Last Mile or Last Straw?

As we think about the ride-sharing industry, government negotiations and partnerships serve as a significant area of focus--and potential risk for companies like Uber and Lyft if they are unable to appease various government bodies. One area where ride-sharing companies can work with governments is in last-mile transportation, which may help to reduce congestion in dense areas.

In August 2018, New York City enacted a ban on new for-hire vehicle license issuances, serving as a cap to Uber and Lyft drivers and a warning concerning who’s in control of transportation and--consequently--its revenue. For this reason, we believe Lyft has much to gain from working with municipalities to solve transportation issues. By collaborating with local governments, municipalities may be less prone to cap for-hire vehicle permits and reach the last straw with ride-share companies and their resulting congestion. Although congestion can be eased with more shared rides, which Lyft is hoping to get from 30% of total rides (in markets where available) to 50% by 2022, we see providing last-mile solutions as a way ride-sharing companies can work with cities to solve transportation issues in the near term.

Last-mile solutions include providing multimodal offerings like bike- and scooter-sharing and the main mode of the last-mile trip: public transport. Multimodal offerings bring problems of their own that also cause friction with municipalities, like dockless littering or danger to pedestrians. However, we believe Lyft persists in the goal for a multimodal app because it brings more incentive to opt for a monthly Lyft subscription, bringing stickiness within the app and a way to provide cheaper trip options under one app, without looking at competitors.

Lyft has subscribed to the philosophy that subscriptions are where to turn for new revenue growth. Under its All-Access Plan, launched in October 2018, users can pay $299 per month to get 30 rides under $15. Rides can be of any type, but users would probably get the most value when using ride-share rides, as a $15 bike or scooter ride is hard to achieve (if users took 30 rides for exactly $15, they would have paid $450 without the subscription, so the plan could have a $151 cost savings). While moving to the new subscription model, Lyft has found that Uber’s in the same lane, just going to a different destination. Two weeks after Lyft went live with its All-Access Plan, Uber announced Ride Pass. The $14.99 monthly subscription doesn’t prepay for any Uber rides but rather provides price protection so the user is immune to surge pricing. Uber notes it will later add benefits to bike- and scooter-share services. Overall, we think Lyft’s subscription style is better for in-app stickiness because Uber’s offering only encourages users to use the app in times of surge pricing--though this could be a majority of the time for many customers. Lyft’s deal, on the other hand, encourages users to use the app at all times because even if a ride is over $15 for Lyft, users only need to pay the difference.

We think Lyft users, especially urban dwellers, will find more value in a Lyft subscription by shedding their stand-alone bike- or scooter-share memberships to access all such modes of transit in one place. We think that from Lyft’s perspective, it’s a major way to increase weekly usage. According to a Pew Research survey, weekly usage of ride-sharing apps has made little progress from 2015 to 2018. In 2015, 3% of the U.S. population used a ride-sharing app weekly, inching to 4% in 2018. If people access the app to complete trips other than via ride-share, they may be more likely to end up using ride-share services more often. While we don’t expect these alternative modes of transport to directly increase revenue substantially, we do expect these services to increase the stickiness of and loyalty to the app, which should in turn increase profitability and appease city relations.

Lyft Docks Bike-Sharing In July 2018, Lyft announced its plans to acquire Motivate, then the largest North American bike-sharing company. Lyft completed the acquisition in November 2018 and now owns Motivate's docked bike programs in nine U.S. cities, including New York City, Chicago, and Washington, D.C. We think Lyft's acquisition of dock-only Motivate is a good hedge when combined with its dockless scooter business. Dockless bikes bring more problems than dockless scooters due to their larger size. Plus, we believe Motivate's expansive network of bike docks in its operating cities is dense enough such that dockless bikes would bring marginal efficiency to riders and proportionally more headaches for bike operators in the form of regulation and replacement costs. Still, not all the benefits of Motivate's dock-only bikes will be absorbed with the acquisition. All Motivate bikes are expected to rebrand in true Lyft neon fashion, which will eliminate any sponsorship revenue streams that came from the sponsor's branding on the body of the bike (though these sponsorships will continue for the near term). This removes a significant revenue stream. For example, in May 2018, Citi's sponsorship accounted for nearly 28% of New York City's Citi Bikes revenue at $1.8 million. Other changes as Lyft grapples with its first experience in owning transportation assets include skipping the maintenance hassle. Lyft did not acquire Motivate's dock station maintenance arm, which will operate as an independent company servicing Lyft bikes. And, apart from fees needed to pay for maintenance, Motivate will likely maintain better fee deals with municipalities than dockless scooters and bikes. For example, Seattle and Chicago charge $50 per dockless bike. Docked bikes, on the other hand, often aren't susceptible to per-bike fees and only sometimes have to pay rental fees to the city for docks, according to Recode. Particularly, dock stations may face municipal "true-up" fees for replacing metered parking spots, making up for the city's lost revenue--just as New York City imposes. However, Motivate's existing exclusive contracts with some cities, which ban any other bike-share companies, are valuable. These exclusive contracts buy Lyft time in improving its bike-share offerings, as they end as early as 2025 or as late as 2029, according to Recode.

As far as competition goes, it’s electric. Uber acquired Jump, a dockless e-bike sharing company, in April 2018. Jump bikes aren’t docked, and therefore we think Lyft is exposed to less regulation risk. Still, all Jump bikes are electric, whereas Motivate only has pedal assist e-bikes available in its San Francisco Ford GoBikes. This leaves Lyft with little sweat-free charm, but, if no sweat is truly the goal of an alternative ride, we believe scooters are the better option due to their greater speed.

Scooter-Sharing? No Sweat In September 2018, Lyft deployed its own brand of scooters in Denver without making any acquisitions. Now in eight other locations, including Los Angeles, Austin, and San Diego, Lyft scooters have fared well. Scooter rides accounted for 10% of total Lyft rides in Denver in 2018 even though they only were available for the fourth quarter.

We view scooters primarily as a substitute for bike-share. This can best be seen by looking at bike ride data in San Francisco, where a temporary ban on scooters led to a surge in bike-share use. We estimate approximately 15% of scooter rides substituted bike rides due to gaining users who would not have wanted to break a sweat on their commute or errand runs. Plus, Lime reports that electric scooters transport riders to their respective destination 22% faster, and max speeds continue to increase. We think scooters' significant substitution of bikes is also seen in Ofo's U.S. operations history. The Chinese dockless bike-sharing left many U.S. cities in the summer of 2018, citing strict municipal regulations. However, Ofo remained in several cities and was affected by the incoming of scooters. San Diego State University ended its partnership with Ofo once scooters came to campus. Though Ofo remained in San Diego, shortly after scooter arrivals to the city, hundreds of Ofo bikes were found in the scrapyard, as reported by The San Diego Union-Tribune. In Charlotte, the city's Department of Transportation reported July 2018 scooter trip miles surpassed dockless bike miles by 7 times: 139,215 miles compared with 19,430. In October 2018, Austin had 69,925 docked bicycle trips and 275,300 scooter trips, making scooter trips almost 4 times than those of docked bikes. According to Austin's docked bike-share operator, Bike Share of Austin, ridership dropped 40% from January 2018 to November 2018. The drop was attributed to scooters, since it came as a surprise after a reported five years of relative success.

While scooters are no doubt gaining popularity, we think Lyft scooters have little competitive edge when compared with Uber’s scooters. Uber owns a minority of Lime--a bike- and scooter-share startup--but has its eye on acquiring all of Bird. However, Uber is already 100% in the scooter game via its Jump bike acquisition. In October 2018, Jump launched electric scooters in Santa Monica, exclusively available through Uber’s app. They now can be found in Atlanta, Austin, and San Diego. But are they a threat? We think so. Physically, there are few differences across all scooters. Lyft currently uses Xiaomi scooters, which are also in use by competitors Spin and Bird. Lyft will soon replace Xiaomi scooters with Segway Ninebot scooters, already in use by Uber. So, while physical scooters have little differences, we think both Uber and Lyft have a competitive edge over ride-share-independent scooter operators because their scooters are readily available on their ride-share apps, which we think will drive significant scooter traffic. Plus, Uber and Lyft both have substantial data from ride-share operations that we believe will help inform their scooter businesses. However, Lyft’s edge in scooters has little bearing, if regulation severely limits scooter mobility. Many cities are currently hosting scooter pilot programs in which they’re testing scooter caps, sidewalk disruption, and other safety hazards. In Austin, for example, selected parkland trails are permitted for scooter use under the pilot. After the pilot ends in September 2019, Austin City Code could opt to permit scooter use on all park trails. Internationally, scooters have yet to hit the United Kingdom simply because the government has no authority over the transport mode. The closest law to regulating scooters is a law banning carriages from pavements.

If scooters are allowed in municipalities, fees can be hefty. Cities often charge a per-ride fee or an annual per-bike fee. The city of Portland requires a fee of 25 cents per trip. Minneapolis, on the other hand, requires a fee of $20 per scooter annually, and scooter parking violation fees start at $56. Raleigh has the highest per-scooter fee at $300. In fact, this led to an abnormal increase in fees for local Bird riders by $2--a break from scooters’ typical flat rate across all operating cities, typically at $1 to unlock and 15 cents per minute.

Even if pilots go well and codes are revised, it’s important to note that dockless scooters have more obstacles than docked modes of transport, in terms of margin pressure. Scooters have been the victim of vandalization and theft, given their dockless state. A report from The Information cited that San Francisco-operating Skip and Scoot had to replace every scooter they owned within 10 weeks of their debut. Even with that in mind, if a scooter earned roughly $15 a day, that would lead to a total of $1,050 made within a 10-week period. A typical scooter costs $500, leaving a profit margin of 47% before accounting for maintenance, municipal fees, paying bounty hunters, and chargers. In such cases of vandalization and theft, the last customer to park the scooter isn’t liable because even after dockless locking, scooters can be unlocked via hack, or they may just be wanted for their parts (especially a $70 Particle Electron board). This poses a greater risk that the mode won’t be able to generate margins needed for companies going forward; not only are there costs of replacing equipment, but many scooter companies pay scooter bounty hunters for finding any missing scooters, which can cause a “steal and be rewarded” game. However, we think Uber and Lyft will be better able to get around these obstacles by their size and consequent leverage.

We’ve already seen Lyft stand out among its competitors. First, Lyft has hired a full-time team to charge and transport scooters, rather than rely on contracted workers as the industry does, which can leave a sizable portion of a fleet uncharged. Second, Lyft and Uber (operating under Jump) have managed to stay out of the headlines concerning scooter injury lawsuits, unlike Bird and Lime. UCLA found that 249 people suffered injuries caused by scooter accidents from Sept. 1, 2017, to Aug. 31, 2018. We believe that injury statistics will be improved if more cities place speed limits and delineate the infrastructure needed. But among scooter lawsuits, we’ve noticed that Uber and Lyft are not the main target, unlike Bird and Lime. With all of these risks in mind, we think Uber and Lyft will be able to weather these best.

Public Transport Wait Time: 0 Minutes Lyft launched its Nearby Transit option in September 2018, which allows users to see nearby public transport options and their respective wait times. The option is available in five cities (including Chicago and Los Angeles) and does not yet include options to purchase public transport fare on the app.

If Lyft does provide transit fare payment options, we can imagine municipalities wanting to restrict such third-party vendors--which could benefit Lyft. Altogether, we expect public transit to be the only non-Lyft-owned mode of transport to be on the Lyft app.

Uber has not launched a nearby transit option on its in-house app. Rather, it's only partnered with apps like TransLoc and Moovi to be on third-party platforms alongside public transit. Yet, to better see Lyft's rationale for including its competitor--public transport--on the app, we can look to Uber. Uber cites its motivation to be on platforms with transit wait times because a significant number of ride-sharing trips originate or end within 200 meters of public transport. This data comes from the American Public Transportation Association, which reported that the originating and ending trips within 200 meters of transit stops was 65% in Paris in 2015 and 35% in London. We don't believe this coincidence leads to causation; public transport stops are very strategically placed, or high-traffic destinations build up around them. So it's unclear what these stats on originating and ending trips infer. However, research from the Journal of Urban Economics noted that Uber increased public transport rides by 5% from what they otherwise would've been; this is speculated to arise from the two being a last-mile tag team. Additionally, Lyft's 2017 Economic Report cited that 22% of Lyft riders use Lyft to connect to public transit. While this data rationalizes Lyft's motivations for wanting the complementary service available on its app--along with the notion that the more transport options Lyft offers, the stickier its app will be--we think the fact that it is a substitute justifies this, too, because we think ride-share companies ultimately have a net positive in taking public transport rides.