The ground is sinking beneath the feet of on-demand riding startups

Photo: iStock/Bogdanhoda

Photo: iStock/Bogdanhoda

People are throwing electric scooters into lakes and rivers. Regulators want to limit their use in cities. And investors are getting nervous as once sky-high valuations for electric scooter companies Lime and Bird begin to dip.

What happened?

To get to the root of the latest ride hailing brouhaha, it’s best to look at it through the lens of what came before.

It was March 2009, when Uber - then known as UberCab - was launched with the idea of bringing on-demand taxi hailing to the aid of forlorn pedestrians everywhere.

The idea quickly gained steam, with Uber spreading its wings across many states in the U.S. and also venturing out globally, achieving a near-monopoly in the next few years before local competitors like Lyft and global competitors like Grab and Didi Chuxing came along to spoil its party.

For a few years, Uber coasted along merrily, disrupting traditional taxi businesses across the country with little to no competition. Only after it gained a comfortable foothold in the market did startups like Lyft and Didi emerge, with the former making Uber sweat in its primary U.S. market while the latter forced it to concede defeat in the Chinese market.

Now, Uber and Lyft are locked in a battle that transcends the taxi-hailing market, but swivels around on-demand solutions in the e-scooter market, as they fight to gain market space in an already heavily contested segment. A decade has rolled away since 2009, with the term “on-demand” becoming commonplace and no longer disruptive, much to the dismay of Uber and the steady stream of on-demand “something” startups that raise millions with an overarching idea of monopolizing a vertical that did not exist a few years back.

In the rat race of fundraising and furious expansion, companies have forgotten to innovate, and have slowly started to bank on polishing their business model - trying to reduce their margins and even willing to run losses in the millions, just to capture the coveted market share. And in the long run, this spells disaster as banking entirely on flashy business models only take a company so long before it has to contend with the salty reality of profit margins, the absence of which will incur a collective investors’ wrath.

The U.S. e-scooter market fits this narrative to the T, as companies like Lime and Bird have been raising millions based on market trends and borderline-inflationary valuation. Though all the money pumped into this market has translated into traction, the cost at which users are acquired needs to be questioned.

For instance, Lime had raised $70 million earlier this year on the heels of its announcement that it would move from renting out pedal bikes to the bigger electric bike market. Fast forward to today, the company is staring at a near-empty coffer and is expected to raise its next round of funding in a few months. Lime’s rival Bird is also following suit, as it gears up for its next round of financing.

The problem, however, is that the investors are not very happy with recent events, as reports surface that both Lime and Bird are heading into their financing round with a much-reduced valuation than previously thought. The reasons are evident - the expense of competition and e-scooter vandalism that has seen e-bike sharing companies suffering losses in the millions.

Bird is now looking to raise money at a $2 billion valuation, a figure that has gone down from its initial estimate, while Lime is scaling back to a $3 billion valuation from roughly $4 billion, as it has failed investors’ expectations on market consolidation and earnings. However looking back, both companies are less than two years old, and their meteoric rise to unicorn status happened within two rounds of financing - figures that would have scarcely made sense a few years back.

Lime and Bird have also witnessed the rise of startups backed up by the bigger fish in the on-demand ocean - Uber and Lyft, that have put their weight behind companies like Jump and Motivate, generating stiffer competition than ever before.

Vandalism has also played a considerable part in wrecking balance sheets, as companies struggle to bring vandals to justice. Instances of broken boards and bike-stems are all too common, and so is the practice of chucking e-bikes into ponds and lakes. Teenagers form a major chunk of the e-scooter patronage, and thus reckless driving and accidents are also a regular concern.

Cities have pushed back on the e-scooter rage with heavy regulations, both on the number of bikes available within city boundaries and also on them being parked at designated lots. Though this could help bring order to the streets, it is not going to help the e-bike companies as they struggle to widen user bases. And as winter sweeps across the U.S., the companies will have to brace themselves for a drop in daily user count, while hoping that a new round of funding will let them live to fight another day.