If Avis Is Smart, It Won't Stop With Zipcar

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JANUARY 4, 2013

If Avis Is Smart, It Won't Stop With Zipcar

Reactions to the news that the country's third-biggest car rental company, Avis, had snapped up the short-term car rental service Zipcar were typical of whenever a hot startup is acquired by a plodding industry incumbent: rash indignation followed by trenchant analysis, and finally acceptance. People wondered whether Avis would crush Zipcar's innovative spirit, as Yahoo! had done with Flickr and Microsoft with Skype. Some assumed that Zipcar's original backers were looking for a golden parachute; the $491 million purchase price put much more money in their pockets than selling the company's tanking stock ever would. Oh, and Avis sucks.

Then Avis' CEO explained his thinking during a call with analysts, convincing at least a few of them that he valued Zipcar's model enough to leave it alone. Plus, Avis' fleet, which is busier on weekdays, could cure Zipcar's weekend shortages, and allow Zipcar to expand faster with the greater purchasing power of a massive company. With a bigger network of cars, point-to-point service—so you don’t have to return a car to its original location—becomes easier to implement. Maybe consumers won't even care that Avis isn’t cool. By now, the conventional wisdom has gelled: This was a brilliant move, and unless Avis does something incredibly stupid, Zipcar users will be better off for it. 

But here's another dimension to this startup exit story: Zipcar isn't really on the cutting edge of disruption anymore. It's already created a world in which car rentals distributed through cities are just a feature that every company has to offer. HertzEnterprise, and Daimler have all rolled out some form of the concept within the past couple years, making competition a game of who can spread their network fastest and provide the best customer experience (Daimler’s Car2Go has done them all one better by introducing the ability to drop off the cars nearly anywhere in the city, rather than returning them to their original locations). 

The next phase is something that could end up undercutting the big guys all over again. 

Zipcar was the most prominent early exponent of what's come to be called the "sharing economy," or "collaborative consumption," where people pay each other to use goods they already own. But it's never actually been a shared service, or fundamentally much different from the big car rental companies—a company owns the cars, which people just check out for shorter periods of time. The company also has to secure parking spaces and replace its cars every few years in order to compete, which adds fixed costs that gets passed on to consumers.

Real sharing, meanwhile, has emerged in the form of startups like GetaroundLyftSidecar, and RelayRides, all of which match car owners with people who need cars for a couple of hours (and even offer insurance). Rather than adding vehicles to streets and parking spaces, they're making more efficient use of the ones that already sit idle most of the time. That lowers costs and allows the service to scale faster—Getaround's CEO says she signed up 10,000 car owners, which is about the number that Zipcar has after twelve years, in a year and a half. It's the same model for cars that Airbnb has adopted for spare rooms, which targets the hotel industry, and that Liquidspace provides for temporary offices. There's enough disuse built into the traditional models of managing clunky assets, like real estate and personal vehicles, for micro-marketplaces to satisfy much of the demand.

Now that legacy car rental companies have all jumped into the short-term use game, how should they respond to a new generation of disruptive models that offer the same service without owning any assets at all? 

They could start their own sharing platforms, bringing legitimacy and resources to an enterprise that can feel fly-by-night. They could also buy up the new companies outright, and start with a core customer base of early adopters. A better idea would be to invest in the ones that already exist, perhaps building in an option to purchase it in the future without assuming all the risk of a whole company on the books. That would give the innovators running room to see how far this sharing stuff can go. The Avises of the world may not be that good at pioneering new business models themselves, but they should get behind those who are—so that they don’t get left in the dust again.

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