COVID-19 didn’t destroy micromobility, despite the headlines of mass layoffs and consolidation. A recent study by NACTO confirmed micromobility grew rapidly in 2019 before COVID hit, and recent studies show scooter activity returning to pre-COVID ridership levels while public transit ridership is down 58% nationwide. What COVID-19 did do was put an early end to the second wave of micromobility, which market forces would’ve done anyway, while accelerating the beginning of the third wave.
The second wave OpEx model was never going to pencil out. While pricier next-gen scooters will improve durability and increase battery life, the scooters themselves aren’t the major cost driver, operations expenses (OpEx) are, and it’s uncertain whether cost-savings from more durable scooters will even offset the switch from contract to in-house employees. Operators’ financial projections show unit economics working out once scooter density is achieved; yes, larger fleet sizes theoretically balance out the spikes in ridership time and location demands, eliminating the need for active rebalancing. But the projections fail to mention that like any land grab strategy, the most financially viable, in this case, the densest, neighborhoods were hit first. It is hard to increase scooter density without sufficient population density to use them. The model simply does not scale; a new model is needed to ensure long-term viability.
How disruptive tech is similar
To venture a guess as to what shape the third wave of micromobility will look like, I looked to the ultimate disruptive technology revolution of our time, the internet. An ocean analogy is apt, as we have witnessed both the cyclical up-and-down waves of creative destruction and the long-term high tide of the internet’s growing influence in all parts of our lives.
AOL’s 10 hours free CD-ROMs were the gateway drug for many into the world wide web, so I marked 1993 as the start of the first wave. Yahoo IPO’d in 1996, marking the beginning of the second. And, in 2002, Friendster launched the beginning of the third.
The first wave came in the form of “walled gardens” — AOL, Compuserve, Prodigy — tightly manicured and controlled environments that brought together features like chat rooms, real-time information such as stock quotes, and email.
But another contender with a better value proposition proved to be the winner — open access to the internet, but in a highly curated manner — Netscape Navigator. Navigator broke free from the walled-garden approach and offered the entirety of the world wide web to the masses — the browser to the world, but in a more graphically consistent and intuitive format.
With a clear winner, the first wave ended and ushered in the second. The first-wave companies simply died out, except for AOL, saved by leveraging its ridiculous stock valuation to gobble up media giant Time-Warner before the wave came crashing down.
The second wave came in the form of search engines — Yahoo, Excite, AltaVista, Webcrawler, and Ask Jeeves. Much like AOL, Yahoo emerged as the early favorite by focusing on intuitive and functional website design. Yahoo utilized its next-level UI to neatly organize information by interest and categories, and the web portal was born. Yahoo became the next media giant, with its market cap approaching $125 billion at its peak.
But a dark horse emerged, one that had been working behind the scenes for years providing search technology for these other companies. Like Navigator before it, Google opened the internet in a highly organized manner through its next-level search technology, PageRank. While Yahoo, Excite, and the like declared “search was dead” and attempted to build media entertainment portals, PageRank offered the best the world has to offer by making search results more relevant and authoritative, so that:
“Suddenly a search for ‘Honda’ turned up Honda.com instead of, say, a site that had copied the word ‘Honda’ 50 times in invisible type at the bottom of the page...” - Mercury News
This was the beginning of the end of Yahoo’s dominance, and the entertainment portal strategy.
The third wave played out in a similar fashion — early pioneers Friendster, MySpace, and The Facebook built controlled digital worlds where users would own and personalize their room/page. But a re-branded Facebook led others such as Pinterest, LinkedIn, Instagram, and Twitter to build open platforms that were curated, not by the companies, but by users and their shared interests. Participants know that their political rants should go on Twitter, personal transformation moments work best on Facebook, and cute kitchen cabinet posts have a home on Pinterest.
The winners of each wave were able to increase access, but in a smartly curated manner. And each successive wave grew larger as the market grew with it.
The first wave of micromobility
Now, back to micromobility. With all respect due to Amsterdam white bikes of the 60s, the ad-agency-led approach started by JCDecaux and Clear Channel started the first wave of micromobility. They offered free bike share in exchange for exclusive and lucrative street furniture contracts, when in practice, the advertising was the real story, and bike share was little more than the newsworthy add-on. But cities were quickly left with buyer’s remorse, as a free bike share promotion requires purchasing exclusive and proprietary parts, software licenses, and consultants to operate.
Ryan Rzepecki of Social Bicycles — the precursor to JUMP, which eventually got acquired by Uber — provided a great post-mortem of how it felt to finally achieve profitability in the first wave only to have the second wave come suddenly in the form of dockless bikes, seemingly everywhere and all at once. It was as if they were thrown out without regard to profitability or permissions because, well, they were.
Ofo, Blue GoGo, and MoBike — the Chinese-funded bike share companies — figured they would throw bikes on the streets and achieve mass adoption quickly enough to force city planners to accept them. But a better option emerged, by first adding electric, then by swapping bikes for scooters.
Scooters opened access to micromobility in the form of a frictionless and less intimidating experience for the average person, emerging as such an overwhelming favorite that Chinese bike share competitors left the streets just as suddenly as they appeared. Even U.S.-based dockless bike companies such as Bird and Spin ditched the bike strategy entirely and went full-force into electric scooters.
The local public-agency-run RFP model eventually won the first wave, which is astonishing given the sheer coordination required of so many public players: local planners, researchers, funding agencies, policymakers, outreach, and community volunteers. The culmination of this two- to four-year process was an RFP, an open bid contract to exclusively operate a quasi-public bike share system, with public subsidies and public requirements as part of the package.
The RFP process has many flaws, including the sheer time lag from concept to completion that works contrary to the innovative nature of tech-enabled systems. But unlike the proprietary ad-based model, RFPs opened a region’s bike share contract to an entire ecosystem of hardware providers, software platforms, and on-the-ground operators to devise innovative and cost-cutting solutions.
Cities were already fighting back on the second wave and re-asserting control of their streets. Led by LADOT’s Seleta Reynolds, cities began placing conditions such as access to standardized data to gain permits to operate. And then…COVID-19.
Scooter companies, who were already cash-poor with crashing valuations after the unsuccessful IPOs of Uber and Lyft, suddenly hit a brick wall of cash-flow literally disappearing. Layoffs, consolidation, and the Uber/Lime deal — which was really a liability transfer in exchange for an emergency cash infusion — marked an unceremonious end to the second wave.
The ironic thing is COVID-19, and the new term it brought into our lexicon — social distancing — highlighted the clear benefits of all forms of micromobility. While the coronavirus helped accelerate the demise of the second wave, it also accelerated the beginning of the third.
If we can take a cue from the browser wars, the third wave will be continuing to increase access while curating the experience. And this time, cities will dictate the terms of engagement, and ironically will provide a path to the elusive goal for shared micromobility operators — profitability.
The next wave
Profitability will be achieved by providing the two things required to control OpEx — access to curb space and access to grid power. Scooter charge racks, placed strategically where operators want them to start each day and coupled with smart incentive programs to nudge riders to dock them, eliminate daily rebalancing while resolving their need for charging. Newer racks can even lock scooters in place.
All this works because only cities own their right-of-way and grid network, and because right now, cities have a once-in-a-generation opportunity to create a surplus of energy by switching to LED lighting. The City of Los Angeles, in converting 80% of its streetlights to LED bulbs, was able to save $9 million annually. The excess grid power can provide the necessary power to charge micromobility and even electric cars.
This infrastructure play will allow cities to solve three problems at once. Placement of scooter docks next to bus stops and train stations results in an intuitive multimodal transportation model to jump-start public transit post-COVID. Scooter docks also encourage proper parking behavior, reducing tripping hazards and obstruction to sidewalks. And offering scooter operators an opportunity to reduce rebalancing costs provides an incentive for compliance in other matters, such as data standards.
The third wave is here, and this time cities will be in charge. By focusing on owning the framework to better curate the experience — while helping private operators attain sustainable business models and allowing them to open up mobility options — cities can provide the winning model for the third wave of micromobility to thrive in smart cities. The key is focusing on curation and not on content — much like Facebook allows its users to provide content, cities should allow private operators to provide vehicles. This will allow the steady rising tide of technology to lift all boats, lowering costs for everyone, and ensuring that mobility remains equitable for all people.
Gene Oh is CEO at Tranzito.