Uber Set to Dominate the Coming Scooter Battlefield

This guest piece comes from Sunil Paul, who previously co-founded Sidecar.

Which company will emerge victorious in the scooter rivalry? In recent months, startups such as Bird, Lime, and Spin have swept into dozens of American cities with their high-tech electric scooter fleets. Investors are funneling hundreds of millions into these scooter firms, betting that the one with the deepest pockets will prevail. Yet, as the earlier rideshare conflict demonstrated, capital alone isn't sufficient.

Despite all the buzz and funding that Bird, Lime, and Spin have attracted, they won't be the winners of the scooter wars. Uber will become the scooter industry's dominant force. Even without a single scooter of its own, Uber already holds a powerful incumbent position with substantial built-in benefits.

I served as co-founder and CEO of Sidecar, a ride-sharing pioneer. The early ride-sharing era closely mirrored today's scooter wars. We introduced a novel innovation that excited consumers and caught regulators off guard. Consequently, our customer acquisition costs were minimal, retention rates were high, and recruiting drivers proved straightforward.

As an early mover, Sidecar enjoyed a first-mover edge, but Uber ultimately became the category leader by employing what are now politely termed 'aggressive' strategies. It wasn't just its vast capital—though that certainly contributed. Uber leveraged its existing dominance among riders who used its app for black car services to take over ride-sharing. We fought hard, but eventually sold Sidecar's assets to General Motors in 2016.

To grasp why Uber will dominate scooters, one must understand how two-sided markets function.

Like other marketplaces—think Airbnb and Amazon—Uber connects supply and demand. Demand arises from consumers needing transportation from point A to point B. Supply comes from drivers offering rides in their personal vehicles. When demand is high, building new supply becomes relatively easy.

Thus, when Uber acquired Jump, the bike-sharing startup, it signaled the beginning of the end for Bird and Spin. Why? Because Uber had already won the ride-sharing battle and now commands a dominant source of demand for mobility solutions. Combining that advantage with the lessons from its earlier fight leaves scooter companies with only two hopes: a backlash against Uber—or a buyout by Uber. That's why Uber's deal with Lime—the ride-hail giant is investing in Lime as part of a new $335 million round valuing the electric scooter company at $1.1 billion—is so significant. It likely marks the first step toward an eventual acquisition.

Defenders of scooter company valuations point to differences from ride-sharing. While scooter sharing does have different supply logistics and better economics, the flaw in that argument is that the two actually share more similarities than differences.

Let's examine the logistics challenge.

To succeed, scooter services must position scooters where and when consumer demand exists. They employ numerous 'chargers'—people who collect, recharge, and redistribute scooters. Certainly, this differs from finding drivers with clean, late-model cars. But the similarities are even more pronounced:

• Both recruit a freelance gig workforce, some of whom can serve as both drivers and chargers.
• Both analyze consumer demand to determine where and when to deploy supply—whether drivers or scooters.

Scooter chargers are easier to find because they don't need licenses, clean vehicles, or background checks. That means Uber can enter this category more easily. And the complex task of figuring out when and where to deploy scooters is likely identical to deploying drivers—and here Uber holds a major advantage.

So there is no meaningful moat or barrier to entry arising from scooter logistics. Ride-sharing companies already recruit hundreds of drivers weekly, and it's easy to imagine a small number also becoming scooter chargers. With Uber's purchase of Jump and Lyft's acquisition of Motivate—the largest bike-sharing network in the U.S.—they already have teams familiar with bike-sharing challenges, which are even more akin to scooter sharing.

What about economics? Leaked data from Bird and Lime indicates very low customer-acquisition costs, utilization rates of 10 to 12 rides per day, and payback periods for scooters of just a few months, according to industry sources. Attractive economics, however, do not create a strong barrier to entry. If anything, they invite competition.

Even more alarming for a scooter investor is the risk that Uber and Lyft, with their expensive customer acquisition, would use scooters as a way to attract customers for their more profitable ride-sharing businesses. It might even make financial sense for ride-sharing companies to offer free scooter rides just to get more consumers using their apps. If a scooter rider uses Uber or Lyft to find scooters, what happens when it rains or the rider is running late? They'll likely pay for a car ride instead of saving money with a wet, delayed scooter trip.

So expect ride-sharing companies to test free or subscription-based scooter rides as a way to reduce their own customer-acquisition costs. If that works, the scooter companies are doomed. Their economics will suddenly flip, as consumers realize a nearby scooter is available through a ride-sharing app for free or at very low cost. While scooter rides might be somewhat peripheral to ride-sharing, customer-acquisition cost is not.

A similar motivation drives the desire to create a so-called 'multimodal' transportation platform that integrates ride-sharing with access to public transit information and ticketing. Consumers who use scooters or public transit are also consumers who will use ride-sharing.

The scooter wars will be a bloodbath. Fundamentally, that's because ride-sharing companies already have the most relevant eyeballs—the most app users looking for a ride—and because they possess the logistics expertise to position supply correctly.

It's a replay of tech oligopolies extending their power to crush innovative startups. I wish it weren't so, but that's how I see it unfolding.

Sunil Paul is an entrepreneur, inventor, and investor in technology companies. He was co-founder and CEO of transportation pioneer Sidecar, the inventor of modern ride-sharing, which sold its assets to General Motors in 2016. Paul's passion to reinvent transportation dates back more than a decade. In 2009, he sponsored the first law to enable peer-to-peer car sharing, and helped incubate Getaround, an early player in the category. He is an internet pioneer who, after being AOL's first internet product manager, started early internet companies FreeLoader and the anti-spam company Brightmail. Reach him at @SunilPaul.

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