The Zipcar for electric scooters grows up and out by Katie Fehrenbacher @FortuneMagazine July 9, 2015, 1:33 PM EDT E-mail Tweet Facebook Linkedin Share icons Down a dingy alley way in San Francisco sits a row of bright red scooters marking the entrance to the headquarters of a transportation experiment. This is where startup Scoot Networks runs its growing fleet of what will soon be close to 400 electric scooters available to Bay Area residents willing to pay a couple bucks to ride them. After three years, $5 million in funding, and various iterations on its scooters and pricing plans, Scoot Networks has started to have a real presence in a city with an almost ridiculous amount of alternative transportation options. San Franciscans can now choose from dozens of new choices for how to traverse the city, from Uber and Lyft to private buses, to various car and bike sharing networks. And that’s not counting traditional public transportation and taxis. Amidst this sea of services, Scoot Networks now has thousands of active users driving its red electric scooters across the city to work or across the neighborhood to the grocery store. The company says its customers collectively drive about 50,000 miles a month. Anecdotally that means if you live or work in San Francisco, odds are you’ve spotted the red scooters zipping by. The office of Scoot Networks, an electric scooter sharing startup in San Francisco. Photo courtesy of Katie Fehrenbacher, Fortune. In Scoot Networks’ office a few blocks south of Market Street, CEO and co-founder Michael Keating shows Fortune a video of a sped-up, birds-eye view of a real day with the scooters overlaid on a map of the city. Because the scooters all get connected to the driver’s smart phone, they’re easy to monitor. Early in the morning, commuters start to pick up the scooters and head downtown. By 9AM there’s dozens of the scooters on the roads as drivers race to work. Around noon a handful of customers take them out for lunch meetings. Meanwhile a few stragglers are playing hooky, driving them around Golden Gate Park and out to the beach. If the grand experiment hasn’t officially concluded, it’s getting closer to success, which wasn’t always the case. The company’s growth early on was slow, given it launched with only a couple dozen scooters and getting new customers to ride a two-wheel vehicle can be more difficult than it sounds. But after winning over that early trickle of users, Scoot Networks has been rapidly expanding across San Francisco, and now has a plan to launch its service in another (as-yet-to-be-named) city down the road. Keating says this week the company added 150 new larger electric scooters with cargo trunks big enough to hold 6 bags of groceries or a stack of 5 pizzas. The new scooters will enable customers to better run errands, like picking up groceries, and will also provide more storage space for a growing group of couriers that use the scooters to deliver goods for San Francisco’s booming on-demand economy. A courier with Instacart could fill the storage space with food to deliver, while a Shyp driver could pop by and pick up your shipping package. The user interface of a Scoot Networks electric scooter, uses the customer’s smart phone. Photo courtesy of Katie Fehrenbacher, Fortune. When all of these new Scoot “cargo” scooters are rolled out, the company will have close to 400 vehicles available to zoom around the streets. The cargo scooters cost an extra dollar more per half hour compared to the smaller more nimble original scooters. The secret sauce of the entire system is the smart software, mobile app, and user interface that the team built. Customers pay via credit card when they create an account and reserve a scooter, similar to the model Zipcar uses for its vehicles. Customers can opt to pay a monthly subscription for a lower hourly fee, or no subscription for a higher hourly fee. Users plug their smart phone into the dashboard of the scooter to enable it, and to learn how much charge is left on the battery or what’s the best scooter-friendly route to the office. The app lets customers reserve parking spaces, extend their reservation, and connect with Scoot if there’s any trouble. The smart software is the brains, while the electric scooters are the relatively low cost hardware. The original scooters in the network are made by a Chinese company, and have been upgraded to use lithium ion batteries. The new larger cargo scooters are made by a German scooter maker and also use lithium ion batteries. While lithium ion batteries have historically been expensive, the costs of these batteries has been dropping dramatically in recent years. While Tesla was the original company to bet on this trend, there’s many companies that are now building businesses around low cost lithium ion batteries, like Stem and Advanced Microgrid Solutions, who focus on the power grid, and Gogoro, which is building an electric scooter company in Taiwan. Scoot Networks can capitalize on the dropping costs of the batteries, as well as the rise of the bubbly on-demand economy, and the alternative transportation craze in San Francisco. It’s at the intersection of a lot of new movements, many of them dependent on the city’s tech economy. Scoot Networks CEO Michael Keating stands behind the company’s new cargo scooters in front of HQ. Photo courtesy of Katie Fehrenbacher, Fortune. Keating, a Harvard Business School grad, explains Scoot Networks’ place in San Francisco’s alternative transportation world as: “fitting the big open space in the market between slow and cheap at one end, and fast and expensive on the other.” Slow and cheap would be the muni, while fast and expensive would be more akin to Uber. Scoot Networks can get as low as $2 per ride. That’s as cheap as the bus, and cheaper even than Uber and Lyft’s new carpool services Uber Pool and Lyft Line. “We can’t be beaten on price,” says Keating, pointing out that when the customer is driving him or herself, there’s no cost of paying a driver. Price isn’t a big concern, but getting more riders willing to drive a scooter in downtown San Francisco is a bigger concern. It can be a little scary, if you aren’t a regular two-wheel rider. The same barrier exists to getting people on bicycles in the city. But Scoot Network’s scooter doesn’t require a motorcycle license, only goes up to 30 miles an hour and the company offers tutorials for any new users who want it. Now that Scoot Networks has a broad network of scooters around the city, it’s looking to bring in more riders. While much of the world outside of the U.S. is eager to jump on a scooter, Americans have long been slower to embrace the two-wheel rides. To that end, Scoot Networks also plans to roll out other types of vehicles in the future. One of the remaining questions around Scoot Networks is if it would be able to recreate its network in another city, beyond the early adopters of San Francisco. The company is in the process of raising more funding to try to answer that question, and Keating is quiet on what city Scoot Networks would be focused on next. Whatever city the company chooses to expand into, it will be able to bring everything it’s learned over the past three years to a new environment. When I asked Keating what are some of the biggest lessons he’d bring to a new city, he says: “go big and launch big from the get go.” Austin, Portland, Seattle, and other techie cities of the world—watch out. Subscribe to Data Sheet, Fortune’s daily newsletter on the business of technology.