E-Scooters Are Everywhere. They're Also a Bubble.

Next Comes the Crash, the Authors of ‘Bubbles & Crashes’ Say

Jun 25, 2019

SMITH BRAIN TRUST  There’s no question about it: Micro-transit, the movement that has populated cities across the country with electric bikes and scooters, is mega-interesting.

But be careful, potential investors in e-scooter micro-transit companies. Those firms are coasting toward a bubble, according to Maryland Smith’s David A. Kirsch and Brent Goldfarb.

The electric scooter industry is similar to many of the new technologies that Goldfarb and Kirsch explore in their new book, “Bubble & Crashes: The Boom and Bust of Technological Innovation” (Stanford University Press, 2019).

In their book, they expose the common threads woven among 58 historical cases, across 150 years of innovation. They observe when economic bubbles occur, and when they don’t. They examine contemporary press coverage and historical accounts.

Today’s e-scooter trend, they say, reminds them of another innovation: plank roads.

“If you look at the business plan of the scooter companies, they’re expecting the scooters to last somewhere between three and six months in service. And on average, they are lasting more like 60 days,” says Kirsch.

That’s similar to the plank road trend in the 1840s. Instead of lining roads with gravel or some other material in the 1840s, it became popular to line roads with wooden planks. Horses would be able to move faster; mud would be less of an issue for horses, carriages, and people.

“That’s the first thing we thought of,” says Goldfarb. “I saw scooter – I’m thinking plank roads.”

“Everybody would come with their stagecoach or their horse or whatever, and they’d pay their toll and they’d walk along the plank road,” Goldfarb says.

There was massive investment. Plank roads were built on a toll system, under the calculation that the roads would pay for themselves after just seven years. After that, the roads would be pure profit-makers.

Lumber was plentiful and demand for plank roads was high. What could go wrong?

“There was a hitch. There was a problem,” Goldfarb says. “The roads only lasted four years.”

“It turns out,” Kirsch says, “there was a bubble in plank roads.”

“It’s exactly the same mistake of the scooter,” says Goldfarb.

The scooter startups, they say, could have chosen a single urban market to test out their business model. Instead, they launched aggressive, multi-city rollouts, all of them believing that to establish themselves in what they believed would be a highly profitable market, they’d have to get there first.

“They ran, as opposed to walking,” Goldfarb says. “And that’s kind of the manifestation of the bubble.”

Undaunted, e-scooter pioneer Bird is launching new products (like this motorized moped/sitting scooter), acquiring smaller upstarts and branching into new cities. Meanwhile, top rivals Lime, Uber and Lyft are never far behind, trailed in some cities by a small parade of other, smaller micro-mobility firms.

The intended scooter life cycle was short enough that the companies may be able to refine their business models in time to avert disaster and operate profitably in a few cities. But then they will need to overcome several additional problems, Goldfarb and Kirsch say, including heightened awareness of safety issues, public backlash and, importantly, competition. At least the plank road companies didn’t have to compete with a dozen other plank roads on parallel tracks.



About the Expert(s)

David A. Kirsch is Associate Professor of Management and Entrepreneurship in the M&O Department at the University of Maryland's Robert H. Smith School of Business. From 1996 to 2001, Kirsch held various adjunct and visiting appointments at the Anderson Graduate School of Management, University of California, Los Angeles. He received his PhD in history from Stanford University in 1996. His research interests include industry emergence, technological choice, technological failure and the role of entrepreneurship in the emergence of new industries.

Brent Goldfarb

Dr. Brent Goldfarb is Associate Professor of Management and Entrepreneurship in the M&O Department at the University of Maryland's Robert H. Smith School of Business. Goldfarb's research focuses on how the production and exchange of technology differs from more traditional economic goods, with a focus on the implications on the role of startups in the economy. He focuses on such questions as how do markets and employer policies affect incentives to discover new commercially valuable technologies and when is it best to commercialize them through new technology-based firms? Why do radical technologies appear to be the domain of startups? And how big was the dot.com boom? Copies of Dr. Goldfarb's publications and working papers have been downloaded over 1200 times.

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