Innovating in a Competitive Market:
How Zipcar Carved a Niche
Kevin Bielke
Alex Duff
Ren Ferraz
Scott Johnson
Connor Quinn
November 2011
Entrepreneurship and Innovation Strategy
Main project
Professor Ron Adner
Car Rental Background
The car rental industry is as old as the car itself. The first notable rental car agency was
allegedly formed when a Model T owner began renting his personal car by the mile. It is said that his
first customer was a traveling salesman who wanted to impress a girl on a date. Through these humble
origins, the car rental business has grown to a $20 billion industry in the United States. Like the
automotive industry, the car rental industry has experienced its share of challenges and innovations.
Before World War II, car rental agencies were located in town centers and many were affiliated
with service stations. Customers would rent cars for short trips or moves. The first major change in the
car rental industry began with the adoption of the airplane for business travel after World War II. This
shift in travel created a boom for the car rental industry. Rental cars located at airports provided a
convenient and easy way for traveling businessmen to attend their meetings while maintaining
flexibility. Hertz was the first car rental company to open operations at an airport; in 1932 a Hertz
depot was founded at Chicago's Midway Airport. Avis followed shortly thereafter, basing almost all of
their operations at airports. As air travel became more commonplace and affordable, families and
individuals began to rent cars at airport locations. (Williams)
The rental car industry is generally categorized by customer type, rental location and geography.
Customer types have traditionally been segmented into business, leisure and replacement. Rental
locations are divided into on- and off-airport. Off-airport car rental businesses have conventionally been
characterized by lower prices and margins but longer rental periods and higher car utilization. Not
surprisingly, replacement renters are reliant on off-airport locations. Rentals originating at airports are
dominated by business travelers who are willing to pay higher prices. As such, on-airport rentals
average higher margins but shorter rental periods and lower utilization. In terms of geography, rental
companies can focus on specific regions throughout the country and the world. Certain synergies can be
realized by creating a national network of rental locations; however this type of structure is capital
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intensive and requires volume to be successful. International operations further diversify a rental
agency’s business. In order to be competitive, smaller rental car agencies specialize by segment,
geography or location. (Luehrman & Douglas, 2009)
Exhibit 1
Company
Enterprise
Hertz
Avis Budget
Dollar Thrifty
U-Save Auto Rental
Fox Rent A Car
Payless Car Rental
ACE Rent A Car
Zipcar
Rent-A-Wreck
Triangle Rent-A-Car
Affordable/Sensible
Independents
Total
2010 U.S. Car Rental Market
U.S. Cars in
Service
# of U.S.
(2010 Average)
Locations
850,689
6,187
290,000
2,300
270,000
2,100
108,000
464
10,950
350
9,500
13
9,500
35
9,000
95
7,000
94
4,833
179
4,000
27
3,589
179
52,500
5,100
1,629,561
17,254
2010 U.S.
Revenue Estimate
(millions)
$9,800
$4,158
$3,850
$1,540
$102
$140
$110
$100
$143
$34
$40
$34
$500
$20,551
% of Total
47.7%
20.2%
18.7%
7.5%
0.5%
0.7%
0.5%
0.5%
0.7%
0.2%
0.2%
0.2%
2.4%
100%
Source: Auto Rental News
In the United States, the rental car industry is dominated by four players which control over 90%
of the market. These players are Enterprise, Hertz, Avis Budget and Dollar Thrifty. Though all of these
companies compete across segment, location and geography, Enterprise is the market leader in offairport rentals while Hertz and Avis are the dominant on-airport rental agencies. Non-U.S. markets are
generally more fragmented. The non-U.S. rental car market is approximately half the size of the U.S.
market and is dominated by Western Europe. Superior public transportation options from airports
diminish the size of the European on-airport rental market. Off-airport rents in Europe account for
approximately 75-80% of the market, one reason why the European market pioneered the car sharing
model.
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Emergence of Car Sharing Model
The dominance of off-airport rentals as well as the densely populated landscape made Europe a
natural location for the car sharing rental model to emerge. Switzerland became the pioneer in modern
car sharing when two separate sharing cooperatives were founded in 1987. Until that point, car rentals
were structured per day, per week or per month with a certain mileage allowance. The new model
dictated membership with a deposit, annual fee and a per usage charge determined by time and
mileage. This type of fee structure was a complete departure from the old renting model and allowed
customers to book cars for hours rather than days. Cars were dispersed throughout urban centers,
making them more convenient to access and use.
Car sharing is an attractive model for several reasons. Perhaps most importantly, cooperatives
address a larger market than traditional rental agencies. Car sharing allows customers to rent cars
frequently and to bypass the need for individual ownership or reliance on public transportation. Car
ownership in urban areas can be prohibitively expensive. Parking alone adds a significant expense to
ownership costs. Additionally, insurance prices are higher in densely populated areas due to the
increased likelihood of theft and collisions. Maintenance costs are higher due to increased wear and
tear. Gasoline prices in the city are more expensive as well due to lower gas mileage and increased
demand. These factors dissuade many consumers from owning their own vehicle in city centers. Due to
the difficulties and expenses associated with renting a car through traditional agencies, city dwellers rely
heavily on public transportation and taxis where available. Car sharing offers these consumers an
alternative where they can enjoy the convenience of a car without the prohibitive expenses or the longterm commitment. Furthermore, since car sharing rental models spread the ownership cost over a large
membership base, the cost associated with hourly rentals is often significantly lower than the cost of
owning a car. In fact, Zipcar calculates that individuals who own a car and drive less than 6,000 miles
per year can save money by being part of a car sharing cooperative. As a result, there is a sizeable
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segment of urban dwellers for which it makes sense to sell their cars and use the cooperatives instead.
These two customer segments consisting of public transportation users and car owners represent new
opportunities previously untouched by the rental market and they provided the opportunity for the car
sharing model to emerge.
But besides attracting new customers to the rental market, car sharing is a viable alternative to
traditional renting particularly in the off-airport segment. Convenient locations and self-service save
renters time and hassle. Designated parking spots alleviate headaches as well as the uncertainty
inherent in finding a parking spot in an urban center. Many cooperatives employ a flexible fee structure
thanks to discrete initiation, annual and usage rates. In many cases, this gives customers the option of
renting for periods as short as an hour. This fee structure can also reduce the total cost of the rental. As
long as the renter plans ahead and reserves a car only for the times when they will need it, they won’t
be charged for large blocks of time when the car is not in use. Environmentally conscious renters find
car sharing to be enticing as well. Thanks to higher utilization rates, car sharing reduces the number of
cars on the road and therefore the number of resources required. Zipcar calculates that 1 shared car
eliminates 7.5 cars from circulation.
The car sharing model is attractive from a business perspective because it requires lower
overhead and fixed costs than traditional rental agencies. Rental depots dictate the need for customerfacing staff, car attendants and potentially high rent on the facility, especially if it is located in an urban
center or at an airport. Rather than having large rental depots, car sharing simply requires a car, a
designated parking spot and some technology. Car sharing is a more efficient use of resources. It
centralizes the customer-facing staff into a call center and eliminates the need for a large number of car
attendants since the reservation process is conducted remotely. It also places the responsibility for
some of the maintenance work like gas and car washes in the hands of the customer.
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Creation of Zipcar
The exponential growth in the car sharing market in Switzerland and Germany provided
inspiration for the launch of Zipcar in the U.S. The car sharing market was virtually untapped in the U.S.
by the time Zipcar was founded in 2000. All estimates suggested that America was a huge market with
the top 20 metropolitan areas accounting for 66 million people in 1999. Additionally, at the time, the
United States had 20 million people using public transportation to get to work. Given the attractiveness
of the car sharing model to people reliant on public transportation, these 20 million individuals could
represent potential renters previously untouched by the traditional rental model. The co-founders,
Robin Chase and Antje Danielson, knew that a regional/pilot launch would be the best way to prove the
viability of the Zipcar model before raising the capital necessary to fuel the company’s growth and
eventual national expansion. Given this insight, they faced a critical decision: where should they start
the first Zipcar service?
When deciding where to launch their service in the U.S., Zipcar focused on dense urban
residential areas, where millions of people avoid car ownership due to high maintenance costs, urban
congestion, parking fees, and other annoyances. The original Zipcar target demographic was young,
tech-savvy, college-educated, higher-income and environmentally conscious users. One metropolitan
area demonstrated high scores across all criteria: Boston. Car owners in Boston are frequently
discouraged by insufficient off-street parking, traffic, and additional car-related nuisances. The extensive
public transportation system and the walkability of the city provide additional disincentives to owning a
car. After realizing Zipcar’s potential in the city, the co-founders began planning the Boston rollout.
Chase determined there were 15,000 people in Boston who fit the Zipcar user profile, and expected to
reach 66% of them within five years. (Hart, Roberts, & Stevens, Zipcar: Refining the Business Model,
2005) The co-founders optimism was not only driven by the attractiveness of the target market, but
also by the ease of use that Zipcar’s technology allowed.
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Role of Technology
Current Zipcar CEO Scott Griffith explained the role of technology in the company’s business
model, saying: “Zipcar must be as easy to use as owning a car and cost less. Technology not only
accomplishes all that but also enables a truly sustainable and scalable business model.” (Griffeth, 2009)
Zipcar’s value proposition revolves around convenience, ease of use, and affordability. Unlike traditional
rental car agencies, every aspect of Zipcar’s value proposition is fundamentally reliant on the role of
technology. As a result, Zipcar has spent over a decade developing the technology that now represents
an industry-leading proprietary platform; however, the firm had to overcome several technical
challenges along the way.
Prior to its current success, Zipcar leaders encountered multiple challenges as the company’s
technology evolved over the years. The company launched in June 2000 with a fairly unsophisticated
technology platform solution. Wireless access was not yet fully developed and, as a result, driving
records were kept manually in driving logs, which were retrieved by company employees once a month
for billing purposes. This was a challenge because the process is labor intensive and requires customers
to be honest about their actual usage. A second challenge was ensuring that vehicles were accessible
only to members that reserved specific Zipcars, since card readers at that time did not have that
capability. Improved technology was critical in enhancing the level of convenience and security
experienced by Zipcar users.
In order to be successful, Zipcar management realized they needed to continue investing in the
technology that made car sharing easy, efficient, and reliable and at the same time be adaptable to all
cars in Zipcar’s fleet. As wireless technology improved, Zipcar engineers developed a specialty “black
box” device, installed in all Zipcar vehicles, that receives reservation information via a wireless network.
Each customer is issued a radio frequency identification (RFID) enabled “Zipcard” that allows drivers to
unlock their reserved car by holding the Zipcards in front of a window decal that validates reservation
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information. During use, the black box in each vehicle records hours of usage and mileage, which is
uploaded to a central computer through wireless data transmission. Each car transmits all billing
information to a central office, allowing users to view relevant charges shortly after returning the cars.
Zipcar also developed the software to remotely monitor the maintenance needs and performance issues
with their fleet in order to ensure superior customer experience and reduce maintenance costs. For
instance, Zipcar can remotely monitor engine functionality and battery voltage and dispatch
maintenance personnel if problems are detected. As its technology evolved, Zipcar created a much more
desirable experience for the customer and allowed the company to save significant costs on billing,
overhead, and maintenance.
The timing of Zipcar’s market entry allowed the company to use technology as a competitive
advantage. In cities such as Boston, a preexisting level of comfort with the use of technology by
consumers and businesses was emerging. By the time Zipcar was introduced, consumers were already
adapting to self-service banking and self-service grocery checkouts. Zipcar drivers were comfortable
paying for the use of a car online because they already had experience with e-commerce transactions
through businesses like Amazon and Netflix. By focusing their initial efforts on a tech-savvy market,
Zipcar was able to increase their likelihood of successful market penetration.
As technology evolves, Zipcar continues to invest in software in order to keep up with their techsavvy user base. For instance, in 2009 Zipcar partnered with Apple to introduce the Zipcar iPhone app
which links the GPS-enabled iPhone with the Zipcar vehicle database to display available Zipcars nearby.
Users can check rates and make reservations directly from their smartphones. Most recently, Zipcar
appealed to consumers through a new channel: social media. In October, 2011, Zipcar launched a
Facebook application that allows members to reserve cars through the popular social media site. By
focusing on technology and continuous software development, Zipcar has been able to increase its
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relative benefit to consumers and maximize the sense of convenience drivers experience when using
Zipcar.
Ecosystem Analysis
Zipcar, like any innovator, faced three primary sources of ecosystem risk. The largest source of
risk was execution risk. Zipcar’s success was largely determined by its ability to create a solution that
added consumer value. However, Zipcar also faced adoption chain risk through its value chain partners.
Its ability to create network externalities, virtually overnight, helped it mitigate this risk. Finally, Zipcar’s
business model faced co-innovation risk, which it strategically minimized by pulling technological
initiatives in house. Ultimately, Zipcar’s success today can be largely attributed to the way it managed,
and often, avoided these risks.
Execution Risk
Zipcar’s single greatest risk factor was its internal execution risk. Faced with a new innovation,
Zipcar had to design a platform that added value to consumers. Because its value proposition was
largely based on price and convenience, co-founder Robin Chase focused her efforts on developing a
technology platform that would allow Zipcar to deliver a better solution at a cheaper cost. Thus, building
a technology platform was perhaps the biggest source of execution risk for Zipcar.
Chase envisioned a business model that allowed customers to make a reservation online, arrive
at a parked car, access it without keys, and drive off immediately. A downside of this system is that it
required staff to visit each Zipcar site and collect the logs once a month. As a result, operational costs
soon spiraled out of control and Chase realized that a more sophisticated system was needed to manage
its fleet of cars.
Because Zipcar customers are charged a usage fee based on hours and mileage, Zipcar also
needed to develop a system to capture relevant usage information and deliver it to a centralized billing
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system. This solution required wireless transmission of data between a car and a server that allowed
Zipcar to remotely access odometer, mileage, and time data. Needless to say, this was not an easy
technological innovation. To overcome this hurdle, Chase hired MIT engineer Paul Covell to write the
software to power this platform. They then installed after-market wireless transmitters in each vehicle,
providing connectivity from the vehicle to the server. Chase described the new technology: “Members
make reservations online. The server wirelessly sends the reservation to the black box in the car, telling
the car when and for whom to unlock the door. When the member presents the right card at the right
car at the right time, the car unlocks, enables the starter, and starts a billing record noting the time and
odometer reading…the billing data is sent wirelessly back to the server and the customer is billed in real
time. We have a patent on the technology.” (Hart, Zipcar, 2005)
Although subtle, this technological innovation was critical to Zipcar’s success. By developing this
technology internally and subsequently installing it as an after-market modification, Zipcar mitigated any
co-innovation risk that might exist with technology or car manufacturers. Thus, the success of its
execution relied solely on Chase’s ability to design the technology to power its reservation management
system and align it to its business model. Additionally, it eliminated many of the operational expenses
that led to the demise of early car-sharing programs (additional staff to collect usage logs from vehicles,
maintain vehicles, and take reservations).
Adoption Chain Risk
Zipcar’s business model depends heavily on attaining network externalities. In order to add
value to its customers, there needed to be ample supply of Zipcars in every neighborhood. The first
Zipcar in a particular neighborhood adds minimal value – at any given time it may be rented by someone
else, rendering one’s membership useless. However, the second and third Zipcar in a given
neighborhood add significantly more value than the first. Realizing this, Chase launched 12 vehicles in
Zipcar’s first fleet.
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Securing parking for this rapid growth added significant complexity to the adoption chain. Carsharing is best suited for urban areas where parking is limited and users have limited need for
automobiles. Boston, Zipcar’s first market, exemplified all of the necessary attributes for car-sharing.
Like many other urban areas, Boston has limited off-street parking, making car ownership challenging.
Ironically, lack of urban parking, the very factor that enables car-sharing to add value to its customers,
provided Zipcar with a major challenge. Yet this became one of Zipcar’s biggest keys to success, as its
overarching goal was to secure parking spaces such that users would never have to walk more than a
few minutes to access a vehicle. To complicate matters further, this scarce resource was controlled by a
highly diverse and fragmented supplier base. Parking spaces could be owned by individuals,
corporations, or government bodies, making it necessary to have relationships with many different
parking vendors simultaneously. The result of this fragmentation was that availability and rates varied
significantly by location. This variability added significant risk to Zipcar’s adoption, as it threatened its
ability to create network externalities. Although Chase ultimately secured enough parking to allow for
strong network externalities, her struggle to do so was reflected in her financial model. Despite initially
expecting to secure free parking, Chase was forced to revise her estimates to include $600-$750 of
parking expenses annually per car. (Hart, Roberts, & Stevens, Zipcar: Refining the Business Model, 2005)
Co-innovation Risk
In order for the Zipcar business model to work, Zipcar was reliant on the development of the
Zipcard and the technology to transmit mileage, usage, and any mechanical problems wirelessly to a
central office. Zipcar made two brilliant decisions that allowed it to mitigate co-innovation risk. First, it
developed its technology platform in-house, effectively converting co-innovation risk to execution risk.
This allowed Zipcar to exert more control over the technology development, limiting its reliance on
ecosystem partners. While subtle, this strategic choice significantly reduced co-innovation risk. Second,
Zipcar decided to implement an after-market solution rather than to partner with vehicle manufacturers
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directly. This decision allowed Zipcar to partner with any auto manufacturer and reduced its
dependency on third party vendors.
Value Chain Analysis
From its inception in Europe, the car sharing business model had been positioned to consumers
primarily as an alternative to car ownership. The original value proposition reflected the benefits of real
estate time sharing: consumers buy the right to use a property without incurring full ownership costs.
An additional, ancillary benefit that resonated with the original market is the green factor: car sharing
constitutes an environmentally friendly alternative to car ownership. Thus, in its purest format, car
sharing implied frequent use of a private car and did not explicitly considered car rentals as viable
alternatives to ownership. Chase, however, believed that the biggest opportunity in the U.S. market
would come from filling the transportation gap between taxis and car rentals. She remarked: “For those
who don’t own a car, taxis can fill the need for short trips. Rental cars are available for daily or weekly
usage, but the hassle factor keeps people from using them as often as they might like. So there is a big
hole in the market: short-term, on-demand private car access.” (Hart, Roberts, & Stevens, Zipcar:
Refining the Business Model, 2005) Chase was also crystal clear on who her target customer was. She
believed that Zipcar would take root in urban markets “where there was a dense base of potential users,
parking was expensive, and the need to drive was limited.” (Hart, Zipcar, 2005)
To establish Zipcar in this niche, Chase had to articulate and deliver a surefire value proposition
that would render alternative short-range, short-term modes of transportation unattractive in
comparison while at the same time downplaying the advantages of car ownership. In addition, above
and beyond proving the service to consumers, she also had to ensure that the Zipcar commuter
experience could translate into a sustainable business model that was not only differentiated from, but
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also superior to the traditional car rental service. Chase elected to focus on cost and convenience as the
cornerstone benefits of the Zipcar service.
The Commuter Process
This analysis considers public transit, taxis and rental car services as viable urban commuting
alternatives to car ownership. We have broken down the commuter experience into distinctive
activities – preparation and use. The preparation activity includes any one-time or periodical work
required to commute. The use activity includes work that is performed before, during and after a
commute. We then mapped granular steps within each activity to pinpoint where the Zipcar model
delivers value to both its members and investors.
Car ownership is by far the most preparation-intensive and requires the greatest upfront cost of
all of the commuting options. A consumer must research and select their vehicle and then negotiate
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and finance the purchase. Before using the car she also needs to register and insure it. Each of these
steps varies in duration and may be subject to delays. Zipcar requires much more preparation than the
remaining three alternatives but significantly less than car ownership. To become a Zipcar member, the
consumer must apply online, wait three days for approval and pay membership and deposit fees. Public
transit is the only other option that requires preparation, but the effort is minimal: occasionally
purchasing a ticket. If the consumer is a frequent user, effort can be further reduced with a weekly or
monthly transit pass. Taxis, and more importantly, car rental services – the two alternatives Zipcar
competes directly against – require no upfront preparation.
The second half of the commuting process revolves around the commute itself. Once again car
ownership is the most labor intensive commuting alternative. A car owner is solely responsible for
maintenance – which includes refueling, washing and regular mechanical work – and vehicle
replacement. Car rentals are hassle-heavy (with the exception of frequent user clubs). Aside from
getting to the lot and waiting for the car to be ready, the consumer must often deal with paperwork
when picking up and returning the vehicle and often opts to fill it up herself to reduce costs. Zipcar only
has one mandatory step: the car reservation. Although this step forces the consumer plan her trips
ahead of time, it ensures that most members have a satisfactory customer experience most of the time
(save for late returns). Zipcar also places the onus on the membership community to perform some
upkeep such as refueling and car washing. Whereas taxis only require that the consumer pay before
they leave the car, Zipcar allows its members to perform that step remotely. Public transit is the most
hassle-free option but limits consumers to set routes, schedules, and capacity.
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The chart below summarizes the advantages and disadvantages of each transportation mode in
relation to cost and convenience attributes.
Mode of
Transportation
Transit
Taxi
Zipcar
Rental
Private Car
Cost:
 Low
Cost:
 N/A
Convenience:
 Hop on/off
 Passes increase convenience
Convenience:
 Getting a ticket or exact change can be a hassle
 Range constrained by set routes
 Availability limited to set schedule and capacity
Cost:
 Low for short-range trips
Cost:
 High for long-range trips
Convenience:
 Hop on/off
 Availability may be guaranteed with reservation
Convenience :
 Availability compromised by set capacity
Cost:
 Low for consumers driving <6,000 miles/year
Cost:
 High for consumers driving >6,000 miles/year
Convenience:
 Hop on/off
 Availability guaranteed with reservation
 Cars are parked within reasonable distance
Convenience:
 On-demand availability constrained by fleet size
 Value proposition dependent upon members
honoring reservation times
Cost:
 Low for day trips, medium for weekly trips
Cost:
 High for extended use or < 1 day usage
Convenience:
 Availability guaranteed with reservation
Convenience:
 On-demand availability constrained by fleet size
 Requires paperwork and on-site check-in plus wait
time with each use
Cost:
 Low for extensive and extended use
Cost:
 High for low and infrequent use
Convenience:
 Hop on/off
 On-demand availability guaranteed
Convenience:
 Requires significant upfront investment
 Requires parking access and maintenance
Adding Value to the Commuter Experience
Now that we have investigated the commuting processes and trade-offs inherent to each
transportation mode, we are better prepared to pinpoint how Zipcar adds value to the commuting
experience. Zipcar enhances the commuting experience for urban dwellers in three distinct ways: (1) it
makes car sharing comparable to car ownership by shifting wait upward in the commuting process, (2) it
ensures its members have on-demand access to a car – the core of its value proposition – by making
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reservations a required step in the process, and (3) it allows the consumer to perform several steps in
the process only once and most of the steps remotely, substantially increasing convenience.
Zipcar makes the consumer wait only once and that wait time happens very early on in the
commuting process. Public transit, taxis and car rentals move the wait time downstream, immediately
before the commute takes place. This is exactly when the consumer is most anxious to get moving and
is most likely to experience frustration. Car ownership is the only alternative where wait never figures in
(save for mechanical failures) right before the commute. Zipcar is able to negate this advantage by
emphasizing the relatively small amount of preparation its members invest in getting access to a car
sharing versus car ownership. The same is true when the consumer considers the effort and wait times
involved in the after use steps (maintenance) for car ownership.
Note: yellow highlighted boxed indicate areas of wait
By removing wait time altogether from the second half of the commuting process, Zipcar
effectively puts its value proposition at par with car ownership. It then further enhances it by making
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reservations a required step of the commuting process. This step is crucial because it guarantees that
the car is actually available on-demand. One could argue that consumers also have the option to
reserve a taxi or rental car in advance. Reserving a taxi can be less labor intensive because the
consumer does not need to plan out their entire trip and anticipate how long it will take. The
disadvantage is that taxis can become very costly for long-range or long-term trips and the consumer
does have to arrange for her taxi service to and from her destination. The only tangible benefit a
customer reaps from reserving a rental in advance is that she potentially reduces wait time when she
picks up the car (e.g. by pre-arranging car selection and payment). However, car rentals are still only
available in day-long blocks of time, significantly reducing flexibility (e.g. if the consumer only needs the
car for a few hours, she has to arrange for parking for the remainder of the time). Although seemingly
counter-intuitive, the required reservation step ensures Zipcar cars are truly available on-demand and
can be less costly and more convenient than reserving a taxi or a rental car.
Note: Spotted Yellow indicate areas of wait
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Zipcar further builds on its cost and convenience value proposition by making the second half of
the commuting process more straight-forward and hassle-free in its entirety. Zipcar organizes the
commuting process such that almost half of its steps fall within the one-time or periodical preparation
activity. The remaining steps are comparable to the taxi and rental car commuting process steps, with
one important distinction: most of them can be completed remotely via a telephone or online via a
computer or smartphone. Without exception, all other commuting processes allow consumers to
perform at most two steps remotely. Most importantly, all alternatives require that the consumer be
present immediately before and/or after the commute to perform additional steps (e.g. paying for a taxi
fare or signing paperwork at the car rental agency). By building a centralize call center and web-based
commerce platform, Zipcar allows its members to rent at their own convenience. Moreover, it
leverages remote access technology to allow its members to self-serve into the cars and transmit usage
data for remote billing. Zipcar’s web-based platform and car technology work together to increase
convenience while decreasing costs for the consumer.
Note: Yellow boxes indicate areas of wait
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Adding Value to the Business Model
Mapping the commuting process is not only important to understanding sources of value to
members, but also to understanding sources of competitive advantage for the company. The Zipcar
business model is sustainable for two of the very reasons it is appealing to consumers: obligatory
reservations and the ability to perform steps remotely. These two points of differentiation are achieved
simultaneously through Zipcar’s web-based platform and in-car technology, described above. The
requirement for advance reservations creates an important competitive advantage for Zipcar: it allows
the company to better gauge demand for its fleet. Unlike the traditional rental car ‘push’ business
model, Zipcar relies on its members’ online bookings, a dynamic ‘pull’ mechanism, to optimize its fleet’s
utilization, location and size. Furthermore, the web-based reservation and billing platform, in
conjunction with the company’s centralized call center, create important cost advantages for Zipcar.
Whereas traditional rental car companies have to contend with high fixed costs for car lots, stores, sales
force and diffused maintenance centers, Zipcar can generate significant savings by automating customer
service and billing activities and centralizing fleet maintenance more effectively.
Growth Strategy
In its 11 year history, Zipcar has competed fiercely to be the dominant market player. After initially
proving the feasibility of the concept and the technology, Zipcar faced new challenges with a rapidly
growing business and an evolving competitive environment.
Resource Commitment
Auto manufacturers have largely remained committed to the car sharing business model with
both Toyota and Ford partnering with Zipcar to offer vehicles as well as discounts to hourly rental fees
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and membership dues. Although it was initially thought that auto manufacturers would view Zipcar as
replacing potential auto sales, they have come to realize that Zipcar provides the perfect forum to reach
college students and young professionals and help them make their first car purchase decision.
Zipcar has faced a different struggle with parking spots. As the company grows, it faces the
problem of finding new parking spots. In cities such as New York, where there are a limited number of
parking spots, Zipcar faces the problem of scarce and expensive parking. One of Zipcar’s main expenses
is parking spots and has had to increase hourly rates due to parking price increases. Additionally, as
Zipcar expands out of cities, it must contend with urban developers who are looking to develop many of
the parking lots that Zipcar currently utilizes (Mindlin, 2008). Zipcar has used its huge growth as
leverage when negotiating new parking spot lease arrangements. However, this continues to be a
struggle as parking lot owners become less committed to the idea of Zipcar when they face the
opportunity cost of developing the the land.
Zipcar has also undergone a change of regime. The co-founder and CEO of the company, Robin
Chase, was forced out of the company by investors in February 2003 by its board after she spent most of
the company’s money in expectation of a new round of financing in early 2003 that did not materialize.
Under the new CEO, Scott Griffeth, Zipcar has refocused its operations with the key objective of
concentrating vehicles in key neighborhoods (with attractive demographics) before expanding. Upon
assuming leadership, Griffeth noted that vehicles were too dispersed throughout its cities. He believed
that customers would only give Zipcar a chance if the cars were located within walking distance of their
homes and if there were enough vehicles to ensure availability. As a result, Griffeth consolidated the
location of the vehicles to a few key neighborhoods. As Zipcar’s growth took off, he was able to
leverage it to strike bargains with parking lot operators and to maintain Zipcar vehicles in their lots, thus
reducing adoption risk for the business. Griffeth quickly spread the company to Chicago, Toronto,
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London, and 50 other cities He also negotiated with colleges to provide cars to their campuses and with
businesses to provide cars to their employees. Perhaps the biggest contribution that Scott brought to
the company was the elimination of the per mile charge. Scott included in the $7 hourly fee, 180 miles
of driving. This reduced the feeling that consumers were in a taxi and created an experience more
similar to driving a private car. Scott Griffeth brought a new focus to the company that allowed it to
grow and reach the point of IPO, despite never having posted a profit. (Levine, 2009)
Confronting Indirect Competitors
Zipcar was originally perceived as a threat to the sales volume of auto manufacturers. However,
Ford reversed this perception by partnering in 2011 with Zipcar based on the belief that its customers
could be potential Ford customers down the road. Ford supplies vehicles to over 250 U.S. college and
university campuses. Through a new two year program, Ford will provide Zipcar with up to 1,000 Ford
Focus sedans and Escape SUVs. Additionally, Ford is offering promotional incentives in the form of a
discount to reduce membership fees to the first 100,000 university students who sign up for Zipcar and
subsidizing a portion of the hourly rental fee for the first million hours of use on their cars. (Vlasic, 2011)
Ford views this partnership as a means to reach a new demographic of younger, college-age drivers who
might not try a Ford product.
Through this creative partnership, Ford has recognized that Zipcar presents a great channel for
them to reach out to first-time car buyers. Ford also noted that research has shown that the primary
reason that people leave Zipcar is to buy a vehicle and that they are heavily influenced by what they
have driven as a member of Zipcar. (Vlasic, 2011) This is especially important to Ford considering that
most of Zipcar’s fleet comes from Honda, BMW, and Toyota. As part of Zipcar’s efforts to be green, it
has also struck an agreement with Toyota to offer a small number of Toyota plug-in Prius’ in Boston, San
Francisco, and Portland, Oregon. (White, 2011)
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In its latest growth stage, Zipcar has been moving into smaller markets like Sacramento and
Providence, Rhode Island, and has been rapidly expanding its presence on college campuses. (Vlasic,
2011) The cheaper that Zipcar can make its services through partnerships like the one with Ford, the
more appealing they make Zipcar appealing to college students and urban dwellers.
One indirect competitor Zipcar has had limited ability to control is the used car market. Yet,
with used-car prices at historic highs over the last 2 years, Zipcar has benefitted from this. Zipcar has
benefitted on the resale value of its fleet, which it tends to replace after about 2 years of work. It has
also benefitted in that strong prices have decreased the attractiveness of used cars for Zipcar’s target
market. As used car prices decreases - although predicted to remain elevated over the next 2-3 years by
Kelly Blue Book - Zipcar will lose this advantage. (Bary, 2011)
Confronting Direct Competitors
RelayRides, a car sharing service that allows auto owners to rent their personal car when they
don’t need it, has emerged as a competitor to Zipcar in San Francisco. RelayRides has recently
partnered with General Motors to allow RelayRides members to unlock their cars via its OnStar
Communications system using their cell phones. Additionally, General Motors is promoting their cars as
“RelayRides Ready” in early 2012, further showing automotive support of car sharing programs. The
advantage that competitors such as RelayRides have is that they do not have to own a costly fleet,
instead relying on private ownership. RelayRides is just one of a number of start-ups that utilize private
cars to instigate car sharing as opposed to owning a fleet as Zipcar does. This reduces the expenses
associated with a costly fleet and parking spots – two key expenses that are currently keeping Zipcar
from profitability. This emerging business model has leveraged all of the work Zipcar did to establish a
market for car-sharing as well as some of the technology (e.g., keyless access to car, GPS tracking).
Although these companies are still very early stage (currently, the early leaders are Spride Share,
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RelayRides, and Getaround), they represent a real threat to the Zipcar business model and could be
analogous to the effect Apple iPod had on early mp3 players. An interesting side note, the co-founder of
Zipcar and former CEO, Robin Chase has launched a personal car sharing company (similar model as
RelayRides) called Buzzcar in France. (Garthwaite, 20122)
Additionally, traditional car rental companies have parlayed into the space. In 2008, Hertz
started a service called Connect by Hertz (now called Hertz on Demand) to offer hourly car sharing in
New York, London, and Paris. (Belson, 2008) It has recently declared war on Zipcar by expanding its car
sharing service and forgoing membership fees in the United States. Hertz on Demand is located on
approximately 50 university campuses and in six countries giving customers access to vehicles at both
airport and urban locations. Additionally, Hertz guarantees car availability Monday through Thursday in
New York and Boston and offers one way rentals. Hertz has been expanding Hertz on Demand into
Zipcar markets in Philadelphia and Washington D.C. in attempt to steal market share. (Ovide, 2011)
Enterprise Rent-a-Car also ventured into the car sharing market with its launch of the WeCar brand in
2008, although it has focused primarily on companies, government agencies, and universities. (Bary,
2011) Car rental agencies have also been partnering with websites such as Priceline.com and
Hotwire.com to sell surplus inventory. Through these websites, rental car companies are offering
reduced rates in order to move inventory, making the traditional rental cost much cheaper for last
minute rentals.
Growth Opportunities
Growth via Acquisition
In 2007, Zipcar acquired Flexcar, adding customers in Seattle; Portland, Oregon; Los Angeles, San
Diego, Atlanta, Pittsburg, and Philadelphia. As a result of the merger, Zipcar was able to serve 50
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different cities including dozens of college towns, in 23 states, two Canadian provinces, as well as
London, England. (Heath, 2007) In 2009, Zipcar made an investment in Avancar, the first car sharing
operation in Spain. Avancar owns more than 120 vehicles in 42 locations throughout Barcelona, Sant
Cugat, Sabadell, and Granollers. Zipcar received the option to increase their ownership share in
following years and did so in 2011, making Zipcar the majority owner in Avancar. This, combined with
the acquisition described below, marked Zipcar’s entry into the European market and its direct
competition with many of the car sharing companies on which Zipcar based its original business
premise. (Zipcar Extends Option with Barcelona-based Avancar, 2011)
In April of 2010, Zipcar acquired Streetcar, the market leader in London. Streetcar has
approximately 1,100 locations in eight British cities. This gave Zipcar direct access to the London market
and provided a gateway for additional European expansion. As the U.S. car sharing market become
saturated (it is not currently at that point by any measure), European expansion could provide strong
growth. Zipcar is facing heavy headwinds though from market incumbents. (Motavalli, 2010)
Zipcar IPO’d in April of 2011, giving the company a $1.2 billion stock market value. Initially
offered at $18/share, the stock briefly traded upwards of $29/share. However, Zipcar is still
unprofitable despite showing strong revenue growth quarter over quarter. (Bary, 2011) As a result, its
stock quickly fell and currently trades at around $18/share (stock market cap of $713 million) following a
few disappointing quarters earnings-wise.
Growth via new customer segments
Businesses are further turning towards car sharing as a cost-saving alternative for employee
travel. Zipcar has turned their attention to this market to help expand their 400,000 + client list. Zipcar
has signed up 10,000 company clients under its Zipcar for Business program. Zipcar does face stiff
competition from Hertz and Enterprise, who have started similar programs. Hertz and Enterprise face
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the advantage of tapping into their existing corporate customer list whereas Zipcar is starting from
scratch. Additionally, both offer rentals from airport locations, whereas Zipcar does not currently have
any vehicles located at airports. Both Zipcar and Hertz offer fleet management software for
corporations to track and maintain their vehicle pools. (Olson, 2010)
Growth via licensing technology
Zipcar is now sharing its proprietary car-management technology with the public sector. Under
the name “FastFleet”, the car-sharing system allows fleet operators (e.g., governments and universities)
to license Zipcar’s technology to help them adopt a shared-car services system. Similarly to the regular
Zipcar model, drivers can reserve their vehicle online and unlock their vehicles using a FastFleet card.
However, under the FastFleet model, Zipcar does not own the vehicles; the fleet companies own the
vehicles. Also, FastFleet can be customized according to individual program needs. The service was
introduced in 2009 on a subscription basis, priced at $65-95 per month, per car. Currently, this business
segment contributes only a tiny portion of overall revenues (less than 1%) but potentially represents a
distraction to management and a deviation from their current business strategy.
Conclusion
Zipcar succeeded by overcoming many of the issues that faced car sharing companies in the
past. It offered an easy way for customers to reserve cars on the fly - first via the internet and later
through an iPhone app. Zipcar then made it easy for customers to access the vehicle they rented.
Utilizing RFID technology, drivers could conveniently swipe their Zipcard to gain access to their car.
Finally, Zipcar utilized technology to make the process of tracking usage, mileage, and maintenance
more efficient. Zipcar was able to minimize co-innovation risk by developing the technology themselves.
To reduce execution risk, they hired a MIT engineer to design the technology for them. They reduced
adoption chain risk through concentrated growth that allowed them to bargain with local parking spot
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owners. As a result of improvements in technology and successful mitigation of key business risks,
Zipcar was able to capitalize and truly offer a successful car sharing service.
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Garthwaite, J. (20122, April 14). Car Sharing Start-Ups Bask in Zipcar's IPO Glow. The New York Times.
Griffeth, S. (2009, October 27). Zipcar: Selling Cars, One Ride at a Time. Retrieved November 10, 2011,
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Heath, T. (2007, October 31). Zipcar and Flexcar Driven Together. The Washington Post.
Levine, M. (2009, March 5). Share My Ride. The New York Times.
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Mindlin, A. (2008, April 27). Zipcar, Zapped by Parking. The New York Times.
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