The real winners of the scooter wars
How Ninebot and Xiaomi are the real benefactors of the micro-mobility revolution
Bird, the LA-based electric scooter company, announced yesterday that it was raising a $300M Series D at a $2.5B valuation. This followed on heels of rumors a week earlier that the company had lost $100M in Q1 2019 on revenues of ~$15M. Hurrah!
However, Bird’s irrational fundraising round is hardly an anomaly. For the past couple of years, not a month goes by without a scooter company raising a new funding round. 2018 has already been labelled by tech analysts and VC firms as the ‘year of the scooter’. To give additional context to how ridiculous this funding frenzy is, here is a snapshot of some companies that raised funding between Sept ‘18- Jan ‘19:
Yellow (Brazil) raised a $63 million Series A in September 2018.
TIER Mobility (Germany) raised a €25 million Series A in October 2018.
Beam (Singapore) raised a $6.4 million Seed round in October 2018.
Wind Mobility (Germany) raised a $22 million Seed round in November 2018.
Vogo (India) raised a $100 million round in December 2018, and more money in January 2019.
Dott (The Netherlands) raised a €20 million round in December 2018.
Blue Duck Scooters (USA) raised a $5 million venture round in January 2019.
Flash, formerly Circ, raised a €55M Series A round in January 2019
Excess capital = Excess supply
As a result, scooters and e-bikes are literally everywhere in a little over 2 years. See this picture of a park in Santa Monica:
And consider this graphic tweeted by a tourist who recently visited Lisbon:
And yet, Santa Monica and Lisbon are hardly exceptions - below is a map of European cities which have have issued e-scooter permits. Cities like Paris and Berlin have their sidewalks flooded with scooters already. (For a full list of scooter participants by each European city, see this useful map put together by the Sifted team)
But the true winners of the scooter wars are neither consumers nor players like Bird, Lime or Voi. The real beneficiaries are Ninebot (Segway), Inmotion, Xiaomi and Okai. Don’t recognize these names? That shouldn’t be a surprise - these are the faceless manufacturers that make these scooters and sell them to the consumer-facing ‘mobility’ companies (i.e. Bird, Lime) for $400-700 a pop. The more VC funding that the overall segment gets, the more these companies benefit from greater scale in their manufacturing operations. And as long as scooter adoption grows and regulation remains amenable, these companies continue to make decent money.
Similar dynamics apply in many other industries. That is why companies like Stripe/PayPal are valued at such high revenue multiples. By serving as the payment processing layer of the internet, these companies benefit from the growth of the ‘internet GDP’ regardless of the fortunes of individual sectors of the economy. It is a similar story with AWS, GCP and Microsoft Azure and is the reason why enterprise cloud is such a hot battleground. These companies recognize that as long as organizations invest in IT, cloud will continue to grow as it represents a better paradigm relative to traditional data centers. Therefore, the cloud providers will be able to collect ‘rent’ ad infinitum from all transactions on the internet. For instance, consider this recent off-the-cuff analysis that Lyft paid roughly $0.14 in fees to AWS per ride taken by a Lyft customer. If that sounds like chump change, it’s worth mentioning that Lyft expects to spend ~$300M on AWS by 2021. And Amazon makes 29% operating margin on each $1 of AWS revenue (vs. 5% margin for the Amazon e-commerce business. This highlights the value of being the ‘engine’ providing the growth in any sector.
Lesson: While building the next fancy ‘Uber or Airbnb for x’ might be an interesting idea, B2C marketplaces are hard to scale and remain generally loss-making for many years. A better way to make really attractive long-term profits is to take a hard/unsexy enterprise problem which sits at the cusp of a new growth vertical. For example, if your thesis is that electric cars will entirely replace diesel cars, Level 1 thinking might point to building electric cars (and providing ancillary services) as a great idea. However, Level 2 thinking would be to take an unsexy part of the chain that still remains unconquered - for instance, cheap charging points installed at home. A great business idea might then be to set your ambition to be the hardware supplier to electric charging units in most homes around the country/world. While many companies will focus on building electric cars and that will get most press coverage, few companies and entrepreneurs will target this ugly/less snazzy part of the value chain.