lack of competitive constraints contributes to the low entry barrier outcome.
‘raised a ton of money’ – the excitement of apparent scale. Never mind the model. Go for the money. Figure it out later. Later has arrived. Has the model?
I’m greatly saddened when I see government stepping in to reduce competition. It’s only to the detriment of society and with no benefits to anyone except those that are well enough connected to get those scooter monopolies. Before too long we’ll see rent seeking behavior and as incumbents become impossible to dislodge due to regulation, they’ll start increasing the costs to consumers. Government should be helping to increase competition, not stop it from happening. Having a couple of scooters laying on the sidewallk temporarily is a small price to pay for better transportation, plus all the environmental benefits that come with it. If you want to get rid of scooters on the sidewalk, you could introduce some kind of fine. But, limiting competition to 3 companies is a completely bone-headed move.
Thanks for sharing keep up the good work.upagriculture
Enjoy the tart cherries, blueberries and craft beer! If you get a chance to go to Sleeping Bear Dune it’s pretty cool.