Uber has high hopes for a custom scooter it plans to roll out later this year that it says will be more comfortable, durable, and more difficult to vandalize.

“We believe scooters are a part of the future way people get around city centers,” said Michael Beckman, Uber’s head of scooters. “Both electric bikes and scooters are going to be big business.”

After becoming a ride-hailing giant, Uber has placed a big bet on scooters as it searches for new sources of growth in prelude to its expected initial public offering later this year. But the company has plenty of challenges ahead.

First, Uber will have to prove it can turn a profit with scooters, a major challenge for other companies that rent them. It also must stand out in a crowded field that includes Lyft and scooter pioneers like Bird.

Although Uber and Lyft are relatively new to the scooter business, they likely have the upper hand against their competitors, said Colin Sebastian, senior analyst at Baird Equity Research. Uber and Lyft have deep pockets that give them a lot of runway during the costly initial phase of setting up a scooter business.

“Like we’ve seen in the overall ride-sharing market, the advantage goes to the incumbents who have financial resources,” he said. “It’s difficult for smaller companies to have the funds to do that.”

For now, scooters are a relatively tiny business for Uber, which is said to have had $11.3 billion in revenue last year. Success depends on getting more people to rent scooters from Uber, which wants to dominate all kinds of transportation and sees scooters as a critical option for customers who want to take short trips of anywhere from a few blocks to a couple of miles.

Generally, the use of electric scooter appears to be on the rise. In September, Bird announced that it had provided more than 10 million scooter rides to customers about a year after its debut. Two months prior, Bird’s rival Lime reported that customers took 6 million scooter rides within its first six months. By the end of the year, Lime had provided 11.5 million rides on its scooters and bikes combined. It did not break down how many rides were on scooters.

Uber did not disclose its ridership numbers for scooters. But it did say it has room to grow.

Only half of all people who first use Uber’s scooters or bikes have also used the company’s ride-hailing service in the past 60 days. This shows that the company has room to expand within its existing user base and is also attracting customers outside of it.

In any case, the electric scooter market is big and largely still up for grabs, said Baird’s Sebastian. For example, to reach $1 billion in revenue, a company needs 10 million users to use its scooters 10 minutes a week. But Sebastian says, the market is likely much larger than 10 million people, and those people would likely use each scooter longer than 10 minutes each.

“So could it be a 100 times that number?” he asked, referring to the $1 billion revenue example. “Yes.”

Uber did not disclose exactly when its new scooter will be ready, but it did say it should debut by the end of the year. China-based Ninebot manufactures Uber’s current scooters, which became available in October and are now on sidewalks in nine U.S. cities.

Uber thinks it can design a better scooter than the light-weight ones bought off the shelf. By developing scooters internally, Uber says it will be able to make improvements more quickly and create a model that will better survive the beating they get on the streets.

In designing its custom scooter, Uber is using insights it gained from JUMP, the dockless bike rental company it bought for a reported $200 million a year ago. JUMP’s red bikes ride smoothly and are relatively reliable, but they’re also heavy and not exactly stylish compared to pricy top-of-the-line road bikes.

“We retained almost everybody through the transaction,” Ryan Rzepecki, JUMP founder, said about his company’s acquisition by Uber. “The key players are still driving product innovation within Uber.”

JUMP designed a custom electric bike from the ground up, quickly gaining traction with users and attracting Uber’s attention. JUMP’s electric bike debuted in summer of 2017 and became publicly available in January 2018.

Just a few months later and after acquiring JUMP, Uber saw a new burgeoning market in scooters and pushed into it. In June 2018, Uber created the New Mobility team, which it fondly calls “NeMo” internally. Of Uber’s 20,000 employees, the New Mobility team comprises hundreds of workers dedicated to JUMP’s bike sharing operations, its scooters, its mobility incubator, and UberTransit, which is working with cities to integrate local transportation options into the Uber app.

Of course, Uber isn’t immune to the financial challenges of renting electric scooters. The scooters themselves are expensive to buy or build, they require maintenance, and their batteries must be regularly recharged by contractors who drive around in pickups and vans.

At rival Bird, at least, media reports from last year suggest that its scooters require several months of rides to offset their cost, which also includes maintenance, insurance, and, in some cases, city fees. Complicating matters, scooters are often only in service for three months, executives and industry analysts told tech news site The Information.

Meanwhile, Lyft, which premiered its scooters late last year and has since expanded their availability to 13 cities, said that its scooters were still considered “new and unproven,” according to a filing with the Securities and Exchange Commission ahead of its planned initial public offering. Lyft also stated that the revenue from scooters were “not material” during the three months the scooters were available in 2018, implying that it lost a lot of money on the initiative.

In a hint of the high cost, Lyft said it spent $68.7 million on property, equipment, and scooters in 2018, according to the filing. The company did not disclose how much of that was dedicated to scooters.

However, Lyft believes its scooters will eventually become a profitable business. The company unveiled its newest scooter, manufactured by Ninebot, at the CES tech show in Las Vegas earlier this year that it marketed as more durable and weather resistant than its earlier versions, manufactured by Xiaomi.

Similarly, Uber says its scooter business will eventually become profitable. It beefed up JUMP’s team after the acquisition, combining veteran employees with additional hands to grow the business. The results have been promising, according to Beckman, although he declined to share financial details.

“All the numbers are getting better and better every single week,” he said. “We believe we have a path to a viable growing business, but we’re in the first inning.”

Original Article

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