Retail

The Zipcar Effect

When Zipcar was in its earliest stages of development back in 1999, Glenn Urban, the dean of MIT’s Sloan School of Management, told the company’s soon-to-be cofounders, Antje Danielson and Robin Chase, that their business was going to be big.

He was right. But it’s unlikely that even Urban — as bullish as he was on the prospects for Danielson and Chase’s car-sharing service — could have predicted that, more than 15 years after Zipcar’s official launch, the company would have a ripple effect not only on the car rental industry but on the landscape of the automotive industry as a whole.

The notion of a monthly membership-based service that offered consumers the ability to pay for the use of a car when they needed it — and only when they needed it (in increments as short as 30 minutes or as long as several days) — was a breakthrough. Beyond the basic convenience, Zipcar offered (as it still does today) drivers the freedom from monthly car insurance premiums to pay, offsite parking regulations and unruly and unexpected maintenance costs.

Users of the service are issued a magnetized card or can use a mobile app, and when they book a specific vehicle, the card is activated to unlock that car and that car only. The urban (no relation; also, it’s not capitalized and does not refer to a specific person) set has found the service to be a great option for large monthly grocery trips, going to the local IKEA, heading out of the city for an afternoon or impressing clients (in the latter case, Zipcar offers a line of high-end luxury vehicles specifically marketed — at a premium price — to be used for making a great impression in business situations).

The history of Zipcar is one of a fairly unimpeded meteoric rise. The first Zipcars hit the road in Boston, Massachusetts, in 2000. By 2007, the company had secured over $30 million in financing and had launched Zipcar service in urban centers including New York, Toronto, San Francisco, London and Vancouver, among others. In October of that same year, Zipcar merged with competitor Flexcar and, by 2008, announced that it had doubled its membership to 225,000. Today, Zipcar’s user base is 900,000 subscribers strong, making the brand one of the biggest players in both the car rental and ridesharing industries.

If imitation is the sincerest form of flattery, Zipcar has reason to blush. There is nary a major player in the rental car market that hasn’t tried a similar model. While many have attempted to emulate Zipcar’s success, few have had much to show for their efforts.

In 2008, Hertz tried to launch its own car-sharing service, Connect by Hertz — later renamed Hertz on Demand … then, later, Hertz 24/7 — but all those name changes didn’t help the service take off with Hertz’s customer base. In Sept. 2015, the company abandoned the program in the U.S., shutting down its remaining ridesharing operations in New York and Florida.

Avis Budget Group took a different (and perhaps more well-advised) tack altogether in 2013 by acquiring Zipcar for approximately $500 million in cash. Today, Zipcar operates as a subsidiary of Avis Budget Group, offering nearly 10,000 vehicles throughout the U.S., Canada, the U.K., Spain, France, Austria and Turkey, as of June 2015.

Beyond the rental car space, those kinds of numbers have recently made the traditional automotive industry take notice.

While scrappy startups, like Uber and Zipcar, may have created the untapped $5.4 trillion ridesharing market, it may be Ford, which currently accounts for 6 percent of the overall automotive market (that’s the sales, servicing and financing of vehicles) that bridges the gap between the independence of car ownership and the cost savings of ridesharing.

The giant automaker recently announced at the North American International Auto Show that it would be taking a leap into the ridesharing market, playing a card from the Zipcar playbook and bringing some novel ideas of its own to the table. The company is betting that if consumers are willing to share a Zipcar, maybe they’d be willing to go in together on a lease.

Ford’s group leasing pilot program, called Ford Credit Link, will be launched in three markets in Austin, Texas. The program allows self-organized groups of three to six consumers to collectively sign a 24-month lease on a Ford vehicle. The group then takes on the responsibility for the lease payments in exchange for usage of the vehicle for the duration of the lease term. The program is part of Ford’s larger initiative, Smart Mobility, which was unveiled last year at the CES conference in Las Vegas.

The Ford Credit Link program, which Popular Mechanics points out is much like renting an apartment with several roommates, comes complete with an app to help manage the experience. As the outlet goes on to explain, the app allows everyone to see where the car is at any given moment and schedule time to use it. It also tracks things like the condition that the car was left in by the last user or how much someone spends on gas or maintenance, as well as helping to coordinate monthly payments and tracking which participants in the lease may not be paying their share. Additionally, the app also lets users change how they split the monthly lease payment (let’s say someone decides to take the vehicle on a road trip for a week) or drop someone from the lease altogether (if they move away, for example).

Austin is a strategic choice for the pilot program. With a high density of young professionals and it being a city that is both highly unwalkable outside of an increasingly expensive downtown district and lacking a strong public transit infrastructure, Texas’ cultural center is the perfect place for openminded young consumers to play with the idea of group car leasing.

This interest in innovative new business models is not new to Ford; it’s part of a larger tech-centric overhaul the automaker has committed itself to in recent years. The company may have been one of the first of its ilk to come to terms with what the future holds for its industry. Economic and cultural changes have been a boon to the ridesharing and car-sharing economy and pose a serious and persistent threat to the traditional automotive industry. Millennials are showing no signs of conforming to traditional consumer behavior as they grow older and are holding fast to an “own less, do more” style of financial planning. That, coupled with continued population growth of urban centers and a marked decrease in the number of young people with driver’s licenses, is enough to make the automakers fear for their livelihood.

As PYMNTS recently reported, Bill Ford, Jr., chairman of the Ford Motor Company, is determined not to let the winds of change knock down the company his family has run for over 100 years. As the head of the company, he is pivotal in leading partnerships, acquisitions and new car use and ownership models (like the Credit Link program). “To me, it’s a way to reinvent this company that makes it incredibly relevant for the next 50 years,” said Ford, who has been chairman since 1999. “If we did nothing, we could be consigned over time to an ever-dwindling number of traditional car and truck buyers.”

The wild popularity and continued untempered growth of rideshare services, like Uber, Lyft, Zipcar and more, may have been the final straw and made the writing on the wall crystal clear for Ford. The automaker may have taken a hard look in the proverbial mirror and found the answer to the question: Is it possible to replace owning a car with just Uber and Zipcar?

It’s doubtful that even the cofounders of Zipcar could have imagined the answer to that question being “yes” — certainly not in such a short time. And although they might not have been in on the ground floor, companies like Ford are driving hard to make sure that it doesn’t come to pass.

——————————–

Latest Insights:

Our data and analytics team has developed a number of creative methodologies and frameworks that measure and benchmark the innovation that’s reshaping the payments and commerce ecosystem. In the December 2019 Mobile Card App Adoption Study, PYMNTS surveyed 2,000 U.S. consumers for a reveal of the four most compelling features apps must have to engage users and drive greater adoption.

TRENDING RIGHT NOW