Times have changed. The ‘pursue growth at all costs’ model does not work anymore. Micromobility companies should be going after profitability from day one.
A few years ago, when the industry exploded into life, each operator had the same goal - to win as many cities as possible as fast as possible. This free-for-all established a few large players, but ran many services out of business (or led to acquisitions). Investors are not naive: they will sniff out a considered, sustainable business model amid unsustainable ones that rely primarily on growth to gain market share.
Bird, Lime and Voi have all announced some sort of profitability in the last 18 months. For smaller players, or those getting into the mobility or ride-sharing industry, it looks like the game's over: now that most of the largest cities in the world have been conquered, there isn’t as much room to grow.
Or so it would seem.
How big is the micromobility market?
Due to the Covid-19 crisis and national lockdowns across the world, the demand for micromobility fell dramatically in 2020. Despite this, industry experts are confident that this is just a temporary lapse and that the market will come back even stronger.
McKinsey predicts that the micromobility industry will be a $300 billion to $500 billion market by 2030. As we wait to see what the world is like post-Covid, what our ‘new normal’ will be, one thing is clear: there is still a massive opportunity for new players to come in.
“We believe that micromobility will emerge intact and thrive in the long term”.
How have micromobility operators become profitable?
The rise of electric bikes and mopeds have been a big factor in the big operators’ journey towards profitability. Lime started out as LimeBike before pivoting into scooters. Now they operate a multi-modal fleet including bikes and mopeds which has helped them to win new markets and cement their position in existing cities. The benefits associated with fleet diversification have unquestionably contributed to their success. It is unsurprising that TIER and dott are now following suit and moving into electric bikes too.
Aside from going multi-modal, improved hardware and software has made fleet operations more efficient and, therefore, more profitable. Bird announced that they would be allocating €150m to fuel their continued expansion into the European market. They aim to reach 50 new European cities, sending a message to the world that there is opportunity beyond the largest cities. In fact, a medium-sized city may well be better suited for sustainable sharing operations than a capital city.
Why do micromobility companies keep losing money?
There are a number of reasons why micromobility companies keep losing money, but perhaps we can attribute it to 3 main issues:
Poor quality hardware
In the past, vehicles did not spend enough time on the streets before they could turn a profit. Research shows that it takes 4 months on average for a scooter to become profitable but, in 2019, it was reported that the average life of a scooter on the streets was 3 months. The larger players were able to re-think and invest into technology that would last longer, whilst many other companies went bust or were acquired as a result.
Low quality hardware can double or triple your Total Cost of Ownership, which is a disaster for the balance sheet.
For example, when Mobike (a pioneering bike-share company) first came to Europe, it came with bikes that were not vandal-proof - or perhaps not as robust as they could have been. Due to losses resulting from vandalism and theft, their operation in Manchester had been rendered 'unsustainable'. Between July 2017 and August 2018, Greater Manchester Police were called to more than 400 incidents involving Mobikes.
High operational costs
Margins are notoriously tight in the micromobility space. It is estimated that the average profit per trip for a free-floating electric scooter was 15-20% before Covid-19. Relocation alone accounts for 40-50% of the cost of running the service, with battery swapping or charging also contributing heavily. Since consumers often cite price as a barrier to entry for ride-sharing services, the best way to increase margins is to reduce costs.
One of the revolutionary changes to electric fleets was the introduction of the swappable battery. Early scooters and bikes had to be collected, taken to a warehouse and recharged before being put back on the street. These transportation costs were inefficient and unsustainable - not to mention the lost revenue by not having those vehicles on the streets.
With the swappable battery, operators have saved thousands on fleet maintenance costs and have been able to increase their fleet availability significantly. The question for the future is, ‘what is the next swappable battery’?
Undervaluing the power of data
Until now, the micromobility industry has focused aggressively on hardware innovation, since hardware can be a huge cost center if you don’t invest in quality. Thanks to this, we have succeeded in making robust and long-lived vehicles the norm.
On the other hand, on the operational side, operators have simply placed vehicles by intuition, usually in busy places like train stations. Operations are labor intensive and expensive, and most operators lack advanced data analytics beyond basic hotspot forecasting and mapping. Acting through intuition alone is often inefficient; making smart decisions driven by the data your vehicles produce is a faster path to both higher revenue and lower operational costs.
With algorithmic decision automation, operators can leverage their historical data to predict which vehicles will get rides downstream after a deployment or a battery swap, and thus prioritize vehicle interventions to maximize ridership and revenue.
Ultimately, the goal is to do the right tasks, at the right time, in the right order.
"While global coronavirus lockdowns challenged the industry in 2020, we are now seeing a tailwind as users shift transportation modes toward micromobility as the world opens up. Higher demand and more efficient operations mean it is even more important to take advantage of data for ridership and operational gains".
– Joseph Brennan, Co-founder at Zoba
What is micromobility's path towards profitability?
As we come out of the Covid-19 crisis, we are all wondering about the future of micromobility. User preferences and expectations are bound to be different and we must adapt. However, some things never change.
To be successful, an operator or mobility company needs to spin many plates at once. We have put together everything we have learned as both an operator and a software & hardware partner in this extensive guide.
What's in the guide?
Inside, you'll find everything you need to set you on the right path to profitability - whether you're a micromobility startup looking to launch your first city or a seasoned operator looking to make your operational infrastructure more sustainable. It covers:
- Business plans
- Assessing the potential of a city
- What makes quality hardware (and software)
- Boosting ridership and minimizing costs through data
- What makes an exceptional user experience
- Evolving your offer