Avis, Zipcar and Car Sharing...

By David Bailey on Jan 6, 13 09:37 AM in

The recent purchase of car sharing firm Zipcar by the rental firm Avis Budget Group raises some interesting questions. Is the deal a 'transformational' one that could see car sharing (as part of the 'sharing economy') come into the mainstream rental market as many analysts seem to think? Or is it just another takeover of a fast growing and small 'disruptor' firm by a dull incumbent firm that will effectively choke off innovation?

Avis and Zipcar of course are talking up prospects, pointing to $70m a year in cost-savings stemming mainly from improved procurement and management of their combined fleets of cars, with the possibility for revenue growth by enabling Zipcar members ('Zipsters') to access Avis cars at the weekend when fleet availability (supply) can lag demand. Avis reckons the industry could be worth as much as $10bn in the next few years. It sees car sharing as "highly complementary" to traditional car rental.

I'm not so sure.

The car-sharing model is now thought to be worth $400m a year in the United States alone, and Zipcar is the dominant brand in this relatively new market. But car sharing hasn't quite caught on the way many had expected; indeed if it had, maybe it would have been upstart-disruptor Zipcar buying incumbent Avis and not the other way round.

Zipcar, if you haven't heard of it, enables its members to book a vehicle online for an hour upwards in places like London, Bristol and Cambridge (a rival, City Car Club, already operates in Birmingham). Zipsters access the car by using a phone app or membership card and after use return the car to a parking space before their allotted time runs out.

The firm's target audience is mainly city dwellers who don't need a car so frequently as to make ownership necessary and for whom congestion and parking are a hassle. Membership is just under £60 per year and the hourly rate - which includes fuel, insurance and in London the congestion charge - starts at £5. You also pay 25p per mile after the first 40 miles.

Zipcar has built a smooth experience for its community of users through the use of some pretty complicated technologies which it has got to work seamlessly (using phone apps for example). That's the first big challenge for Avis: managing those technologies is a big challenge when they are quite different from the existing technology base that Avis uses.

Secondly, in terms of the 'sharing economy' that Zipcar has developed, can Avis continue to nurture this without alienating 'Zipsters' who share goods (cars) with fellow members, rather than them owning them individually?

Indeed 'community' is a fragile thing, as Facebook has found out with its clumsy handling of its terms of service after acquiring Instagram. AirBnB, the self-styled 'market place for spaces' had to admit that it had 'really screwed things up' after at least one house renter had her place thrashed and its business model was threatened.

None of this is something Avis actually has any experience of - the world of car rentals is hardly a community based on the shared economy. Let's see if it works.

Professor David Bailey works at Coventry University

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