We close the year with an homage to a flightless Bird. Not the penguin nor the emu, but the pioneering scooter and bike company, which filed for bankruptcy last week. If you’ve visited a major city in the past five years, you’ve probably seen Bird’s black-and-white scooters all over the place — perhaps even one or two being driven on the sidewalk. Now the company is in the same position that its scooters are often left in: tipped over on the ground and obviously in need of repair.
In theory, bankruptcy can manage Bird’s repair by allowing it to shed debt and bring costs in line with spending. The company has filed for a Chapter 11 reorganization, from which its operations could conceivably emerge lean and strong enough to carry its investors to the land of profits, and its users everywhere they want to go within about a 10-mile radius.
In practice, though, Bird’s predicament raises questions about the viability of the whole business of “shared micromobility.”
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Bird invented this industry in 2017, a major service not just to those of us who love zipping hither and yon but also, I’d argue, to all the cities where they operate. Yes, many folks resent sharing roads and sidewalks with the scooters. But every time a scooter substitutes for a car trip, it means fewer greenhouse emissions, less air pollution and noise, less traffic, and less danger to pedestrians.
Follow this authorMegan McArdle's opinionsAll this is valuable! So why isn’t Bird making money?
One answer is that valuable services aren’t necessarily profitable ones; people can like something without being willing to pay what it costs. We’ve seen this with Uber and Lyft. They’ve made taxis vastly more convenient for both riders and drivers — yet Lyft has, so far, failed to turn a profit, and Uber most recently reported a net profit margin of just 2.38 percent.
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Like Bird, these companies were born in an era of easy money, when investors poured nigh-unlimited subsidies into various app-based services, from car sharing and scooters to laundry, in hopes that they were funding the next Facebook or Google. Eventually, it became clear that they were actually pushing into a lot of conventional markets such as “taxi dispatch” that didn’t benefit from software’s economies of scale in the same way as, say, a social media firm.
Bird’s business, for example, is in many ways more analogous to Avis or Hertz than a tech company, with its high capital expenditures on vehicles and substantial labor costs to keep those vehicles serviced and positioned in the areas of highest demand. Except that there are a lot more close substitutes for a scooter — walking, transit, Uber — than there are for rental cars. So scooter companies can’t necessarily charge what it costs to provide the service. This is one explanation for Bird’s $471.3 million operating loss last year. As money becomes more expensive, these kinds of losses become untenable.
This doesn’t mean shared micromobility is doomed. Bird has also made mistakes, for example, expanding to unprofitable cities and betting on bigger batteries, rather than smaller ones that can more easily be swapped out, streamlining charging operations. Bird’s competitor Lime was an early adopter of the latter strategy, and recently announced that the company is profitable. Not hugely so — about $27 million in the first half of this year, on gross bookings of $250 million, and that figure excludes crucial corporate costs such as taxes, interest and depreciation. But it still beats “massive operating loss.”
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The question is whether Lime, or any company, can move from barely better than breaking even to covering its capital costs while providing a decent return on investment. And if so, whether more than one company can. Maybe the only way for shared micromobility to make sustainable profits is if the market consolidates to a single player that, freed from competition, can provide fewer rides at a higher price.
This is a story a lot of people are now telling about car share, as Lyft seems to be on a glide path to bankruptcy, and it’s hard to see anyone else spending almost $5 billion to take another run at Uber — not for the “prize” of a 2.38 percent net profit margin. It’s a story you could also tell about shared micromobility, given how many companies are struggling to reach profitability. I don’t think I believe the story in the latter case, however, in part because scooter markets are much more intensely local than car sharing — few business travelers arrive at the airport baggage claim and bust out their favorite scooter app to get to the hotel. Even local residents often find an e-bike or scooter on the street, then pop open the relevant app, rather than hunt for their favorites. This limits the competitive advantages of size.
But I do wonder whether the current financial environment couldn’t help Lime or some other scooter company simulate a winner-take-all market. Lime may have stabilized its finances just as interest rates were rising and capital was drying up, making it hard for competitors to finance a final push to profitability. The longer the current austerity goes on, the more likely it is that at least some of us will end up in cities with a quasi-monopoly in scooter provision. This would be good for investors, allowing the winner to fatten its margins by raising prices. But for users, it means we probably will not get to fly along the streets as often as we did in the days when money was easy, and there was a Bird on every corner.
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