The Boom, The Burst, & The Future of Micromobility
Along with several other industries, COVID-19 has dramatically impacted the mobility industry. The lack of travel caused by the lockdown has decimated almost every single company related to the transportation sector — from airlines to hospitality to tourism and many others, including micromobility.
Rebuilding the transportation infrastructure will take significant time and resources, especially for longer distance and enclosed travel like airplanes, buses, and trains — all of which are losing capital at an alarming rate. Risking exposure to the virus will remain a significant concern for the foreseeable future all over the globe and long-distance shared transportation faces a dilemma; enforce social distancing protocols while selling fewer seats per trip or fill up the vehicles to create an unsafe environment for the passengers. One way or the other, transportation companies will suffer tremendously, as the high costs of long-distance travel require sufficient revenues to remain afloat.
Thus, open-air transportation will play an extremely critical role in the rebirth of local, national, and global economies, and the micromobility explosion over the past 30 months can provide clues on how to revive economic activity on a smaller scale before long distance travel resumes back to its normal levels.
With the rise of globalism and urbanism, investors have bet billions of dollars worldwide in the past couple of years alone on last mile transportation, notably towards dockless scooter and bike sharing systems — so much that McKinsey Insights estimated a $300 billion micromobility global market by 2030.
While COVID-19 certainly contributed to the rapid decline of many unicorn startups, significant issues persisted well before the start of 2020, particularly with unit economics and the overall infrastructure. Scooter companies lost money at an alarming pace while struggling towards finding a sustainable path to profitability. They also have had their oft-publicized battles with vandalism and lawsuits from injuries and negligence.
Yet, the concept of ride sharing micromobility has shown enormous promise during this extremely volatile period, a major reason why Uber just invested $170 million in Lime moments after laying off 20% of its workforce. In the grand scheme of things, the global shutdown has provided a much needed pause to micro-mobility, as it provides an opportunity for shared individual transport to shift course and take past lessons into shaping a better future for last mile transportation.
The Boom
Micromobility — defined here as individual transport vehicles (ex: scooters, bikes, skateboards, etc.) operating at speeds within 15 mph — provides low-speed options of travel to benefit individuals within any defined community. Because of the slim and minimal design, micromobility users can navigate swiftly through dense regions; not only does this provide commuting benefits for work, school, or meeting up with other people, it provides recreational enjoyment for those yearning to explore the outdoors. Though bikes and skateboards have been available to purchase for several generations, the flexibility of one-way travel without ownership of an individual transport vehicle has rapidly evolved micro-mobility.
As technology has progressively advanced since the inception of smartphones, companies began implementing SMART features into micromobility devices in order to enhance the overall experience. The intersection between technology and micromobility has gained tremendous traction over the past decade, as people have not had to own bikes or scooters in order to ride them. First, cities implemented bicycle sharing systems with a complete infrastructure where users began and ended rides in various designated docking locations. By 2017, dockless scooter share systems revolutionized cities, as users could fully operate the scooters from their smartphones anywhere and anytime, without having to worry about parking these vehicles in any designated locations.
The transformed services offered end users freedom and convenience, as people did not have to worry about maintenance and security of scooters, which transferred the risk to the companies. Due to the rise of globalism and urbanism — with over 25% of the world’s inhabitants living in cities with a population of over one million people — freedom carried enormous value within any specified dense region. Cities benefited with reduced traffic congestion and increased overall economic activity within the region, as larger 4-wheel vehicles took up more space than micromobility vehicles. Furthermore, with battery-powered technology to power scooters and human-powered effort needed to ride bikes, micromobility offers much lower carbon footprint than traditional automotive vehicles, an integral component in densely populated regions.
All of these factors have led to substantial capital obtained in such a short amount of time; Bird started in 2017 yet has already received funding from 28 investors and peaked at a valuation of $2.5 billion. Lime has received over a half a billion dollars from some of the most prominent venture capital funds in the world and had a valuation of $2.4 billion within 18 months of launching. The list does not stop there; by the beginning of 2020, 340 scooter share programs operated in 242 different regions in 40 U.S. states. Globally, several other micromobility startups achieved unicorn status — including Ofo, Mobike, and Grab within 18 months of inception.
The intersection of technology and transportation along with the market demand (60% of U.S. trips are within 5 miles) have led to enormous potential in this sector. Reducing liability and maintenance costs from owning vehicles — especially in dense regions — combined with convenience and control over one’s time have allowed all sorts of ride hailing services to generate massive valuations in such a short amount of time. On the outset, it did not take much financial analysis to sell investors on the market potential of ride sharing micromobility, a major reason why so many different investing groups put in so much capital in such a short amount of time. In some way, shape, or form, last mile transportation is involved in everyone’s lives, so improving individual mobility carries enormous value to any society.
The Burst
Despite the tangible benefits with ride sharing micromobility, most ride hailing service companies have had a disastrous start to 2020. Bird laid off 406 employees and over 30% of its workforce at the beginning of April. Uber has slashed nearly 7,000 jobs in the past two weeks. Lime laid off 13% off its global workforce. Lyft and Airbnb cut thousands of jobs. The list goes on and on. Sure, the COVID-induced lockdown played a significant role in the rapid descent of these companies but looking deeper into the topic, COVID exposed the business flaws with ride sharing transportation services from all angles.
Though a great concept, ride sharing micromobility has had severe unit economic concerns right from the outset that has highlighted the volatility of these scooter startups. For instance, Bird, which conservatively pays $350 per scooter, receives approximately $3 per ride. Excluding cities’ operating fees (which vary by location), Bird would need 117 rides just to break even. This does not include the cost of labor, maintenance services such as cleaning and charging costs, the depreciation of the scooter over time, and the high vandalism risks of low weight scooters exposed in the thick of densely populated regions. Other people have conducted a deeper financial analysis on Bird’s volatility, which highlights just how dangerous it played the game.
Other ride hailing services have had major financial concerns. Uber lost $8.5 billion in 2019, including $5 billion in the second quarter alone. Lime suffered a $300 million operating loss in 2019. Lyft suffered a $2.6 billion net loss in 2019. The list goes on and on.
The fiscal disaster for the largest ride hailing companies occurred well before the beginning of coronavirus. As growth and revenues skyrocketed, the companies incurred far more costs and fiscal losses than any gains achieved. This points to a MASSIVE fundamental flaw with the business model. Sure, these companies have extreme value with transportation data and loads of cash in hand from venture capital funding to keep them afloat for the time being. Nonetheless, these extreme layoffs in such a short period of time indicate the volatility they all operated under, as it took less than a month of lockdown to drastically change the strategies for these companies.
The Future
With no cure in sight for the coronavirus pandemic, a brand new world has emerged in the transportation sector. While many of the aforementioned companies did not achieve sustainable business practices prior to the economic catastrophe caused by COVID, many strong correlations can emerge from the intersection between technology and mobility.
The rebirth of the overall economy will almost surely begin on a local level for the indefinite future, providing a monster opportunity for micromobility services to evolve even further. Enclosed transportation at all levels carrying multiple strangers provides medical risks and/or unsustainable unit economics to proceed, as the only way to raise revenues to survivable levels will involve raising prices, which will reduce demand.
On the other hand, open-air transportation allows citizens a better opportunity to ease into society. With hygiene, screening, and safe social distancing integral to society for the foreseeable future, micromobility services can allow people to better assimilate back into the local culture. How these services resume — dockless or docked modes of transport — remains a major question.
One possible route to go will intersect the existing security, tracking, and maintenance technologies into docking stations. Difficulties will arise with maintaining clean safety standards while reducing pollution in dockless environments. However, by upgrading specified stations within certain dense regions, micromobility companies can better monitor and improve their services to cater to the new environment.
The biggest challenge any transportation company will face involves gaining back consumer trust. This will take time, resources, and experimentation that will require short-term costs, but the damage of not following through on any safety procedures that puts customers at risk outweighs the uptick in costs of implementing safety measures. For the time being, dockless scooters may not work out, but micromobility companies can utilize their existing technologies in docked stations to better transition micromobility into the post-Covid phase.
