San Francisco dealt a blow to the largest shared-scooter companies on Thursday, awarding two smaller startups exclusive rights to rent the electric-powered vehicles for a year in a decision that could change the course of the nascent market.
The nation’s tech capital denied permits to 10 companies, including Bird Rides Inc. and Lime, which have raised nearly $1 billion in capital to quickly populate cities with scooters—often against the will of regulators. The ruling is a clear rebuke to their pugnacious strategy, with officials citing, in part, the companies’ aggressive move this past spring to drop more than 1,000 scooters combined on the streets of San Francisco before rules could be established.
The city also rejected permits for ride-hailing companies Uber Technologies Inc. and Lyft Inc., which only recently jumped into the scooter craze. Officials said past violations in their ride-share businesses hurt their applications.
Instead, San Francisco awarded the permits to two other startups, Scoot Networks and Skip Scooters, which together have raised less than $50 million. Scoot runs a shared electric Vespa-like scooter program in the city already and a bike-share program in Barcelona, while Skip offers shared electric scooters in Washington, D.C., and Oakland, Calif.
While San Francisco is just one city, it could have spillover problems for the big scooter companies, whose high-powered investors see enormous potential to reshape urban transportation. Sixteen-month-old Bird was recently valued by investors at $2 billion, and 20-month-old Lime at $1.1 billion, the two fastest U.S. startups ever to pass a $1 billion valuation, according to data tracker PitchBook.
Bird and Lime, a unit of Neutron Holdings Inc., have racked up a growing collection of cease-and-desist letters from cities. Many of those cities are moving ahead with scooter-permit processes similar to San Francisco, and city transportation officials say they have been consulting with colleagues in other cities about scooters.
Still, Bird and Lime both also scored a reprieve Thursday when Santa Monica, Calif., gave both companies two of four total permits for a scooter program in the beachside city where the phenomenon began in the U.S. A city review committee had assigned low ratings to both companies’ applications in part because of their tactics to launch against city rules. But both companies mounted a strong public relations campaign and pledged improvements.
Uber and Lyft also were awarded permits in Santa Monica. An Uber spokeswoman said granting two permits “unnecessarily limits mobility options in San Francisco,” and it plans to discuss its concerns with the city. A Lyft representative couldn’t be reached for comment.
A Bird spokeswoman said the company was disappointed with the San Francisco decision but hopes to return after the 12-month pilot. Lime chief executive Toby Sun said in a statement the company plans to appeal the decision, adding the city “selected inexperienced scooter operators that plan to learn on the job, at the expense of the public good.”
Both companies say they take a collaborative approach with city governments. San Francisco helped popularize the electric-motor-powered, kick-like scooters, which rent for at least $1 a ride via a smartphone and can be picked up and left most anywhere. After Bird, Lime and a third company, Spin, launched in March, they rapidly became popular, filling streets and sidewalks with scooters.
Investors nearby rushed to fund the companies, betting the scooters could steal business away from car-hailing apps Uber and Lyft on short trips. Uber and Lyft responded by acquiring their own shared bike-and-scooter companies and jumping in.
But controversy erupted over riders on sidewalks and the clutter created by parked scooters. San Francisco officials impounded hundreds of scooters, and pledged a permit program meant to limit the number of the vehicles while keeping a tighter grip on parking and safety problems.
On Thursday, city officials were muted in their criticism of Bird and Lime. Tom Maguire, director of sustainable streets at the San Francisco Municipal Transportation Agency, said prior violations were “an important factor” in how the 12 companies that applied to the city were evaluated. In the end, he said, “there were two very clearly superior applications,” who were judged on other issues like safety concerns and offerings for low-income residents.
Each company is allowed 625 scooters for the first six months; while the total can be increased after to 2500, from 1,250.
—Greg Bensinger contributed to this article.