Last week, scooter rental company Bounce raised $3MM in debt, taking its total fundraising to $25MM, hot on the heels of Ola's $100MM capital deployment into Bounce's competitor Vogo. 

Surprising Scooter Statistics

India is a densely populated country, and given the limitations of space, roads obey the same laws of density. 

India's road network is one of the densest per square km in the world, standing at 1.70km of road per square km of land, more than China and the US (surprised?). If you look at road length per 1000 people, India stands at 4.63km, but the US far outstrips India here with 20 km per 1000 people. 

For India's thin and short (i.e. congested) roads, the solution had to be more compact than a massive car, that works well in the US. The answer was the ubiquitous scooter/scooty, or what is called an "Activa", regardless of brand (well done, Honda)

In one of the first ranks that India should be proud of, India has the largest two-wheeler market in the world. It is even larger than China's 16MM, where India sells 17MM+ two-wheelers every year. 

For the densely populated cities and roads, bikes/scooters are a saviour to get around. 

Lasting the Last Mile

India's narrow lanes and congested roads cover most of the large cities or small towns. There are thus a lot of areas that become inaccessible to cars or four wheelers. 

Covering the "last mile", becomes a job for scooters or bicycles, that can access these places. 

It is little wonder that scooter trips are more in number than auto and taxi trips combined. In the absence of public transport for folks who are in the lower income segment, or are looking for an additional means of personal transport, the scooter is the goto choice. 

Scooters thus don't need any customer education, most people would have definitely driven a scooter, but not necessarily a car. If available, people would drive a scooter.

Providing people quick access to scooters would, therefore, be a pain point to solve.

Rent Everything and Own Nothing

Since Uber wildly popularized the idea of having your own cab without owning it, the "sharing economy" has become the way to provide people access to assets or services. 

Uber, Ola, Airbnb, WeWork are all built on the tenets of the access economy. The rationale for why sharing made economic sense is better utilization of resources. Assets, instead of being owned by individuals who didn't use them productively, would be owned by companies who rented it for a fee. 

Just like cars, houses or workspaces, the same argument would be applied to scooters. While India has been using scooters for decades, sharing scooters would only be possible at small, localized scales (e.g. family/friends)

With the advent of the internet and ubiquitous access through smartphones, scooters could be rented by going to their location and taking it for a ride.

The same logic could also be applied to bicycles, couldn't it?

Flying Electric Birds?

In an earlier piece on bicycle sharing, I had outlined why the bike-sharing market was picking up in a similar way last year, with billions being poured into the market. US-based Bird became a unicorn in the process. 

ofo raised an incredible $1Bn in China for the bike sharing economy, but filed for bankruptcy late last year. The reasons were apparent, as I had earlier elucidated - the economics don't work. 

Additionally, in India, the problem of the 4Cs plagues bicycles - connectivity, cost, culture and climate.

Connectivity for bikes is poor in India, with roads largely lacking the infrastructure for bikes while China/US have largely upgraded their infrastructure for bikes. In terms of cost, while usage maybe cheap, the upfront deposit that is to be paid in India is higher due to the fear of theft, as insurance.

Culturally, bikes were discarded by Indians as cars are status symbols (and more comfortable), it is going to a definite change to get people cycling on the road. As a tropical climate, versus SF/Shangai's moderately temperate climate, heat and rain can make cycling a task (no wonder Bangalore and Pune are the two best options!).

As you would realize, scooters don't have the first three problems and solve for climate by just being faster and requiring lesser effort. 

Bouncing Around is in VOGO-e

Given the fact that scooter rentals were the next logical step for making scooter more accessible, VOGO and Bounce took off in late 2017. 

Bounce has been around for 4-5 years, and it appeared much earlier to the party that was to start in 2018. With bicycle rental companies not doing well, and electric scooter companies like Bird becoming unicorns, Indian firms would follow suit. 

Both VOGO and Bounce would end up raising their first rounds of capital, to help win the nascent $300MM two-wheeler rental market. 

The capital would follow quickly, with both VOGO and Bounce raising $15MM+ in quick succession. VOGO would also end up getting a commitment of $100MM from Ola, which would help it build supply for scooters.

The fundraising would help each company add more scooters to its fleet (supply) and acquiring more customers (demand). As matchmakers between supply and demand, these companies would need to solve both simultaneously. 

But how would they make money?

Elusive Economics

The business model for these companies would be straightforward. For each ride, users would be charged while the scooter rental companies would pay for fuel and maintenance. 

Unlike Uber, where drivers need to be paid for each ride, a scooter rental company would use the rider itself to drive the vehicle around. In terms of economics, each ride would be charged 5 INR/km, while the cost in terms of fuel/maintenance would 4 INR/km.

Every ride would, therefore, result in 1 INR/km of gross margin. Looking at VOGO's P&L, in 2017-18, the company did 19 MM INR of revenue or ~3MM km of rides.

For ~5K scooters, that is 600Km/scooter per year. Assuming 6 Km/ride, that would be 100 rides/scooter per year or 1 ride in 3 days. That would be ~500K rides/year. For 100K + riders as VOGO lists, that is 5 rides/year per customer. 

In terms of the customer acquisition cost, let's assume the cost of acquisition is 100INR. As the gross margin is 1 INR, it would need 100Kms of rides to break even. For 6Kms/ride, it would need at least ~16 rides to break even - or 3 years to break even.

For scooter rentals to become profitable on a per customer basis, usage by customers would have to become at least 3x. By solving for supply first, the companies would now have to focus on creating demand. 

Dreaming of Electric Sheep

One of the biggest issues with bicycles was them being stolen, broken or dumped. Maintenance and management of these vehicles were hard and contributed to the demise of Ofo. 

For scooters, though, getting broken or dumped would be far more difficult - and managing stealing would be easier. In terms of scale, therefore, reducing maintenance cost would be a big win for these companies. 

Going electric would dramatically improve maintenance.

While the Indian government continues to push on making electric vehicles common, which will make electric scooters more necessary, they are easier to manage.

Petrol/diesel vehicles need fuel and more maintenance than an electric vehicle. An electric vehicle could be left to charge at its dock and will reduce management costs. I would also reckon the cost per mile would be brought down. 

It is little wonder the companies are looking at electric scooters as the next step ahead. If they have to scale, they have to bring down the cost per ride, while simultaneously increasing usage and utilization. 

If the hot scooter rental market succeeds, it would be a game-changer for Indian transport.