9.42 Zipcar.Com

Zipcar was founded in 2000 by Antje Danielson and Robin Chase, and by December 2010 offered over 8,000 vehicles to 560,000 members in urban areas throughout 28 north American states and provinces. Zipcar was also available in the UK, and in over 230 college campuses. Zipcar had 700,000 members and 9,000 vehicles in its global fleet in July 2012. {14} Its annual revenue had grown 30% to $241.6 million by end 2011. {13}

Zipcar's IPO in April 2011 raised $174 million. {8}

To expand operations, Zipcar:

1. Merged with Seattle-based rival Flexcar in 2007.
2. Acquired an increasing (but still minority interest) in the Barcelona-based Avancar from 2008 onwards.
3. Acquired the London-based car-sharing firm Streetcar in 2011.
4. Acquired a majority stake in Avancar in late 2011.
5. Invested $13.7 million in Wheelz in February 2012. {15}
6. Acquired the startup Austrian company CarSharing in 2012. {14}

How It Now Works

Zipcar is an automated car rental system in which cars are held communally and hired by the hour (or day if required). Over 30 makes and models are offered, plus pickup trucks, etc. Each vehicle has a home location, to which it must be returned, and these locations are shown on the Zipcar website. {3} {8}

The system has gradually evolved, but now works as follows. Customers:

1. Join Zipcar ($60/year plus $25 application fee) and obtain a Zipcard.

2. Make a reservation at the Zipcar website or with the iPhone application. Their particulars are transmitted wirelessly to the car's onboard computer system.

3. Pass their Zipcard over the car's reader on the windshield or press a button on the iPhone application. The car is unlocked and starter keys (inside) are enabled. The iPhone can also make the horn beep, helping to locate the car.

4. Drive off, noting the rules (e.g. no smoking). Rates vary by area, time of day, day of the week and the make and model of the vehicle. Typical rates vary from $8 to over $13/hour. Gas, parking, insurance, and maintenance are included in the price. {7} {9}

5. Fill up if the gas gets low, for free using the special charge card in the car.

6. Call or text Zipcar if they're running late and want to extend the rental: the automated system recognizes their number. (Forget to call, however, and a late fee of $50 per hour plus the regular hourly rate applies. {3})

7. Return the car where they found it.

Zipcars are cleaned and washed weekly by the company.

Path to Viability

Zipcar seemed to challenge the American dream of car ownership, and capital was difficult to raise, even though the concept of car share was slowly catching on in Europe. Indeed there were already three north American competitors by 1999: CommunAuto (Canada), Car-Sharing, Inc. (Portland) and Flexcar (Seattle). Robin Chase also thought the car rental companies, Hertz and Avis, might enter the market if the concept proved viable. {1}

1. Robin Chase set up the company in 2000 with the the memorable tag line 'Wheels when you want them', assembled car fleets in Boston, New York, and Washington, and eventually acquired 6,000 members. Under her management: {1}

    a. annual charges were first set at $300 but then reduced to $75.
    b. charges were by hour and mileage, but the initial $1.50/hour was raised to $4.50-7.00/hour.
    c. members were expected to keep the car clean and trouble free.
    d. cars were acquired by leasing arrangements at $4,500/year.
    e. parking, when not free, would cost $600/year.
    f. marketing was by word of mouth (30-40%), free media coverage, and the remainder by their own guerrilla tactics.
    g. environmentally-friendly aspects were stressed.
    h. neither Robin Chase nor co-owner (50%) Antje Danielson took a salary.
    i. $375,000 was raised from small investors.
    j. a new CEO was hired, but quickly dropped when his big company experience proved inappropriate.
    k. wireless technology developed, but not completed.
    l. limitations placed on drivers (clean record).

Real costs emerged as the company got going. Lease costs were $4,800/year. Parking was $750/year. Fuel costs were 10% higher than anticipated. Overheads were higher than expected at $44,000/month. {1} By the winter of 2002 the company was losing money, and a $7 million financing deal fell through. {2}

2. Scott Griffith took over in 2003, and adopted a more aggressive and systematic policy by:

    a. setting up focus groups to understand customer needs and concerns.
    b. dividing cities into zones and assigning different cars to each.
    c. acquiring permanent parking places.
    d. calculating the minimum membership need for profitability.
    e. developing the technology for trouble-free use based on the Kaizen quality-control process of Japan.
    f. further developing its youthful image, interacting with customers for ideas.
    g. adding up-market models that didn't display the Zipcar logo.
    h. replacing the hour and mileage charge by a simple hourly charge.
    i. downplaying the environmental-friendly image in favor of a more businesslike one.
    j. making area managers responsible for promotion, which they could adapt to fit local conditions: customer acquisition costs fell from $150 to $50.
    k. agreeing insurance rates so that 16-21 year olds could use Zipcar.
    l. setting up in university campuses.
    m. obtaining $4 million 'angel' funding in 2003 to tide the company over.
    n. obtaining $10 million in 2005 and then $25 million venture capital in 2006 as the business took off and its book value increased.

3. Steve Case (co-founder of AOL) acquired 55% and then 85% of Seattle-based Flexcar in 2005-6, finally merging the company with Zipcar. The merger/acquisition facilitated:

    a. increased geographic spread.
    b. purchase rather than leasing of car stock.
    c. interests acquired in Barcelona-based Avancar.
    d. 8,500 companies signed up for the service, including Lockheed Martin, Gap and Nike. {3}
    e. 2011 IPO that raised $170 million.
    f. 2011 acquisition of UK-based Streetcar.

4. Subject to shareholder approval, Zipcar will be sold to Avis for $491.2 million in 2013. {16}

Business Model

Zipcar makes its money from:

1. Members using its car rental system.
2. Marketing its technology ( hardware and software that keep track of the cars) to city governments.

SWOT Analysis

Strengths

Zipcar benefits several parties: {8}

1. Members: save 70% per year on transport costs.
2. Environment: Each car shared takes 15 personally-owned vehicles off the road.
3. Public transport: Zipcar members report a 47% increases use of public transport, a 10% increase in bicycling trips and a 26% increase in walking.

The service also:

4. Appeals to the technically savvy, familiar with social networks, smartphones, etc. {4}
5. Analyzes its data, leveraging information to find optimal utilization trends, member demographics and spending patterns. {4}
6. Is being adopted by city authorities, e.g. Washington DC, which saved more than $300,000 over a four-month pilot scheme. {6}
7. Has enjoyed increased revenue per vehicle per day ($48 in 2009 to $65 in June 2011), which suggests Zipcar could become impressively profitable in due course. {7}

Weaknesses

1. Zipcard approval can take a week. {5}
2. Zipcar is a capital-intensive business with low profit margins. {7}
3. Zipcar had accumulated losses of $65 million by 2010. {7}

Opportunities

1. Toyota and Ford are exploring ways to work with Zipcar. {3}

Threats

1. Similar schemes are being considered by Hertz, Enterprise and U-Haul. {3}

Points to Note

1. Time needed for a concept to come of age.
2. Internet technology employed.
3. Importance of real data in planning.

Questions

1. Give a brief history of Zipcar under its three CEOs.
2. How does the system work now?
3. Provide a SWOT analysis of Zipcar. How do you rate its chances?

Sources and Further Reading

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