The field of dreams in Internet 2.0

Yesterday, I was biking downtown in DC on the road near the Watergate that leads to the Lincoln Memorial. It was a picturesque day here with blue skies and low humidity – a perfect day for a bike ride. But as I passed these two landmarks, I had to be quite careful because of the Bird and Lime e-scooters left in the middle of the bike path.

And when I read about Uber’s plan to shift focus into these businesses, I wondered what these companies’ competitive advantage was.

The moats of Warren Buffett

It was back in 1999 when Warren Buffett was doing a Fortune interview that this term ‘economic moat’ came into the market lexicon.

“The key to investing is not assessing how much an industry is going to affect society, or how much it will grow, but rather determining the competitive advantage of any given company and, above all, the durability of that advantage. The products or services that have wide, sustainable moats around them are the ones that deliver rewards to investors.”

A moat is a company’s competitive advantages over competing firms that will allow it to protect profits over the long term. It’s the thing that allows its profits to have staying power and not erode as a competitor attacks its market position. Just like with a medieval castle, the moat protects the business ‘fortress’ and the riches within.

Now, Lime and Bird are valued at over a billion dollars each. What kind of moats do they have? Seriously.

Uber’s entry into this e-scooter market

Look at what Uber’s new CEO is saying:

Uber is planning a shift in emphasis from cars to electric bicycles and scooters for shorter journeys as part of its long-term strategy, according to the ride-hailing app’s chief executive.

Dara Khosrowshahi said more individual modes of transport were better suited to inner-city travel, despite snatching revenues away from Uber’s drivers. He admitted that, in the short term, the move would mean a further financial hit for a company that had losses of $4.5bn last year.

Ahead of Uber’s highly anticipated flotation, Mr Khosrowshahi said investors had to be aware that short-term losses were necessary to achieve longer-term goals — and part of that was a focus away from cars in inner cities.

“During rush hour, it is very inefficient for a one-tonne hulk of metal to take one person 10 blocks,” he told the Financial Times in an interview. “We’re able to shape behaviour in a way that’s a win for the user. It’s a win for the city. Short-term financially, maybe it’s not a win for us, but strategically long term we think that is exactly where we want to head.”

Uber first added e-bikes to its app in February, and acquired the bike-sharing company Jump for about $200m in April. Jump bikes are available in eight US cities, including New York, Washington and Denver, and are soon launching in Berlin.

Mr Khosrowshahi, who joined Uber a year ago, has also struck deals with Lime, an electric scooter company, and Masabi, a London-based app that provides mobile ticketing for public transport, with the aim of building what he calls an “urban mobility platform”.

If you’re Lime, even though you are partnering with Uber, do you see them as a threat? If you’re Bird, you’re screwed. Here’s a company that’s about to raise a ton of money and has a huge installed base of customers entering your market and partnering with your biggest competitor. That’s not good.

Is the e-Scooter business even viable?

But as with all of these businesses – Khosrowshahi calls it the $6 trillion global mobility market to make it sound grandiose – you have to wonder if they have sustainable economics.

Here I was using an existing forms of transport, a bicycle I own, and I was confronted with a real hazard in the pubic space, abandoned scooters sitting right in the middle of the roadway. That’s something regulators are going to fix. And that regulation won’t be to the rental company’s liking.

The reason Lime and Bird use dockless rental units is because the docks are expensive to set up and maintain. But by allowing these bikes and scooters to litter public access ways, you are effectively transferring the cost of these companies onto the public. Eventually regulators will step in and put the costs back on the companies. And the economics of that business are difficult.

The way Uber is thinking about scooters and bikes is as a way of dispensing with the driver, getting rid of the employment problem. All they have to do is deal with their rental infrastructure. No driver, no labor issues. Success!!

My view

But overlooking the cynical, anti-employment nature of this thinking, you still have to ask if the economics work. I don’t think they do. Bike rental is best controlled or outsourced and tightly regulated by a city because it is a public good.

We’ll just have to wait and see where this goes. But Uber lost $4.5 billion last year. That’s a lot of money for a market-leading organization. More than Tesla, you have to ask whether this cash burn will ever go away. And now Uber wants to go public. For the company, since this is probably the top of the market, it’s a great time to go public. But that doesn’t change the economics of the business.

But as bad as Uber’s economics are, it has an installed base of customers. That is a definite economic moat – one Bird and Lime don’t have. When Uber enters e-Scooters and bikes, Bird in particular, is going to crash and burn.

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