acquiring zipcar - brand relationship case study 12-010 . rev. december 12, 2012 . acquiring zipcar...

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Boston University School of Management BU Case Study 12-010 Rev. December 12, 2012 Acquiring Zipcar Brand Building in the Share Economy By Susan Fournier, Giana Eckhardt and Fleura Bardhi Scott Griffith, CEO of Zipcar, languished over his stock charts. They had something here, everyone agreed about that. Zipcar had shaken up the car rental industry with a “new model” for people who wanted steady access to cars without the hassle of owning them. Sales had been phenomenal. Since its beginning in 2000, Zipcar had experienced 100%+ growth annually, with annual revenue in the previous year of $241.6 million. Zipcar now boasted more than 750,000 members and over 8,900 cars in urban areas and college campuses throughout the United States, Canada and the U.K. and claimed nearly half of all global car-sharing members. The company had continued international expansion by purchasing the largest car sharing company in Spain. The buzz had been wonderful. Still, Zipcar’s stock price was being beaten down, falling from a high of $31.50 to a current trade at $8 and change (See Exhibit 1). The company had failed to turn an annual profit since its founding in 2000 and held but two months’ of operating cash on hand as of September 2012. Critics wondered about the sustainability of the business model in the face of increased competition. There was no doubt: the “big guys” were circling. Enterprise Rent-a-Car Co. had entered car sharing with a model of its own (See Exhibit 2). The Enterprise network, which included almost 1 million vehicles and more than 5,500 offices located within 15 miles of 90 percent of the U.S. population, posed a significant threat with enough scale and structure to implement car sharing in virtually every urban market. Other traditional companies including U-Haul, Hertz and BMW were following suit (See Exhibit 3). Griffith needed to make a move. Griffith picked up his phone and heard his secretary make the announcement that could change everything: “I have Ronald Nelson, CEO of Avis-Budget on your line. What do you want me to say?” The Share Economy During the last decade observers have noted that markets are giving way to networks, and alternative modes of acquisition and consumption are emerging to replace traditional ownership. While property continues to exist, the net result is that it is less likely to be purchased on the market and owned by an individual. Instead of buying and owning things, consumers want short-term access to goods, and increasingly prefer to pay for the experience of temporarily using them. In the words of one expert, ownership is no longer the ultimate expression of consumer desire that it used to be. The Share Economy—wherein where access to goods, products and services is enabled through the sharing or pooling of resources and redefined through technology and the engagement of peer communities—is thriving. Different models for non-ownership have emerged. Exhibit 4 highlights some examples of more traditional

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Boston University School of Management BU Case Study 12-010 Rev. December 12, 2012

Acquiring Zipcar Brand Building in the Share Economy By Susan Fournier, Giana Eckhardt and Fleura Bardhi Scott Griffith, CEO of Zipcar, languished over his stock charts. They had something here, everyone agreed about that. Zipcar had shaken up the car rental industry with a “new model” for people who wanted steady access to cars without the hassle of owning them. Sales had been phenomenal. Since its beginning in 2000, Zipcar had experienced 100%+ growth annually, with annual revenue in the previous year of $241.6 million. Zipcar now boasted more than 750,000 members and over 8,900 cars in urban areas and college campuses throughout the United States, Canada and the U.K. and claimed nearly half of all global car-sharing members. The company had continued international expansion by purchasing the largest car sharing company in Spain. The buzz had been wonderful. Still, Zipcar’s stock price was being beaten down, falling from a high of $31.50 to a current trade at $8 and change (See Exhibit 1). The company had failed to turn an annual profit since its founding in 2000 and held but two months’ of operating cash on hand as of September 2012. Critics wondered about the sustainability of the business model in the face of increased competition. There was no doubt: the “big guys” were circling. Enterprise Rent-a-Car Co. had entered car sharing with a model of its own (See Exhibit 2). The Enterprise network, which included almost 1 million vehicles and more than 5,500 offices located within 15 miles of 90 percent of the U.S. population, posed a significant threat with enough scale and structure to implement car sharing in virtually every urban market. Other traditional companies including U-Haul, Hertz and BMW were following suit (See Exhibit 3). Griffith needed to make a move. Griffith picked up his phone and heard his secretary make the announcement that could change everything: “I have Ronald Nelson, CEO of Avis-Budget on your line. What do you want me to say?” The Share Economy During the last decade observers have noted that markets are giving way to networks, and alternative modes of acquisition and consumption are emerging to replace traditional ownership. While property continues to exist, the net result is that it is less likely to be purchased on the market and owned by an individual. Instead of buying and owning things, consumers want short-term access to goods, and increasingly prefer to pay for the experience of temporarily using them. In the words of one expert, ownership is no longer the ultimate expression of consumer desire that it used to be. The Share Economy—wherein where access to goods, products and services is enabled through the sharing or pooling of resources and redefined through technology and the engagement of peer communities—is thriving. Different models for non-ownership have emerged. Exhibit 4 highlights some examples of more traditional

non-ownership services (as illustrated in the outer circle), such as those provided by public services including museums and public libraries, to more recent market-mediated and peer-to-peer access and sharing models such as bike sharing and file sharing (as illustrated in the inner circle).With access-based consumption, people pay membership fees to gain periodic access to goods and services rather than owning them outright. With peer-to-peer sharing, people share their own cars with others as brokered by an on-line company. In the car market, business models evolved from ownership to ride sharing to access-based consumption and peer-to-peer car sharing (See Exhibit 5). As of December 2012, commercial examples of access-based and sharing models included countless car and bike sharing programs (Zipcar, Hubway, RelayRides, Car2go, Getaround, JustShareIt, Wheelz, Lyft, Sidecar) and online borrowing programs for DVDs (Netflix) and fashion and jewelry (Bag Borrower Steal, Rent The Runway, Borrowed Bling). Parking Panda allowed sharing of driveway space. Airbnb, a Wall Street darling with 500% growth in 2011, proved that people will share their largest asset—their homes—with strangers. With Dogvacay people can share pets rather than own them. In 2012, a new co-parenting site called Family by Design was launched for people who aren’t in a position to have and support a child of their own. Public access to goods, as with borrowing books from public libraries or using public transportation, has been and continues to be the norm in some cultures and social contexts. Yet observers argue that the access-based consumption trend is different. Models of access are now mediated by the commercial marketplace rather than the shared social capital maintained by government. The trend is enabled by technology and social media that facilitate access and transactions in ways not possible before. Forbes estimates that revenues in the Share Economy will surpass $3.5 billion in 2013, with growth exceeding 25%. The Cultural Phenomenon of Shared Consumption The collaborative consumption movement at the heart of the Share Economy was first championed by Rachel Botsman in her classic book The Rise of Collaborative Consumption. Botsman frames collaborative consumption as a powerful marketplace revolution wherein people are relearning how to create value out of shared and open resources in ways that balance personal self-interest with the good of the larger community. Botsman stresses that when someone chooses access over ownership they are treading more lightly on the earth and reducing their carbon footprint; participants in collaborative consumption create value for others even if this was not their intent. This makes access and sharing sustainable consumption practices, in line with a burgeoning global trend.

According to Botsman’s logic, people also join car sharing services or would rather rent an apartment found on Airbnb versus a hotel because these services allow them to feel a sense of community and meet others with a similar lifestyle and set of shared values. As Botsman demonstrates in her book, when people share, they create a sense of pseudo-kinship with others. Anthropologists support that we come together when we share things. According to Robert Putnam, author of Bowling Alone, people today hunger for connectivity and community. When people decide to collaborate and share things, they are also saying they want to be connected to their fellow man in a more communal manner. People who share feel connected to each other and the organization that brings them together and this kinship stands strong.

Botsman and Lisa Gansky, author of The Mesh, also support that what is critical in making sharing models work today is the virtuous circle of trust enabled by social platforms and other web-based technologies. Businesses can now create trusting environments in which people can share assets in ways they could not before. Gansky argues that when trust is facilitated, a sense of collaborative ownership is allowed to thrive.

Other changes in values support the emergent Share Economy model: rejection of materialist status symbolism, embrace of experiences over “things,” and a desire to be mobile and not weighed down by debt commitments or

possessions. The concept of a “liquid society” is gaining prominence, further supporting the severance of ownership ties. In a liquid society, social structures and institutions are increasingly unstable, and people, objects, information and places considered solid begin to dematerialize. Access offers a way to manage the challenges of a liquid society. In contrast to the solid socio-emotional property relations embedded in ownership, access provides a more transient mode of consumption, enabling the flexibility and adaptability that liquid society commands. Further fueling the trend is the heightened concern about morality and ‘doing the right thing’ spawned in the wake of recent high-profile market failures. Select demographic groups have also been increasingly acculturated with an access versus ownership mindset. Millennials for example have grown up this way. They don’t buy DVDs or CDs; they use Pandora and stream shows. Indeed, “not owning” has gained in status and respect. From apartments to fashion items to cars, it has become increasingly cool and trendy to rent or access rather than buy (See Exhibit 6). As the New York Times reports, “Sharing is to ownership what the iPod is to the eight-track, what the solar panel is to the coal mine. Sharing is clean, crisp, urbane, postmodern; owning is dull, selfish, timid, backward.” (See Exhibit 7) Zipcar: The Car Sharing Pioneer Building on general trends supporting non-ownership, as exacerbated by life in difficult economic times, car sharing models have grown steadily in the U.S. Expected revenues for 2016 are $3.3 billion, up from $253 million in 2010. The New York Times reports 44% growth in car sharing since 2011, with 800,000 people in the U.S. belonging to car-sharing services in 2012. In addition to socio-cultural and demographic trends noted above, the rise in car sharing relates as well to declines in car ownership, and weakening consumer relationships with cars and car brands (See Exhibit 8). Zipcar is the pioneer in the car share economy. The world’s largest car-sharing company and the sole car sharing company in the US for a decade, Zipcar has become an icon of sharing among the business community. Since its beginning in 2000, Zipcar has experienced 100%+ growth annually, with annual revenue in 2011 of $241.6 million. By the end of 2012, Zipcar had more than 750,000 members and over 8,900 cars in urban areas and college campuses throughout the United States, Canada and the U.K. In 2011, Zipcar introduced Zipvan in San Francisco, to compete with U-Haul, and in 2012 Zipcar expanded into Europe by purchasing the largest car sharing company in Spain. Zipcar’s business model serves as a template for many share firms. To use the company’s service, a consumer must be at least 21 years old and become a member of Zipcar by going through a rigorous member check, which includes a driving history screen. Members receive a Zipcard which serves as an automatic key to unlock the door of each car, enabling members to have automated access to any Zipcar they reserve. Members can reserve Zipcars online or by phone in minutes or up to a year in advance. Rates are as low as $6 per hour and $60 per day, with gas, parking, insurance, and maintenance included. Zipcar supports approximately thirty car models in their fleet, including basic functional models such as Toyota trucks, the Toyota Corolla, or Ford Focus, experience brands such as Mini Cooper and VW Beetle, luxury brands such as BMW, and green cars such as the Toyota Prius. Zipcar has services operating in 49 cities including San Francisco, Boston, Vancouver, Toronto, and London. The business model calls for Zipcars to be located close to the user’s residence or place of work. Cars are placed in permanent parking spaces to encourage repeat usage; members return their cars to these spaces at the end of the rental period. The Zipcar service is designed as a self-service model that guarantees lower costs for its members. There are no employees on-site for car pick-up or return. The company relies on its customers to return the cars on time, maintain the cars, and report damage. The company engages several mechanisms to manage and monitor consumer behavior on its website. First, Zipcar maintains what they call the “six rules of the road” delineating specific customer responsibilities: return the car on time, clean the cars, report damage, no smoking in the car, fill up the gas tank, and do not bring/keep pets in the car. Second, vehicle usage data is monitored for each driver to impose driver oversight. Third, Zipcar maintains a penalty system whereby customers are charged for not bringing cars back

on time ($50 per late hour) as well as for any other violations of the six rules ($50 per violation). Customers are rewarded for taking the initiative to wash and clean their cars ($15 reward). Zipcar’s marketing campaign is targeted to Generation Y urban consumers. Zipcar positions its brand as a lifestyle: young, innovative and green. Over the years, advertising taglines have included “Wheels when you want them” and “Good Clean Fun: Cars with a conscience.” Select campaigns attempt to change attitudes toward accessing rather than owning by suggesting that car sharing can help the consumer to obtain a fun-loving, carefree lifestyle in addition to being cheaper, convenient, hassle-free, and green. Since inception, Zipcar has maintained a positioning as a green brand by promoting car sharing as a more sustainable driving practice, pricing hybrid and electric cars lower than other car models, and being eligible for state tax reductions in some U.S. states.

In addition, the company tries to manage errant customer behavior by fostering brand community ties. Being a Zipcar customer is about becoming a member of a community of “Zipsters.” According to the company’s website, a Zipster is “One who uses Zipcar. A gender neutral term for a person (or people: Zipsters) who believe in cost-effective transportation solutions that are good for the planet and easy on the wallet.” The company’s website asks: “Why a Catchy name? Why not just ‘members’?” The answer: “We're really glad you asked. Car sharing means something different to everyone, but being a Zipster is about more than car sharing. It's about our community. Our members identify with our culture (something we're glad about), help new Zipsters learn the ropes, and give a friendly honk to veteran Zipsters when they see them around town. We could call them members, but Zipsters just seems more fun.”

In the spirit of community building, Zipcar also produces and distributes a monthly e-mail newsletter to its members, organizes gatherings and events in each city of operation, and engages customers in feedback. To encourage person-product bonding, the company hosts “name that car” competitions. Each car is given a human name beginning with the first letter of the model name, as for example with Mia Mini.

Consumers’ Relationships with Zipcar Research published in 2012 by Professors Bardhi and Eckhardt challenge the collaborative consumption model that most experts assume underlies Zipcar’s shared access model. The research was based on forty-five in-depth interviews with Zipcar users in Boston. All informants were in Zipcar’s target market: young urban students and professionals; men and women aged 18-45. Exhibit 9 contains quotes from Bardhi and Eckhardt’s research. The conclusion seems to be that access-based consumption liberates the person from the emotional, social and property obligations associated with ownership and sharing. While a valued benefit for Zipcar consumers, the findings upend much of what is known about how and why consumers are attached to brands, how they relate to fellow consumers, and how they feel about the objects they are accessing and sharing. The strong form of Bardhi and Eckhardt’s conclusions: collaborative consumption in this context is a myth. Although consumers are sharing objects, they are not collaborating with each other, as most of the pundits and business press would suggest. Lee Broughton, head of Corporate Sustainability at Enterprise Holdings, which owns and operates the Alamo Rent-A-Car, National Car Rental and flagship Enterprise Rent-A-Car brands, commented on the study in a blog. He wrote: “We firmly believe these landmark findings should serve as a reality check – a big wake-up call – for anyone who believes in car-sharing technology and transportation sustainability overall. Today’s car-sharing customers, just like car-rental customers, demand up-to-date vehicles and first-rate customer service. Moreover, the best way, the only way, to make car-sharing service scalable is to ensure that it is flexible, responsive and competitive in the marketplace. Bardhi and Eckhardt’s study confirms that affordability and convenience, rather than a sense of community, actually are the primary factors driving consumers’ participation in car-sharing programs. The study reveals that clean, well-maintained vehicles, as well as access to new and different

models, are critical issues for car-sharing customers. None of this is exactly news here at Enterprise. Automated car-sharing technology has made certain transportation alternatives available around the clock and even more convenient. But the fact is, local car rental – just like local car sharing – has always offered accessible and affordable mobility options right where people live and work.” In other words, Enterprise rents cars, and Zipcar, though some may think otherwise, was really just a rental car model at the end of the day. Decision Time Griffith knew that the counter-cultural success of his car sharing model could be upset if Zipcar were to be acquired by a staple of the auto industry. This said, perhaps Zipcar’s purchase by the “big guys” would signal the greatest success that car sharing could imagine? According to Clayton Lane, COO of EMBARQ, the WRI Center for Sustainable Transport, and co-founder of PhillyCarShare in Philadelphia, an acquisition by Avis “might just spawn innovation and allow Zipcar to think big again.” The Avis deal could offer improved convenience to Zipcar members, who would gain access to Avis’s massive fleet on weekends, when Zipcar was usually short of cars and Avis was short on customers. Zipcar should enjoy significant savings on insurance and fleet purchases, promising better financial sustainability as well.

It was hard to know, but a decision was needed fast. Thinking about growth and sustainability going forward, what was the best thing for the business? What was the best thing for the brand? Could Griffith reconcile these two goals? How? What should Griffith do?

Exhibit 1

Zipcar Stock Performance since its 2011 IPO

Exhibit 2 Enterprise Brand Entering the Retail Car-Sharing Market

The Wall Street Journal, December 4, 2012 (http://online.wsj.com/article/PR-CO-20121204-904441.html?mod=crnews )

ST. LOUIS, MO -- (MARKETWIRE) -- 12/04/12 --

A variety of vehicles, where and when they need them, and at affordable rates -- that's the bottom-line

for car-sharing customers, according to independent research conducted by Northeastern University's

Fleura Bardhi and Suffolk University's Giana M. Eckhardt: "Access Based Consumption: The Case for

Car Sharing."

According to ScienceDaily.com, the researchers discovered that their "study challenges the

romanticized view of access understood as a form of collaborative consumption and altruistically

motivated." Moreover, the study confirmed that affordability and convenience are the primary factors

driving consumers' participation in car-sharing programs. It also revealed that clean, well-maintained

vehicles -- and access to new and different models -- are critical issues for car-sharing customers.

None of this surprises Ryan Johnson, assistant vice president for Enterprise Holdings, the largest car

rental company in the world. "This timely research provides a reality check for the car-sharing

segment by highlighting the growing demand for up-to-date vehicles and first-rate customer service,"

explained Johnson, who is overseeing the introduction of the Enterprise brand into retail car sharing

for the first time.

The study also underscores the strength of Enterprise's track record as a key provider of affordable,

accessible transportation alternatives right where customers live and work. "It's not a coincidence that

we are starting in Boston and New York City, two of the most highly competitive car-sharing markets

in the United States," Johnson said. "Under the Enterprise CarShare name, we not only are building

on our company's legacy and beacon brand, but also strategically leveraging our award-winning

customer service, consumer-friendly pricing and the largest and most diverse fleet in the industry."

Enterprise Car-Share Rollout Enterprise Holdings -- which owns and operates the Enterprise Rent-A-

Car, National Car Rental and Alamo Rent A Car brands -- began piloting hourly car rentals in select

urban markets in 2005. The company next started offering local automated car sharing, under the

WeCar name, as a natural extension of its business rental program. Since then, the company has been

using WeCar to deliver car-sharing technology's speed, efficiency and economy nationwide to

businesses, universities and government offices looking to enhance their fleet management operations

and sustainability initiatives.

In mid-2011, Enterprise Holdings announced that it was studying the economics of the retail car-

sharing market, in an effort to determine whether the business model could be financially sustainable

over the long term. Later that same year, Enterprise Holdings entered a major retail car-sharing

market for the first time by acquiring PhillyCarShare in Philadelphia, and then, in 2012, it acquired

Mint Cars On-Demand in Boston and New York City.

The company already has begun transitioning the new Enterprise CarShare name in Canada and the

U.K., as well as in Boston and New York, with other U.S. cities to follow next year. All of Enterprise

Holdings' retail, university, corporate, government and municipal car-sharing programs will be fully

aligned under the Enterprise CarShare name by mid-2013.

Best Practices Matt Darrah, executive vice president of North American operations for Enterprise

Holdings, believes that the company's leadership role in the car rental industry provides more than

just vital economies of scale in the car-sharing segment. It also taps into an unmatched neighborhood

network of more than 5,000 Enterprise Rent-A-Car local branch offices, more than twice as many as

its nearest U.S. competitor. "Car sharing clearly is a natural extension of the local car rental service

that Enterprise Rent-A-Car pioneered," Darrah said. "That's why we are able to enhance and resize

car-sharing fleets so quickly, based on consumer demand and community needs."

For example, in the New York metro area, Enterprise -- with approximately 150 neighborhood car

rental locations -- swapped out 90 percent of the existing car-sharing vehicles after completing its

acquisition, plus increased its fleet overall by 50 percent, including 11 new makes and models. In the

Boston area, Enterprise -- with more than 20 neighborhood car rental locations -- likewise is

increasing and upgrading its local fleet and adding several new locations, including the Government

Center and Prudential Center.

"The Enterprise brand represents a significant link in the automotive value chain," Darrah concluded,

"whether consumers want to rent a car at our brick-and-mortar offices, or they prefer to access a car-

sharing vehicle via mobile technology."

To become a member, consumers simply need to sign up on the new Enterprise CarShare.com

reservation site. Additional information about updates and promotions also is available on the new

Enterprise CarShare Facebook page.

For more information, contact: Laura Bryant Enterprise Holdings [email protected] Greg

Phillips Enterprise CarShare [email protected]

Exhibit 3 Warning to Zipcar: Traffic Ahead

By Scott Kirsner March 30, 2008 (Video included in the weblink

(http://www.boston.com/video/viral_page/?/services/player/bcpid1185143625&bctid=1476709432)

Zipcar Inc. may have finally woken the dozing giants of car rental.

Since Cambridge-based Zipcar got started in 1999, it has attracted a loyal customer base by re-

imagining the concept of car rental.

Cars are sprinkled throughout city neighborhoods. And there's never any paperwork or standing in

line required to borrow one: just wave a membership card over the windshield, and the doors pop

open. Seconds later, you drive off in a Mini Cooper, Ford Escape, or BMW sedan. Gas and insurance

are included in the hourly rate, which hovers around $10.

With a fleet of 5,000 vehicles parked in cities such as London, San Francisco, and Boston, and

180,000 members, Zipcar claims to be the world's largest car-sharing service. Last fall, Zipcar took

over its only significant US competitor, Flexcar Inc., based in Washington, D.C.

Suddenly though, big players, including Hertz Corp., Enterprise Rent-A-Car Co., and U-Haul

International Inc., are seeing the merits of marketing car rentals by the hour. Phoenix-based U-Haul

has the most aggressive plans. This spring, it will add more cars to its small pilot fleet and introduce

technology that mimics Zipcar's, allowing customers to reserve cars online and get into them with a

card.

Car sharing finally seems to be gaining speed. Initially, the idea of "members" paying an annual fee to

rent cars on-demand was dismissed as a European concept that wouldn't appeal to Americans. But it's

starting to seem like big business: Zipcar chief executive Scott Griffith has been talking about hitting

$1 billion in revenues within a few years, sounding very much like a CEO gearing up for an initial

public offering.

After five months of absorbing its biggest competitor, Zipcar faces the task of competing against

companies with well- known brands, strong supplier relationships, and staying power.

"U-Haul and Enterprise could be serious competitors, if they jumped into the market big time," says

Dave Brook, a consultant who earlier founded CarSharing Portland, which Flexcar absorbed. (With

Zipcar's acquisition of Flexcar, Brook holds a small chunk of Zipcar stock.)

"They've got big networks already in place across the country, and they will have an advantage in that

they have a better supply chain - which includes better access to vehicles," he says.

Hertz and Enterprise, so far, seem comically inept as they enter the business of hourly rentals.

(Disclosure: I've been a Zipcar member since last year.) Finding out how to rent a car by the hour at

Hertz's Park Plaza location entailed a call to a Hertz spokesperson, who explained how to find it on

the company's website. Hertz started offering rentals at $12 to $15 an hour in September at one

Boston location, and manager of public affairs Paula Rivera says it is still in "a test mode."

Enterprise has been most aggressive so far with car sharing in St. Louis, launching a service there

called WeCar. Enterprise public relations manager Lisa Martini says that WeCar is "something

Enterprise is interested in bringing into other markets, and Boston is certainly one of those markets

that we're looking at." For now, hourly car rentals are available at one location, in Prudential Center.

And figuring out how to book one, as with Hertz, involves an Internet scavenger hunt.

U-Haul has made some missteps, too, as it has tried to build a car-sharing business, but it seems to be

more eager to get back on track. Cars, which rent for $10 an hour, were initially only available at U-

Haul rental centers, which tend to be off the beaten path, and they could be checked out only during

hours that the centers were open. The fleet was limited to white PT Cruisers. And while U-Haul on its

website promotes the availability of U Car Share at six Boston area locations, when I called the

locations, only two said they were participating.

Michael Coleman, the program manager for U Car Share, explains that the service is being

restructured. In a few weeks, U Car Share members will be able to reserve cars online - just like Zipcar

- and get access to the vehicle independently. "We'll have a large variety of vehicles," he says, "and

we're expanding beyond the rental centers, closer to businesses, universities, and residential areas."

They'll be targeting the same demographic "sweet spot" as Zipcar: college students and twenty-

somethings. "Those are the people willing to give car sharing a chance," Coleman says.

The new entrants, predicts Zipcar's Griffith, "will have issues with car utilization. This business has a

high cost of entry, because you need to get enough cars in enough neighborhoods to compete and

make it appealing for people." He tries to put a positive spin on the competition, adding that in cities

where Zipcar used to compete with Flexcar, "the awareness and general friendliness to the concept of

car sharing goes up. Consumers like choices."

But Griffith does acknowledge that competition can force companies into price wars and increase the

costs of acquiring both customers and the top parking spots.

He says that Enterprise and Hertz will probably tip-toe toward hourly rentals, for fear of cannibalizing

their full-day rental rates. (Right now, Hertz and Enterprise don't charge an annual fee to use their

hourly rentals; Zipcar and U-Haul both charge members $50 per year, plus an initiation fee.)

The shift to self-service could also prove tough, says Dave Brook. "The car rental companies are used

to seeing the customer," he says. "Car sharing requires a different mindset than car rental, and that

could be a corporate culture issue."

Griffith says Zipcar will try to stay ahead of its competitors by introducing technologies, such as a

service that allows cars to be located and reserved from a cellphone. A new vexation, though, is rising

gas prices, which Griffith says could cause Zipcar to increase hourly rates by 3 to 5 percent.

Zipcar member Jonathan Tompkins says he uses a vehicle twice a month for snowboarding trips or

runs to Home Depot. "If you're spending $60 a month for Zipcar, that's probably about a third of the

payment you'd be making on a car - without factoring in gas and insurance," he says.

Tompkins, who lives in the South End, says a friend mentioned U Car Share recently. And while he

isn't planning to abandon Zipcar, he says, "I'd be curious to check it out, and find out more about how

it compares."

That sort of curiosity will keep Zipcar on its toes.

Innovation Economy is a weekly column focusing on entrepreneurship, technology, and venture

capital in New England. Scott Kirsner can be reached at [email protected].

Exhibit 4 Players in the Share Economy

Exhibit 5 Evolution of Non-Ownership Models in the Automotive Space

• GM• Ford• Chevrolet

Car Ownership

• Zipcar• Connect by Hertz• GoGetCar• BMW Drive Now

Car Sharing

• NuRide• GoLoCo

Ride Sharing

• RelayRides• WhipCar

Peer-to-Peer Car Rental

Exhibit 6 as CNN reported on in 2012 (http://www.cnn.com/2012/08/29/living/living-happily-with-less/index.html)

Exhibit 7 (http://www.nytimes.com/2009/03/08/magazine/08Zipcar-t.html?ref=zipcarinc)

Exhibit 8 The Future of Driving: Seeing the Back of the Car

The Economist, September 22, 2012 http://www.economist.com/node/21563280

In the rich world, people seem to be driving less than they used to

“I’LL love and protect this car until death do us part,” says Toad, a 17-year-old loser whose life is briefly transformed by a “super fine” 1958 Chevy Impala in “American Graffiti”. The film follows him, his friends and their vehicles through a late summer night in early 1960s California: cruising the main drag, racing on the back streets and necking in back seats of machines which embody not just speed, prosperity and freedom but also adulthood, status and sex.

The movie was set in an age when owning wheels was a norm deeply desired and newly achievable. Since then car ownership has grown apace. There are now more than 1 billion cars in the world, and the number is likely to roughly double by 2020. They are cheaper, faster, safer and more comfortable than ever before.

Cars are integral to modern life. They account for 70% of all journeys not made on foot in the OECD, which includes most developed countries. In the European Union more than 12m people work in manufacturing and services related to cars and other vehicles, around 6% of the total employed population; the equivalent figure for America is 4.5% of private-sector employment, or 8m jobs. They dominate household economies too: aside from rent or mortgage payments, transport costs are the single biggest weekly outlay, and most of those costs normally come from cars.

Nearly 60m new cars were added to the world’s stock in 2011. People in Asia, Latin America and Africa are buying cars pretty much as fast as they can afford to, and as more can afford to, more will buy.

Til her daddy takes her T-Bird away

But in the rich world the car’s previously inexorable rise is stalling. A growing body of academics cite the possibility that both car ownership and vehicle-kilometres driven may be reaching saturation in developed countries—or even be on the wane, a notion known as “peak car”.

Recession and high fuel prices have markedly cut distances driven in many countries since 2008, including America, Britain, France and Sweden. But more profound and longer-run changes underlie recent trends. Most forecasts still predict that when the recovery comes, people will drive as much and in the same way as they ever have. But that may not be true.

As a general trend, car ownership and kilometres travelled have been increasing throughout the rich world since the 1950s. Short-term factors like the 1970s oil-price shock caused temporary dips, but vehicle use soon recovered.

The current fall in car use has doubtless been exacerbated by recession. But it seems to have started before the crisis. A March 2012 study for the Australian government—which has been at the forefront of international efforts to tease out peak-car issues—suggested that 20 countries in the rich world show a “saturating trend” to vehicle-kilometres travelled. After decades when each individual was on average travelling farther every year, growth per person has slowed distinctly, and in many cases stopped altogether.

There are different measures of saturation: total distance driven, distance per driver and total trips made. The statistics are striking on each of these counts even in America, still the most car-mad country in the world. There, total vehicle-kilometres travelled began to plateau in 2004 and fall from 2007; measured per person, growth flatlined sooner, after 2000, and dropped after 2004 before recovering somewhat (see chart). The number of trips has fallen, mostly because of a decline in commuting and shopping (of the non-virtual variety).

Britain, another nation that measures such things obsessively, has a similar arc. Kilometres travelled per person were stable or falling through most of the 2000s. Total traffic has not increased for a decade, despite a growing population. For the past 15 years Britons have been making fewer journeys; they now go out in cars only slightly more often than in the 1970s. Pre-recession declines in per-person travel were also recorded in France, Spain, Italy, Australia, New Zealand and Belgium.

Drive me to the junkyard in my Cadillac

Saturation of car ownership over time is one explanation. The current cohort of retirees—Toad from “American Graffiti”, having faked his death in Vietnam, is now 67—is the first in which most people drove. So more retired people drive now than ever before. In Britain 79% of people in their 60s hold licences, which is higher than the figure for the driving-age population as a whole; in America more than 90% of people aged 60-64 can drive, a larger share than for any other cohort. New generations of drivers will replace old ones rather than add to the total number.

Then there is a second trend. All over the rich world, young people are getting their licenses later than they used to—in America (see chart) and also in Britain, Canada, France, Norway, South Korea and Sweden. Even in Germany, car-culture-vulture of Europe, the share of young households without cars increased from 20% to 28% between 1998 and 2008. Unsurprisingly, this goes along with driving less. American youngsters with jobs drive less far and less often than before the recession. 16- to 34-year-olds in American households with incomes over $70,000 increased their public-transport use by 100% from 2001 to 2009, according to the Frontier Group, a think-tank.

Cost is one factor: fuel prices have risen for all; insurance premiums for the young have soared. Youth unemployment has not helped. But there is also the influence of a new kid on the block: the internet. A University of Michigan survey of 15 countries found that in areas where a lot of young people use the internet, fewer than normal have driving licences. A global survey of teen attitudes by TNS, a consultancy, found that young people increasingly view cars as appliances not aspirations, and say that social media give them the access to their world that would once have been associated with cars. KCR, a research firm, has found that in America far more 18- to 34-year-olds than any other age group say socialising online is a substitute for some car trips.

Young people move around more and settle down later; they would rather travel to far-off lands than cruise the strip downtown. Fleura Bardhi of Northeastern University interviewed users of car-sharing schemes, much more popular among the young than their elders, and likened the youngsters’ attitudes to cars to their attitude to dating: “People get to try out different cars, different lifestyles, different identities.” By contrast owning a car, they said, felt like being tied down—like a marriage.

In Arthur Miller’s 1949 play “Death of a Salesman”, Happy’s dream was a simple one: “My own apartment, a car, and plenty of women.” Subsequent generations of young men and, perhaps to a lesser extent, young women agreed. But things seem to be changing. The buzz, status and implicit sexuality of car ownership has been taken up, even displaced, by other products and lifestyles, and not

just among the young. Tom Worsley, formerly of Britain’s Department for Transport, says that, even for oldies, “It has become a bit passé to polish your car on a Sunday morning.”

Another technological change means that the car not polished on Sunday may not have been to the shops on Saturday, either. A sixth of Britain’s retail spending now takes place online, according to IMRG, a consultancy, and around a twentieth of America’s, according to the Department of Commerce; everywhere the trend is rising. In Britain trips to the shops have been the category of car use that has dropped off most steeply since 1995.

Shut down strangers and hot-rod angels

Older people retaining their licenses may swell the ranks of drivers for a while yet, but eventually young people postponing the use or purchase of cars could reduce them. The total number of people with cars may thus drop. And more people owning cars—rather than longer journeys—has been the prime driver of traffic growth in the past. If ownership stabilizes or declines, traffic may do so too.

Even without changing absolute numbers, however, age can still play a role in patterns of use. Though more older people drive than used to, per person they also tend to drive less. And so, if people keep getting their licences later, may everyone else. The later people pass their test, the less far they drive even once they can, according to Gordon Stokes of Oxford University. He says people in Britain who learn in their late 20s drive 30% less than those who learn a decade earlier.

Geography matters. In most rich countries car use has been stable or increasing in rural areas, where driving still offers freedom and convenience. It is in cities, especially their centres, that car ownership and use is declining. And city living is on the rise: the OECD, a rich-country think-tank, expects that by 2050, 86% of the rich world’s population will live in urban areas, up from 77% in 2010.

In America the share of metropolitan residents without a car has grown since the mid-1990s: 13% of people in cities of more than 3m people have no car while only 6% in rural areas live without one. In London car ownership has been falling since 1990, with a plateau from 1995 to 2005; the percentage of households without cars has been growing since 1992. In other British cities the proportion of carless households has been growing since 2005. Car use has fallen in many European cities.

There are various reasons for this. Public mass-transit systems are, in the main, faster and more reliable than they used to be, with increased capacity in many cities. This partly reflects increased investment, particularly in rail. For the past 15 years road and rail investment has been about 1% of GDP for OECD countries, but rail’s share of that has increased from 15% to 23%, says the International Transport Forum.

More recently, private alternatives to car ownership, notably car clubs, have been spreading across North America and northern Europe. By some estimates one rental car can take the place of 15 owned vehicles. Zipcar, which is the biggest international car-share scheme, has 700,000 members and over 9,000 vehicles. Buzzcar, a French company set up by the Zipcar founder, has 605,000 members sharing 9,000 cars.

Perhaps most basic, though, is that in terms of urban living the car has become a victim of its own success. In 1994 the physicist Cesare Marchetti argued that people budget an average travel time of around one hour getting to work; they are unwilling to spend more. For decades cars allowed this budget to go farther. But as suburbs grow and congestion increases most cities eventually hit a “sprawl wall” of too-long commutes beyond which they will not spread far. After that, it appears, a significant number of people start to move back towards the city centre. In America, where over 50% of the population lives in suburbs, more than half the nation’s 51 largest cities are seeing more growth in the core than outside it, according to William Frey at the Brookings Institution.

If car use has peaked, what are the implications? One is that vehicle-makers, which are already having a tough time, will not easily find new markets in the rich world. In America available cars already outnumber licensed drivers. “We are looking at replacement rather than growth in these countries,” says Yves van der Straaten of the OICA, an international trade body of car manufacturers.

Some niche and luxury brands are thriving and are likely to keep doing so. But manufacturers know that the developing world is the future—sales in China overtook those in America between 2010 and 2011 and rose by 2.6%; those in Indonesia, a younger market, jumped by 17%.

A more radical response from carmakers could be to say that if buyers are less interested in driving, then cars will require less driving from them. Driverless cars—robot-guided vehicles that leave their occupants free to text, work or sleep—could go on sale within the next decade, and might meet the mood of the moment. They could be safer and a lot less hassle. Flocking together through clever algorithms, they could cut congestion dramatically. They might further strain the already weakening link between driving and identity and the sense of driving as an expression of self and skill. But they could still be a highly profitable innovation.

Take the highway that’s the best

Even if they are not faced by an invasion of robo-taxis, governments may find that changes in driving habits force them to rethink infrastructure. Most forecasting models that governments employ assume that driving will continue to increase indefinitely. Urban planning, in particular, has for half a century focused on cars.

America built 64,000 kilometres (40,000 miles) of interstate highway to get the country moving after the second world war; since 1980 it has built more than 35,000 new lane-kilometres a year. If policymakers are confident that car use is waning they can focus on improving lives and infrastructure in areas already blighted by traffic rather than catering for future growth. That is already happening in London, where cars pay to enter the centre and ever more space is dedicated to buses and cycles. At Canary Wharf, a business district in east London, 100,000 jobs are supported by only 3,000 parking spaces.

By improving alternatives to driving, city authorities can try to lock in the benefits of declining car use. Cars take up more space per person than any other form of transport—one lane of a freeway can transport 2,500 people per hour by car, versus 5,000 in a bus and 50,000 in a train, reckon Peter Newman and Rob Salter of Curtin University in Australia.

Other assumptions may also need revising. Governments throughout the rich world rely on tax from fuel; across the EU, transport fuel taxes account for 1.4% of GDP, and the figure is a good bit higher in some countries. Revenues are already falling because of efficient cars. They could plummet further if car use keeps dropping.

Cities that bank on parking fees, fines and road tolls may have to find other ways to balance the books. Plans for attracting private investment in roads may need reconsidering. In March 2012 David Cameron, Britain’s prime minister, called for private investment in the road network to increase capacity. Such schemes may be viable—but not if based on a payment model that assumes ever-increasing use.

Environmentalists, though, should be cheering all the way to the scrapyard. The International Energy Agency in 2009 projected an average annual increase in global transport-energy demand of 1.6% between 2007 and 2030, though this represents a slowing from earlier growth. Past improvements in vehicle efficiency in America have often been negated by increases in the power and weight of cars, leaving fuel economy constant. Road transport accounts for around 23% of polluting carbon emissions in the OECD; an absolute decline in driving could help change that.

The possibility of reaching “peak car” is most evident in the rich world. But emerging-world cities may reach a similar state earlier in their development, reckons David Metz of University College London.

Where the streets have no name

Non-OECD countries have higher levels of vehicle ownership now than OECD countries did at similar income levels. This is because their transport infrastructure has developed faster than it did in richer countries, cars are cheaper in real terms and urbanisation is happening faster.

Since car use is growing so fast—and urban planning lags behind—cities in poorer countries could hit the “sprawl wall” sooner than those in the rich world did, reckons Mr Newman. Space is already at a premium in dense centres such as Jakarta, where the number of cars is growing ten times faster than the roads available for them to roll on.

Some municipalities in the developing world are already planning for less car use, notably by deploying urban rail systems. The Shanghai metro, mostly built since 2000, ferries 8m people a day and covers 80% of the city. Eighteen Indian cities and several Middle Eastern ones are designing urban rail networks.

Roads are far from empty. In many countries traffic levels have continued rising because population growth has compensated for declining distances driven per person. On many roads peak-time congestion will be a problem demography cannot defuse.

But after 50 years of car culture, culture may finally be changing the car. Gone is the nostalgia of “American Graffiti”. “Cosmopolis”, released in 2012, also features a cocky young man deeply involved with his car; but it is a near stationary limousine that constrains and isolates him far more than it enhances his possibilities. “I’m looking for more,” he protests during his endless journey across Manhattan. The world’s once and future car-owners are increasingly inclined to agree.

Exhibit 9 Excerpts from In-depth Interviews with Zipcar Users*

“I really don’t care [about the car]. I know that it’s a shared car. I get a little grossed out because people have smoked cigarettes in the car. There is nothing like owning my own car! I know that it’s not my own car. I know that it’s a communal car, and I know what I’m expecting which is why the cigarette smoke is ok. A communal car is shared and it’s not my car.” “I would try and find the cheapest car I could get. So, I would usually try and find either a hybrid since those are $7 an hour or one that had an advertising sticker on it.” “I always try to get the Prius because it’s the cheapest. I don’t care what kind of Zipcar I drive, as long as it gets me from point A to point B. You do feel a little bit better about the environmental factor, but mainly it’s because it’s $7 an hour versus $9.25 an hour. When it comes down to it, it’s just a matter of money. More people get Zipcar because it’s convenient than because they’re giving up their carbon footprint.” “I know that they have this perception, they try to create an atmosphere of it’s your car. I don’t really have any connection to it. Zipcars are sort of like hotel rooms: they’re clean, anonymous, and comfortable but not really cozy. It’s like a hotel room kind of experience, where you’re in some place that’s really not yours; you’re never going to be really comfortable. You’re not that worried about getting the seat perfect because you’re only driving it for one day. You don’t fiddle with the presets of the radio, they’re on stations I don’t like, or you don’t have your CD’s in the car. It’s not the same sort of cozy intimate feel you have with like your own car where you’ve developed a relationship to it. It’s a nice car, they’re great, they’re in good condition, they’re clean and everything, but, they’re sort of like a hotel room where you’re going to use it once.” “I’ll double park a Zipcar real quick if I’m just running into Starbuck’s or something. Which I wouldn’t want do with my car. Or, I’ll parallel a Zipcar in a tighter spot than I would with mine because it’s not mine. I’m just not worried about it. When I’m driving a Zipcar, it’s like any other service that you do. It’s convenient. Like if I’m in a restaurant, I don’t think I own the kitchen. If I’m in a Zipcar I don’t feel like I own the car, I’m just using the service.” “You can just beat the hell out of it; it’s not your car. Like, I don’t have to think about changing the oil; I don’t have to care whether or not the tires are flat. I don’t care about any of it; it’s not my car. And you know some magic car fairy will come and fix whatever is not right with it later. So if I destroy the suspension, so be it! Somebody will fix it. Not me.” “I’d say most of my experiences with Zipcar are really not very memorable. I don’t know there’s anything that you can really talk about that’s like oh my God, it’s the greatest experience driving. You know the relationship I have is, I need a vehicle I need to get from A to B, or I have a job. It’s very utilitarian, like using a wrench. I wouldn’t be like oh my God, this is the best wrench ever. It just does a job, it gets it done perfect, that’s what I need it to do. But, it doesn’t wow me or anything. It’s not like girls run up to me like oh my God, you’re a Zipcar owner, let me talk to you, you know.” “I felt a lot smarter than people who own cars in D.C., because I saw what they had to go through, like, a parking ticket’s a hundred dollars… Parking costs around 150 a month; gas was $4 a gallon. I saved so much money by not owning a car. I don’t think owning a car would bring me any more happiness.” “It was funny because I got to test drive a lot a different cars. Like, I would be surprised sometimes that I would like a car that seemed like it would suck, like a Honda Fit. But you’d get in it, and it’d be like, it’s actually a lovely car…” “… the best thing about Zipcar is that you can get any kind of car you want. So, if you’re helping someone move, you can get a pickup truck. If you feel like driving around, you can rent a little Mini

Cooper convertible… I can go to places I couldn’t get to on the T [subway], or if I was going to carry a lot of things…” “I: So what about if you’re inconvenienced by the car not being ready for you? R: Well, that was definitely something I was really disappointed in. They just, they let me take another car for the same price of the Prius, which I think was a more expensive car. It was just like well, there’s nothing we can do for you. That’s not how we operate. We operate based on people are responsible to return their car on time, and it’s not our fault that it’s not there. Well, how are you going to have that person whose fault it is compensate me? That doesn’t happen.” “I notice the gas level, because you get fined if you leave it underneath a quarter tank.” “I: Have you ever used the Zipcar card to fill your personal car’s gas tank? R: No… I know that they track it. I think that if you were to do it, potentially you would get caught, depending on how much is in there. ‘Cause they track it with the, you know, how much, how many miles it is. And you put in your own ID number. So they know when you’re taking it, when you’re putting gas in it.” “I always feverishly check to make sure I don’t lose anything when I deliver the car…”

“I found a GPS system in the car once and I just left it there.”

“People leave stuff in them all the time. I’ve got so many free umbrellas from Zipcar (laughs). It’s great!” “I forgot a pea coat of mine, which was a family heirloom. And I put a listing up on the Zipcar message board for that, and no one ever responded.” “… because Zipcar does such an extensive background check on you, like you have to fill out your information, driver license information and, I think in general, maybe the integrity is higher in the Zipcar community than average. Otherwise, there will be just people stealing cars with keys just locked in there, in visible sight of the window….” “I get emails from Zipcar and I just delete them. I don’t bother reading them. Why would I? It doesn’t change what I use Zipcar for.” “You see the people in the parking lot, but I don’t feel like an attachment to them as being another person using a service I’m using.” “The Beamer [BMW] has a small little thing that says Zipcar on the back of it. Most people won’t notice, but still a chance. And, then, the other cars have it like written on, the entire side of it says Zipcar. It makes you feel you’re really cheap when you’re driving around with those. I: Is that something that appeals to you about the beamer, the fact that it’s not plastered with Zipcar logos all over it? R: Yeah, definitely.” “I get a bit like a feeling of embarrassment a little, because they plaster the Zipcar stickers all over the car, and it’s like, that’s how they do their advertising, and I just… I feel a little bit embarrassed.” “Zipcar is trying to jump on the green bandwagon, being good for the environment. It’s more of a marketing ploy; anybody can say they’re ecofriendly. I mean, heck, Chevron has all these commercials about how they’re environmentally sound, and they’re the fricking problem.” “I’ll keep on using Zipcar until I get a real – my own car. Hopefully that’ll be sooner rather than later.” *Source: Bardhi, Fleura and Giana Eckhardt (2012) “Access Based Consumption: The Case of Car Sharing,” Journal of Consumer Research, 39 (4), 881 – 898