Zipcar ProjectAugust 9th, 2010

MGMT 780: Strategic Management

Table of Contents

I. Executive SummaryII. Company HistoryIII. Industry AnalysisIV. Competitive LandscapeV. Presence & ShareVI. Competitive Advantage & Strategic ThrustsVII. Corporate StrategiesVIII. Value ChainIX. Supply ChainX. Product Successes and FailuresXI. Financial HistoryXII. Current Financial PositionXIII. SWOTXIV. Recommendations

I. Executive Summary

Zipcar is the world’s leader in the modern Carsharing industry. Founded in 2000 with the

idea that a large population exists that finds car ownership too expensive, but would pay a per

hour fee to use a car when they needed to. Zipcar has taken this simple idea global and is now in

over 13 major domestic and international metropolitan markets and over 150 college campuses.

Zipcar’s growth can be attributed to their superior technology which allow people to reserve a car

on their computer or smartphone and access the car via RFID embedded member cards.

Even with all this success Zipcar faces many challenges. As they have established

dominance in the Carsharing market, mostly by stealing share from traditional car rental agencies,

and they are starting to respond. Hertz, Enterprise and U-Haul have all begun Carsharing services

as well these larger, more established and better funded corporations have begun to eat away at

Zipcars dominance. New technology has emerged to allow people to share rides and share their

own cars, cutting out the need for a supplier like Zipcar. These threats all come at a time when

Zipcar is on financially shaky ground as their debt has increased from acquisitions as well as

other macro forces including the global recession and swings in gas and currency exchange rates

pushing them to prepare for an upcoming IPO in an effort to raise $75M to pay off some of their

debt as well as to finance expansion.

This report looks to explore the Carsharing industry as a whole, and Zipcar’s ability to

navigate it successfully, we will examine Zipcar’s strengths and weaknesses as well as to

determine their opportunities and threats. This is a very exciting time in Zipcar’s history because

as the industry leader it is up to them to prove that Carsharing is an viable, profitable model that

investors will get their returns and the consumers will support them.

II. Company History

Zipcar was founded in 2000 based on the premise that there existed a market in large,

densely populated urban areas, with high parking costs, and strong public transportations systems

for “wheels when you want them.”Error: Reference source not found Over the course of the last

decade, Zipcar has endeavored to provide affordable and convenient car sharing services to

individuals interested in this ageless concept. Initially, introduced in Boston, MA, Washington,

D.C., and New York City, NY, the company has now expanded to thirteen major domestic and

international metropolitan markets and over 150 college campuses. By carefully selecting the

proper markets and strategically aligning themselves with local governments, universities and

commercial operations, Zipcar has begun to disrupt an old transportation industry.

The company was founded in January of 2000 in Cambridge, Massachusetts with Robin

Chase, one of the co-founders, as the CEO. Chase’s other co-founder was her husband, Roy

Russell, who served as the VP of technologyError: Reference source not found. Zipcar was

founded on the idea that there were large numbers of people who needed a car on specific

occasions, but not frequently enough that ownership was truly a financially sound decision.

However, with the alternative being rental agencies, many of those people felt they had no choice

other than ownership. Zipcar hoped that by providing cars, trucks, and SUVs on demand they

would be able to service this population, while at the same time benefitting the entire populous

with a smaller carbon footprint, less cars vying for parking spaces, and less traffic. Car sharing is

not a new idea; in fact it was first attempted in 1948 by a housing cooperative in Zurich,

Switzerland. The idea floated around over the next couple of decades without ever truly gaining a

foothold. In the 1990’s, companies began to form in Europe and America that aimed to provide

car sharing services to their immediate areas, but none were able to create a sustainable business

with the level of success that Zipcar has achieved.

In January of 2000, a scant 20 months after inception, they were ready to expand from the

Boston, MA market to new markets. They began moving into Washington, D.C., followed closely

by New York City in February of 2002. Boston quickly became a profitable market by 2003, but

it took longer for NYC and Washington to become profitable. In February of 2003, the investors

decided that the company needed a new leadership team and chose Scott Griffith to succeed

Chase as CEO. At the same time, the investors raised an additional $5M to help with the growing

operations. Griffith has served as CEO since that time and has been largely credited for the

direction Zipcar has taken, as well as their success. There was a brief lull in expansion activity

while the company rallied to make DC and NYC profitable, but given time they continued to

expand. In August of 2005, the company opened up their San Francisco, CA office on the heels

of raising an additional $10M in funds from Benchmark Capital in July.

Over the last couple years, Zipcar has taken to expanding not only by opening new

markets, but also by acquiring other companies. In October of 2007, Zipcar merged with a now-

defunct company named Flexcar. At the time, Zipcar had a fleet of 3,500 vehicles in 35 markets,

and Flexcar had 1,500 cars in 15 markets. The companies agreed to retain the Zipcar brand for its

value exceed the brand equity of Flexcar. Flexcar’s CEO remained an employee of Zipcar as the

president and COO. At which time Zipcar wanted to expand into Europe, but rather than pursuing

organic growth opportunities, again they decided to look outside. In December of 2009, Zipcar

purchased a minority share in a company named Avancar, who had car sharing operations in

Spain. In April of 2010, they acquired Streetcar in order to establish a foothold in London and

continue their expansion into Europe.

When starting out in Boston, the original plan for the Zipcar fleet was to maintain small

vehicles ideal for city driving and living. However, as the company began expanding, they

expanded the options for their customers. Quickly realizing that there was a demand for larger

vehicles they started incorporating SUVs and trucks into their fleet. While the original intention

was to provide more basic types of vehicles such as the Totyota Prius with minimal carbon

output, Zipcar has expanded their fleet over time to provide their customers with luxury optionsl.

The fleet now contains vehicles from premium auto makers such as Audi and BMW. While the

company remains committed to providing alternative energy options for their customers, they

have in recent months begun to remove the majority of the Toyota fleet, due to recent

manufacturing issues with Toyota.Error: Reference source not found In addition to automobiles,

Zipcar has developed other vendor relationships.

In 2006, Zipcar entered into a strategic partnership with Cingular Wireless (now AT&T)

to provide mobile connectivity for their fleet. By creating this partnership, it further enabled the

convenience, which Zipcar’s customers had come to expect. The customized technology platform

that Zipcar developed with AT&T incorporates RFID technology, which allows Zipcar’s servers

to communicate with individual cars, allowing for security and reservation controls. When the

reservation holder shows up with their Zipcard, they are able to use the RFID technology to open

the car and begin driving. Without the embedded technology in each car, Zipcar would struggle to

provide the speed and ease of use that their customers enjoy today.

III. Industry Analysis - Overview

Car sharing, as a common practice, has evolved exponentially over the last 15 years.

Starting in concept in Europe in the mid 1940’s, car sharing made its way to the United States in

1994 and has evolved into a common form of transportation for the average American urbanite,

college student, and working professional in order to meet the mobility gaps between public

transit, taxi, bike, car rental, and private vehicle travel. Car sharing provides its members with the

benefits of private cars without the costs and responsibilities of ownership.1 The principle of car

sharing is simple: Individuals gain the benefits of private vehicle use without the costs and

responsibilities of ownership. Instead of owning one or more vehicles, a household or business

accesses a fleet of shared-use autos on an as-needed basis. Individuals gain access to vehicles by

1 Frost and Sullivan, http://www.frost.com/prod/servlet/market-insight-top.pag?Src=RSS&docid=190795176

joining an organization that maintains a fleet of cars and light trucks in a network of locations.

Generally, participants pay a fee each time they use a vehicle.2

Car sharing has several fundamental principles that are common goals amongst providing

organizations, which include: reduction of vehicle ownership and traffic congestion in the world;

proving cost savings, as users only pay for their use of the vehicle lease, maintenance, repair and

insurance; reducing emissions by lowering overall vehicle miles traveled and employing clean

fuel vehicles (e.g., hybrid cars); facilitating more efficient land use (e.g., car sharing reduces the

number of parking spaces needed); and increasing mobility options (e.g., low-income market

segment) and connectivity among transportation modes. Error: Reference source not found

Industry Analysis – Business Structure

Organizations that provide car sharing are structured in one of two ways, non-profit or

for-profit entities. In the 15 years since car sharing has become emerged as an industry’, far more

car sharing providers have formed as non-profits, roughly 70% as of 2005. The decision to set up

the company as a for-profit or non-profit relates to the founders personal beliefs and motivation.

Despite the presence of more non-profits, for-profits companies generally control 80% or more of

the total car sharing fleet and over 90% of car sharing members. A for-profit company may be

more akin to satisfy a founder if the motivation for start up was financial. Without question, a

successful for-profit has the potential to be far more lucrative then a non-profit. This can be

achieved through the raising of funds through venture capital rounds and ultimately an IPO. A

non-profit, however, can be the recipient of a substantial amount of goodwill from the local

political government and community at large.Error: Reference source not found Meaning, a local

city government, local businesses, and also potential members, are more likely to embrace the

concept and offer partnerships, time, and money to assist a non-profit. In the case of car sharing,

2 Unversity of California, Berkley, http://www.car sharing.net/library/UCD-ITS-RR-05-30.pdf

this is extremely valuable as entities may be willing to commit parking spaces, a business

membership commitment, and or donations. This concept adds to the allure of the founders when

determining how to structure the company.

Through the large part of the car sharing existence, the players have all been starts ups,

however within the last few years large established, for-profit, companies have joined the game,

adding to the competitive landscape of the industry.

Industry Analysis – Growth Sectors

In the 15 years that car sharing has been an industry in the United States, growth has gone

from a primitive subculture to a growing business sector. The industry has ballooned to over

300,000 members, experiencing a 117% increase between 2007 and 2009. Industry experts

expect this growth to continue, predicting over 4.4 million members by 2016. According to the

same Frost and Sullivan report,Error: Reference source not found the below table demonstrates

the explosive growth of both car sharing members and shared vehicles in North America and

Europe, through 2016, demonstrating the market potential.

Car sharing customers can be broken up into several user classes, allowing for growth

models to be differentiated for each class. The user groups include urban dwellers, urban

businesses, city governments, college campuses, and lastly partnerships with large corporations.

These can be defined in more detail as follows. Urban dwellers are people who live in an urban

environment who either do not have a vehicle or have gotten rid of one. The concept of car

sharing has affected this market potentially the greatest and given carless city residents the

freedom they have historically lacked for a reasonable price. Urban business car sharing has

given many organizations that have car allowances for employees or have a fleet of cars for

employees a good reason to eliminate these vehicles (or the allowance). This can often translate

to real monetary savings. The best example of this is Philadelphia, the first major city to partner

with a car sharing organization in 2004.3 College campuses, a major car sharing growth market

for the inherent reasons that college students typically lack the resources to own a car however

still experience a need to drive (i.e. grocery shopping, etc). College campuses and car sharing

organizations are truly helping each other by providing an amenity that colleges can promote to

eliminate student isolation concerns. Lastly, car sharing organizations have begun to partner with

large corporations for transportation needs. For example, IKEA has partnered with Zipcar to

assist customers in transporting large items from the store. Having pickup trucks located outside

the store allows customers the flexibility to purchase an item and utilize the larger vehicle to

bring the item home. It is these sectors that car sharing organizations are continuing to grow,

paving the way for the continued growth of the industry.

IV. Competitive Landscape

While car sharing is relatively young and only recognized as an industry in the early 90’s,

the space has become surprisingly competitive for ZipCar. The competition for a users need for

temporary mobility not only comes from other car sharing services, but from traditional car rental

agencies that have lost share to ZipCar and other car sharing services, but also bike sharing, ride-

sharing and peer-to-peer car sharing

The competitive landscape within the car sharing industry is surprisingly diverse. Five

business models have emerged: for-profit, nonprofit, cooperative (owned by its members), public

3 Foundation Center. Form 990 filings.

transit (car sharing operated by a public transit agency), and university research programs

(operations run by universities for research purposes, then shut down). Of these five, only two

models are real threats to ZipCar, For-Profit and Non-Profit. Public Transit Operations often

contact out the service and ZipCar can bid. By 2005, the market share of U.S. for-profit operators

(five of 17) increased to 90% of members and 83% of the total fleet (8). As of July 1, 2008,

26.3% of the operators were for-profit (five of 19) in the United States; they account for 74.1%

and 83% of the members and vehicles, respectively. 4

For-Profit Car sharing

The big three for-profit competitors all hail from the traditional car-rental space, the

space where ZipCar has clearly stolen most of its market share from. Hertz, Enterprise and U-

Haul have all started hourly car sharing business units as a direct result of the popularity of

ZipCar.

Connect by Hertz

Connect by Hertz focuses on partnerships with Universities and colleges, they have also

moved to directly compete in cities where ZipCar is, with over 400 cars just in Manhattan as well

as 4 cars in Boston (ZipCar’s hometown) as well as a few in Chicago and San Francisco. They

have also set up shop in the UK, Canada, Spain, Germany and France. Connect is principally

focused making partnerships with University and Corporate Campuses, their foray into some of

ZipCar’s established locations is clearly an aggressive move. With a well established car rental

network, Hertz already has the infrastructure to expand its market offerings, making it a

competitive threat.

WeCar by Enterprise

4 [North American Car sharing 10-Year Retrospective http://76.12.4.249/artman2/uploads/1/Shaheen_-_Cohen_-_Chung_-_North_American_Car sharing_-_10_Year_Retrospective_-_2009.pdf]

WeCar has not moved as aggressively as Connect by Hertz as they do not want to

cannibalize their extensive network of neighborhood rental locations. Their focus is mainly on

university and business contracts.

U Car Share by U-Haul

U Car Share is in about 12 locations, ¾ of which are directly tied to universities. They

have some cars available to the general public in Portland Oregon and Salt Lake City Utah, but

these are merely toe-holds and they are not investing much in marketing this system.

Non-Profit Car Sharing

This space is city-specific and fairly fractured, only a few Non-Profits actually compete with

Zipcar, and even then the Non-Profits are fairly unstable, have a very small fleet, change their

prices and level of service often and may not succeed in the long term as for-profit companies

move into their cities with investment capital and take away share. Here are a few that are in the

same cities as Zipcar.

Philly Carshare, Austin Carshare, Chicago’s I-Go Car sharing are the three largest non-

profit car sharing organizations. With no real investment capital and encroaching well-funded

competitors, the non-profits are really feeling a pinch. The non-profits often start in cities which

have no car sharing at all and establish the market but never can withhold their first mover

advantage. Philly Carshare lost a major account with the City of Philadelphia once Zipcar moved

into town and underbid them. While Zipcar can move into a city with an already established and

centralized back-office operations, each non-profit has to reinvent the wheel adding to their costs.

Austin Carshare is already struggling and is considering moving to a cooperative model.

Cooperative Car Sharing

Cooperative car sharing is mostly found in Canada, as well as within small tight-knit

communities, such as the Dancing Rabbit Vehicle Co-op, which is an extension of the Dancing

Rabbit Ecovillage, with 25 members and 2 vegetable-oil powered cars. Co-op members buy

shares of the car and share the cars; these are not real threats to Zipcar.

Substitutes to Car Sharing

As technology allows for car sharing to exist, technological progress has increased the

mobility options of potential Zipcar customers. Common substitutes to car sharing also include

car ownership, public transportation, as well as privately operated buses and trains.

Peer-To-Peer Car Sharing

Start-up Relay Rides allows your car to be a car sharing vehicle. They install the hardware into

your own car, you set the schedule of when your car is available for rent and Relay Rides takes a

small fee and holds a separate insurance policy for the borrowers. Car Owners and Car Borrowers

rate each other on timeliness and cleanliness in order to pressure the users to keep the car in good

working condition and the Car Owners can earn a nice sum.

Carpooling Matching Services

Zebigo, WhipCar, GetaRound, Spride Share are all companies that allow people to make

their own car available for ridesharing. They match people who need rides with people to who

would like to share the cost of driving to a certain location. They manage the payments and help

to connect the drivers and riders. There are also Facebook apps that do similar things.

Bike Sharing

While not a complete substitute, bike sharing may be able to take a small bite out of the

car sharing market, especially for tourists who want an easy way to get around a city, or when

public transportation isn’t a good fit. Bcycle with operations in Denver and Chicago and Bixi,

which sells systems to cities, mostly in Canada but has a presence in Minneapolis. Washington

DC Department of Transportation has their own system as well.

V. Market Presence and Share

The overall market for car sharing services is still being defined as the market has yet to

reach maturity. Projections, as noted above in the ‘Industry Analysis’ section estimate of 4.4

million members in North America and 5.5 million in Europe by 2016. In a study completed by

the Economist Intelligence Unit, “Global Auto Sharing” and commissioned in 2009 by Zipcar,

the potential market for car sharing worldwide may reach 37 million customers and yield $10

billion a year in revenue. The report didn’t specify a timeframe.

Chart 1: Car sharing in North America: market growth, current developments, and future

potential, Transportation Research Board November 15, 2005

There are few companies in the car sharing space, and because of that, “We’re not even

close to market saturation,” says Long of Connect by Hertz. “Only 10 percent of the U.S.

population knows what car sharing is. If you take that figure, you could imagine that this could be

a $1 billion industry in the U.S. alone.” 5

Car sharing growth potential in major metropolitan regions is estimated at 10% of

individuals over the age of 21 in North America. In the next five years, the car sharing industry

will likely direct greater attention towards business markets in the U.S. and Canada (potentially

representing as much as 22 and 15% market share, respectively). Fleet reduction strategies may

accelerate government and business market penetration. U.S. operators will likely increase their

presence in the college market (potentially representing 23% of U.S. market share), particularly

among the younger student population, provided that the insurance impasse for drivers under 21

can be alleviated. Increased technological deployment, such as satellite radio and on-board

concierge services (e.g., OnStar), may likely denote increasing competition among some car

sharing operators.6

“I don’t think growth is an issue of consumer demand, but an issue of supply—parking

supply,” says (Susan) Shaheen. “Access to dedicated, on-street parking and safe, public off-street

parking are critical. A dense network of cars is crucial. Where the car is parked has a lot to do

with how much people know about car sharing.”Error: Reference source not found

Due to lack of consumer education, as well as lack of car sharing vehicles in place much

of the market remains untapped and at this point there is almost a bottomless well of demand.

This can be shown in the ratio of members to vehicles. It is generally accepted in the Car sharing

industry that a profitable ratio of members to vehicles is 45 to one, according research conducted

by Transportation Sustainability Research Center, UC Berkeley. Ratios of 50-60 members per car

produce overbooking issues. While the large membership of the five biggest programs, the

overall average U.S. ratio was 64:1.Error: Reference source not found Current ratios show that

5 (How to Run a Successful Car sharing Operation By Chris Brown, September/October 2009 in Fleet Acquisition http://www.autorentalnews.com/Article/Story/2009/09/How-to-Run-a-Successful-Car sharing-Operation/Page/2.aspx)6 Car sharing in North America Market Growth, Current Developments, and Future Potential, Transportation Sustainability Research Center, UC Berkeley, Nov 15, 2005

there is room for more cars on the street and that car sharing services can make a great deal of

money off members who pay annual fees but rarely use the service, much like gym memberships.

The car sharing market by nature is broken up city-by-city, in order for a city to have a

sustaining demand for car sharing there are four key elements:

1) Parking pressures. Car ownership is more expensive and less convenient in places where

parking is scarce, making car sharing a relatively more attractive option. If residents have to walk

a block or two to their car, they may as well walk the same distance to a car-sharing location.

2) Ability to live without a car. Car sharing is not designed to meet a household’s entire

mobility needs, but to work in concert with other modes such as transit. The availability of good

public transportation is therefore key, along with local shopping opportunities and a pedestrian

and bicycle network.

3) High density. Density has two major impacts on the viability of car sharing. Firstly, it means

that there is a larger customer base within walking distance of each car-sharing vehicle; doubling

the density will double the number of potential customers for a given vehicle. Secondly, it means

that these potential customers will have a higher propensity to join, since dense neighborhoods

have lower rates of vehicle ownership and travel. This is partly due to the effects of density itself,

since the higher the density, the greater the number of nearby destinations and the shorter the

trips; and partly because density correlates strongly with other factors, such as the availability of

local shopping, parking costs and the pedestrian environment.

4) Mix of uses. Business members have been shown to have an important role in increasing

utilization rates and evening out the demand cycle, since they tend to use the cars during the

working day. In contrast, people using car sharing for personal trips have a peak demand in the

evenings and at weekends. The potential for this pairing of user groups with different demand

patterns is greatest in mixed-use neighborhoods, where car sharing can attract both business and

individual members.7

7 Car-Sharing: Where and Why it Succeeds, TRANSIT COOPERATIVE RESEARCH PROGRAM

Zipcar’s Market Presence and Share

Zipcar is in over 50 cities and over 100 University and College campuses in North

America, and London, England, claiming to have over 400,000 members and over 7,000 cars. As

the Frost & Sullivan Report’s graph above shows, in 2009 there was about 500,000 US Car

sharing members and they predict about 1,000,000 US car sharing members in 2012, as of now,

Zipcar already claims 40% of the 2012 market, it safe to estimate that as of the writing of this

report Zipcar has captured upwards of 90% of all Car sharing users. Due to the massive upfront

costs of positioning 7,000 cars across the country, no new entrants have truly become

competitive. But this doesn’t tell the whole story, as Car sharing is competitive only on a city-by-

city level. As of now no market is saturated, and no second player exists to truly take away

market share.

Zipcar’s numbers show a healthy ratio of cars to members at about 50:1. In most of these

locations they are the only players. Currently only a handful of cities have multiple Car sharing

operators, these are New York City, Philadelphia, Washington DC, Boston, San Francisco,

Hoboken, and St.Paul, and of these Zipcar only faces a slight competitive threat in New York

City and San Francisco. In most cities that have two Car sharing services, one is almost always

Zipcar and the other is more often than not a Non-profit service. These non-profits are good for

Zipcar as they raise the awareness of Car sharing as a whole, but often Zipcar is able to siphon off

the Non-profits users via superior service and lower costs. As mentioned earlier, Hertz placed just

four cars in Boston not in an effort to steal share but more to show off its muscle. Zipcar has

never been shut out of a city, in fact the only reason Zipcar isn’t bigger is the cost of the cars and

placing them in locations that the user wants.

VI: Competitive Advantages

As previously stated in this paper the use of technology in Zipcar’s operations is one of

the largest competitive advantages the organization has and is likely the most critical factor to the

company’s success. As stated by Computer World in 2006, “Zipcar has made reserving,

accessing and using a Zipcar as simple as getting cash from an ATM. Now members… have

automated access to Zipcars using a “Zipcard” to simply unlock the door and drive away.” And in

2010 the technology has continued to expand, making it even easier for consumers to reserve cars

in addition to Zipcar monitoring their own fleets.

Since 2006, Zipcar’s continual application development strategy lead by CEO Scott

Griffith has continued to push forward. There is little to no human interaction when working with

Zipcar, the company is a technology based organization. Today, a remote device within the car is

sent a signal through AT&T’s Data Network when customers make a reservation. This provides

instantaneous feedback to the consumer providing model availability and location pickup as well

as providing monitoring feedback to the main office. Zipcar can remotely monitor the odometer,

the car’s health including engine ware and tear, battery lifetime and fuel levels. The system is so

smart that if a consumer forgets to turn off the headlamps, the main office is notified so

maintenance can be dispatched.

A new application on the consumer side includes Smartphone technology. Time

Magazine called this one of the Best Travel Gadgets of 2009. The article reads “The Zipcar

iPhone app amplifies the quickness and ease of the process... with clever capabilities like remote

locking and unlocking and honking your car's horn from your phone when you inevitably forget

what it looks like in a crowded lot.” We agree that Smartphone technology is a strong

development in keeping this strategy aligned. However, Hertz and Enterprise are beginning to

take some cookies from the jar as both companies begin to develop and acquire their own

technology keeping Zipcar on their toes.

An article put out by Market Wire last year reports, that “Hertz Global Holdings, Inc.

announced it has acquired Eileo S.A., the Paris-based leader in the design and deployment of

best-in-class car sharing technology. Eileo's end-to-end solutions are utilized by Connect by

Hertz, currently operating in London, New York City and Paris.” Elieo’s front end solutions

include member registration, car reservations, car access and payment applications. The backend

provides Hertz management with “alert and report functions, and remote vehicle monitoring. A

unique, patented vehicle immobilizer function ensures the safety of each Company's car sharing

fleet.”

Points of Interest

• IT has provided Zipcar with the ability to remotely monitor their vehicles.

• Creating a system based on technology has minimized Zipcar’s overhead.

• Utilizing a nation wide data network has created an environment for easy expansion

into new markets.

• Onboard power regulating monitoring systems relieve battery drain concerns.

Strategic Thrusts

Ultimately the strategic thrusts born by Scott Griffith are to enhance the bottom line for

investors by way of system development, acquisition and multi market expansion/domination.

This concept of opening up new hubs is quite simple considering the information systems are

already developed and AT&T’s network is already setup. It’s a matter of acquiring new assets

(cars and parking spaces) and continuing to develop savvy partnerships, which include

organizations that use fleet services, landing on college campuses and partnering with

government organizations. Through our research we find that the CEO’s statements are very

consistent with one another however as a consumer the way we perceive this brand is that Zipcar

is selling comfort, an economical means to car sharing and green living. Restated by Computer

World Honors, “by using modern and innovative technology, making its service easy and

convenient as well as promoting it’s environmental and money-saving benefits, Zipcar has

positioned itself as the largest service of its kind.”

From the Boston Business Journal, Lisa Van Der Pool writes, “In terms of revenue,

Zipcar has grown to more than $60 million from $2 million; membership has jumped to 105,000

from 5,000; and Zipcar's fleet of cars has swelled to 3,200. The company is in more than 14

cities, including Boston, New York, Washington, D.C., Chicago and San Francisco, as well as

Vancouver, Toronto and London -- up from just two when Griffith arrived at the company.” Lisa

continues to discuss Scott Griffith’s plan to expand globally in one city each quarter to surpass

the $100 million revenue mark in addition to adding more college campuses to his group which

includes more than 30 at its current state.

A government agency rep comments on how Zipcar has helped his goals, “Car sharing

meets many of DDOT’s goals: it reduces traffic congestion, air pollution and demand for parking,

while meeting the increasing demand for alternative forms of transportation,” Dan Tangherlini,

Director of the Department of Transportation, Washington DC.

To sum up Scott Grififth’s Thrust for the future of Zipcar we look at a recent clip from

CNBC, where Scott discusses Zipcar on Squawk Box. He states, “We’re going to sell you a car,

insurance and gas one hour at a time and its going to be parked in your neighborhood, what’s

better than that?”

VII: Corporate Strategies

Scott and his managers have found that an open forum for business development makes

the most sense for Zipcar. They find that being open to both the consumer side and internal side

allows their business to more successful. They have a culture that encourages Kaizans a Japanese

term we use when working in the Six Sigma space.

From a recent interview with Peter Merholz of Adaptive Path, Scott Griffith remarks,

“We’re constantly trying to refine and improve that map, we think about that whole experience as

they use the cars for the first time or review their online billing for the first time… One thing that

we’ve done is really started to employ what Toyota calls their kaizen techniques. Anyone in the

company can raise their hand and say, “I see an inefficient process,” or “I see a user experience

issue,” and if we call a meeting and really review how we’re doing it now and review how we can

improve it, that through better systems, better processes, or some unique application of the

technology we’re not using yet, we could really change either the consistency of the delivery of

our service, our member experience, or improve it overall.”

Zipcar’s management has attentively listened to community members, making the entire

process of car sharing a relaxed one through the use of new technology and social networks. By

maintaining a stronghold in these conscious consumer markets it appears Zipcar believes they can

be successful. CEO, Griffith says, “Our users tell us what they want, and we try to listen and

provide it. Zipcar is uniquely a self-service business. What we’re trying to do is give you a very

conveniently located automobile that doesn’t require human interaction.”

Griffith continues to discuss internet and technology companies that rely more on clicks

that it does on human interaction, drawing parellels to ING Direct and Amazon.com to Zipcar

eliminating unnecessary overhead and bick and morter storefronts.

VIII. Zipcar’s Value Chain

Zipcar’s car sharing services provide value to the consumer, the communities that they

serve, and the environment in numerous ways. By sharing the costs of car ownership, Zipcar

estimates that its service has taken more than 20,000 vehicles off the streets, reducing traffic and

parking concerns in the cities it operates8.

The flexibility and convenience of Zipcar leads many of its members to sell existing cars

that they own and forego future care ownership. The company notes that on average member’s

8 ZipCar: Case Study, The Computer World Honors Program, Cambridge, Mass. 2006.

report saving $435 each month by having reduced their car ownership expenses, not to mention

the health benefits they experience by increased walking and biking.

Zipcar’s fleet contains mostly newer fuel-efficient and hybrid cars helping to reduce

green house emissions going into the atmosphere. As of 2009, Zipcar had 6,000 vehicles on the

road being share among 275,000 drivers.9 That is a ratio of 45 people to ever 1 car.

When you examine the firm’s value chain using Michael Porter’s model, it is clear that

value is added in all of the primary activities of the firm.

Inbound Logistics (Suppliers)

9 Wikipedia, http://en.wikipedia.org/wiki/Zipcar - cite_note-Economist0609-1i? Science News, http://blog.taragana.com/science/2010/02/09/zipcar-pulls-2010-prius-hybrids-affected-by-recall-less-than-1-percent-of-fleet-5728/ iv The Street, http://finance.yahoo.com/news/Zipcar-Rebounds-From-Toyota-tsmf-1259811315.html?x=0&.v=6 vii Philly car share, www.phillycarshare.org/vision/history viii Foundation Center. Form 990 filings. http://tfcny.fdncenter.org/990_pdf_archive/320/320025505/320025505_200712_990.pdfix Securities Exchange Commission. Hertz 10-K submission. http://www.sec.gov/Archives/edgar/data/47129/000104746910001717/a2196932z10-k.htmx Securities Exchange Commission. Zipcar S-1 submission. http://www.sec.gov/Archives/edgar/data/1131457/000119312510160406/ds1a.htmxi Connect By Hertz. Rate plans. https://www.connectbyhertz.com/signup/

Zipcar sources fuel efficient, hybrid, and low emissions vehicles for its fleet. By maintaining a

6,000 car fleet, with a limited number of car manufacturers, they are able to negotiate pricing and

service packages. Zipcar’s preference for environmentally friendly cars adds value to the

company’s image, its customers, and the environment.

Operations

Zipcar’s operational model, built on the technology platform that they developed with Cingular

Wireless gives them a superior platform to leverage for car reservations and asset location

management, as well as vehicle diagnostics. The early investment to build this custom platform to

support their unique business model has proven to be a competitive advantage for them. The

ability to monitor car systems like fuel levels and maintenance needs from a remote (central)

location allows them to lower in-market staffing expenses, a key to profitability and expansion.

The use of technology in operations is probably their largest competitive advantage, and is one of

the most critical factors to Zipcar’s success.

Outbound Logistics

Zipcar’s deployment of its fleet and the convenient locations of it’s cars make the outbound

logistics of their business a competitive advantage against their local market competitors.

Dedicated Zipcar parking spaces are secured throughout cities, and also in popular retail

locations, making the pick-up of a Zipcar easy.

Sales and Marketing

Zipcar believes that car sharing should be fun and exciting, and aims to offer a unique fleet of the

“coolest” and newest cars on the market. They have more than 20 makes and models of cars such

as MINI coopers, scions, Hybrid Toyota Priuses and BMWs—cars that people want to drive, but

may not be able to afford or want to own and maintain. Zipcar also provides its members with

several “perks” that differentiate them from competition. For example, every Zipcar comes

equipped with free XM satellite radio, local market competition and traditional car rental

companies rarely offer this benefit for free. As well, Zipcar has developed partnership incentives

like discounts at ski resorts, discounted tickets to local events, and parking partnerships with

retailers like Ikea and Whole Foods to encourage membership, trial and adoption.

Service

One of the primary service issues that is encountered when car sharing, is how to deal with lost

and found items in a car. Zipcar knew that it would be a nightmare for them to take responsibility

for coordinating the exchange and return of lost items. Instead of running a big lost and found

service by retrieving the items from the cars, then figuring out how to redistribute them to the

members, Zipcar created a self-service system. Members who find a lost item are encouraged to

leave it in the vehicle and report it online. Members who lose something are also encouraged to

visit the online “lost and found” and check to see if anyone reported it found. You are only able

to see lost and found items reported in cars you recently reserved. If the item you lost is reported,

and a match is made, you simply reserve that car again and reclaim your item.

In addition to customer service for lost and found items, Zipcar take service and

reliability of its car availability very seriously. They know that if cars aren’t easily accessible,

available on short notice, and clean and well maintained, then repeat usage and membership will

not increase. To ensure that a superior customer experience, Zipcar deploys a staff of local market

employees that have responsibility for moving cars within the market to meet demand. They also

maintain and clean the cars within the market, based on data received at the central data center.

IX. Supply Chain

Car sharing, beyond addressing a need for several primary classes of customers, is

essentially bundling the temporary use of a vehicle and insurance, supported by technology to

allow the experience from reservation through payment to be seamless. From that perspective,

the elements of the supply chain and how users are able to efficiently utilize the service are easily

defined.

Car sharing fleets are managed in one of two ways, as typical with a consumer car buying

experience – leasing or purchasing. Car sharing entities are able to make these decisions based on

mileage, cost and trade value. Buying / leasing in volume present potential significant purchasing

power which is often considered when budgeting for growth periods.

Insurance is notably one of the largest expenses for annual operating expenses for car

sharing entities, estimated to be $2500 per year, per vehicle. Due to the large expense, car sharing

companies are continuously looking for ways to reduce the expense through three fundamental

strategies. First, like any car owning consumer, lowering deductibles and lowering limits that the

insurance company has to cover are analyzed when determining your risk versus out of pocket

annual reduction in payments. Another way car sharing entities can reduce the annual expense is

self insurance. As of 2005, self insuring the fleet was a growing trend among car sharing

organizations. Lastly, car sharing affinity groups have been emerging as a means to pool

organizations together to form higher fleet totals, thus reducing the per vehicle expense.Error:

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Another key aspect of the supply chain function of car sharing organizations is

technology. Successfully managing a fleet of vehicles, billing systems, entering and exiting

vehicles for numerous customers per day, among the many other inherent challenges these

organizations face is carefully managed through state of the art technology systems. A solid

technology platform can either be the key component to success for a company or the key reason

for failure, therefore its importance is paramount. As of 2010, it is clear that organizations with

top platforms have made the user experience a more enjoyable one and are reaping the benefits of

expansion.

X. Product Successes & Failures:

When discussing Zipcar’s products there are two aspects you must consider; their true

product, which is a service, and what their customer views as the product, which includes the

vehicle they are reserving.

Zipcar’s fleet is continually praised for how well it is maintained, how clean the vehicles

are, and how easy it is to reserve and access vehicles. For all intents and purposes, their product

has been a resounding success. Very rarely are there malfunctions with the reservation system,

and when there are they can be easily remedied because of the level of remote access that the

company has set up. The RFID Zipcar functions very efficiently in terms of facilitating

reservations, and also for the purchasing of gas. Their cars are mechanically maintained well and

little to no complaints can be found regarding broken down vehicles, which is impressive

considering that they maintain a fleet of over 5,000 vehicles in non-centralized locations. A less

often considered aspect of their product is the fact that Zipcar also provides insurance to their

customers when they are operating one of their vehicles. It operates in the standard way of

insurance, with the customer responsible for an initial deductible, and Zipcar paying for the

damages beyond that.

The fleet of cars, while not technically Zipcar’s product, has to be considered here

because the average consumer still identifies the vehicle they reserve with Zipcar itself. Their

fleet is diverse enough that all customers can reserve the type of car that they want and typically

do not have to go far to get to their specific vehicle. Occasionally, with vehicles that are not as

common in the fleet, such as the luxury vehicles, customers may have to travel further to get their

vehicle. Despite the fact that their fleet, at one time, had a considerable number of Toyota

vehicles, Zipcar was able to completely avoid the negative public relations backlash that has hit

the Toyota brand throughout the course of 2010. They removed 2009 and 2010 Toyota Prius in

February of 2010, per the Toyota recall iii and repaired all of their Toyota Matrix iv in early 2010,

which combined comprised 6% of their fleet.

XI. Financial History

Financing

Little information is available for review from the inception of the company, but in July,

2005, Zipcar was able to establish a $10 million line of credit with Benchmark Capital. Zipcar

used these funds to lease more vehicles and open additional offices in San Francisco and Toronto.

In May 2006, another line of credit was established with GE Capital for an additional $20

million. These funds were again used for more vehicles and expansion into the London and

Vancouver markets.

M&A

Zipcar is the largest car sharing company in the world, and has merged or acquired other

smaller companies. The first company to be acquired was Flexcar in November of 2007. This

merger used a stock for stock trade that was tax exempt. The total number of Zipcar convertible

preferred shares traded for Flexcar shares was 14.3 million. At the time of the acquisition, Zipcar

shares were estimated to be in the $2.30 range. Shortly after the acquisition, Zipcar’s number of

members doubled by January, 2008.

Zipcar’s second acquisition was really an investment in a foreign car sharing business,

namely Avancar; Avancar is a Spanish based car sharing firm. The investment was completed in

December of 2009 at which point Zipcar had purchased $0.3 million of Avancar’s shares with

cash. Currently, Zipcar still has the option to become a major shareholder of Avancar.

Zipcar’s third, and latest, merger was of Streetcar, a London based car sharing operation. The

merger was signed in April of 2010. The merger was broken into three forms of payments: first

was a trade of 8.2 million shares of Zipcar common stock valued at $4.37 at signing; $7.7 million

in cash to shareholders of Streetcar; and additional $5 million in bonds, payable upon completion

of the merger.

In addition to the shares traded for the Flexcar and Streetcar transactions, additional

warrants were issued at varying values to the stockholders of both companies.

Finances

Zipcar’s revenue history is a model of stable but strong growth. Zipcar derives it revenue

is the form of usage and membership fees. Growth rates have shrunk from 142% (2005-2006) to

24% (2008-2009), along with the slowing of year-on-year growth, per member revenues have

fallen from $496 in 2008 to $429 in 2009. This flattening of income represents a saturation of

markets, and increased price competition. To continue the growth trajectory, Zipcar will need to

find new markets to expand into. Additionally, the reduced revenue per member can be related to

the recessionary impact on the economy. However, the good news is that the revenues are still

growing, and with the new merger between Zipcar and Streetcar, there should be a sizeable

increase from 2009 to 2010.

Additional analysis of the financials shows that the majority of the income, greater than

97% comes from the domestic market, but that number is decreasing currently by about 1% a

year. It can be expected that the merger with Streetcar will substantially increase that number.

Opposing the revenue are the operational expenses. Historically, they have been around 113% of

revenue with exceptionally high expenses in 2007 at 124% of revenue. It is possible that the

2007 blip is due to the increased expenses associated with the Flexcar merger.

Operational Costs

A breakdown of the fleet expenses, those expenses that are tied directly to operating the

fleet including: fuel, insurance, repairs, and parking among others. This number has historically

been around 77% with a corresponding spike in 2007 of 87%. This can be explained with the

thought that the Flexcar merger required additional maintenance of the fleet to bring the Flexcar

fleet in-line with the expectations of Zipcar’s customers. A breakdown of the fleet expenses

divided by the average number of cars in the fleet for the year and then dividing out by 365 days

in a year gives $44.2 (per day per vehicle costs) in 2008 and $41.5 (per day per vehicle) in 2009.

Zipcar explains the additional expense in 2008 as a result of the increased fuel costs.

Zipcar’s financial risk and profitability is heavily impacted by the cost of fuel and the

company’s credit rating ( and impact on interest rate). Zipcar has two forms of financial liability:

debt to investors and leases to car companies. Each carries different interest rates, but debt to

investors has ranged between 11.1% in 2008 to 16.8% in 2009 and 16.0% in 2010. The leases

carry a guaranteed residual value of 42% which, Zipcar feels confident about meeting or

exceeding, thus resulting no liabilities.

Zipcar, due to recent global expansion, is now exposed to currency risk.

XII. Current Financial Position

Initial Public Offering

Zipcar has declared an IPO in the hopes of raising $75 million in cash. The intended

usage of the revenues from the IPO are to pay off some debt, especially that associated with the

Streetcar merger, and to invest in more cars and markets. As yet, Zipcar has not specified the

number of shares that it is going to offer, but it can be reasoned that the price per share will be

around $5.30 as calculated by Zipcar using the Black-Scholes option valuation method. There are

already a large number of common and preferred shares outstanding, but these have not been

offered to the public. Zipcar has stated there will be no dividends associated with their stock,

which could push away potential investors. Zipcar has yet to make a profit, but carries large

amounts of cash per its lease agreements, and its operational revenue is much larger than its debt,

providing incentives to investors.

Revenue

Topline revenue is still growing, but it is slowing down based on first quarter results in

2010. Again, the majority of revenue comes from the domestic market, but Streetcar merger in

April ’10, will produce top line increases. The revenue is still steady at $55 per vehicle per day

which is a good thing as it allows Zipcar to plan income based on the number of vehicles it has in

the fleet, which is growing.

Operating Expenses

Operational expenses are dropping as a percentage of revenue for the first quarter of

2010, and this is reflected in the fleet costs, which have dropped to $38.38 per vehicle per day.

These decreases in expenses are occurring as a result of economies of scale from the number of

cars used, and in opposition to the rising fuel costs.

XII. SWOT

Strengths:-Strong position in current market-International presence-Strong technology platform in place-Strong brand recognition

Opportunities:-Growth of market-International expansion-Company acquisitions -Reduce costs via economies of scale-Possible IPO

Weaknesses:-High debt ratios-Managing international issues – currency and culture issues-Lack of private label programs

Threats:- Rental car companies entering the market-Public transportation expansion – need for a car reduced-Rising supply chain / operating costs-Increased competition due to high growth sector

XIII. Recommendations

Zipcar should look at franchising opportunities. Zipcar’s key competitive advantage is

their superior IT and branding. Their key liabilities are owning and maintaining the cars and

parking spaces, the costs of which slow expansion. By franchising, they put those liabilities onto

the franchisees. As Car sharing is a city-by-city market, local franchisees know their city the best,

they know where to place the cars and which cars to use. Zipcar has several options for

franchising.

Traditional Franchising would be a faster route to National and Global expansion, if a

local businessperson feels their city could support Zipcar, they could become a Zipcar franchise

and be given control over a certain city or region. Franchisees would have to adhere to Zipcar’s

branding and level of quality and service, but they would be able to choose which type of car and

where they would go.

Private Label Franchisees, this would be mostly permitted only to Non-Profit Operators.

Non-Profit Operators would benefit from Zipcar’s superior technology, and economies of scale.

The Non-Profits would be able to keep their branding and would greater margins than going solo

or trying to actually compete with Zipcar.

Peer-to-Peer Franchising, Zipcar should at a minimum explore the Peer-to-Peer Car

sharing market as this threat could move virally through the Car sharing marketspace. They have

the best system and should use it to follow customer demand.

Continue to innovate through the use of IT and by listening to customer feedback on the

social network sites. Look for strategic partnerships with suppliers or other potential

providers of services that Zipcar could leverage to improve its service or add extra value.

Potentially become strictly the software side of car sharing and allow the Car rental companies to

maintain the assets.

Zipcar needs to begin hedging against fuel prices by buying futures in the gasoline or oil

market. Doing so may actually raise the cost of fuel on the whole, but will stabilize the

fluctuations, allowing for better usage of revenues. Additionally, the losses incurred could be

used as a tax offset.

Now that Zipcar will have a large presence in Europe, London specifically, it should

begin to protect itself against fluctuations in the rates by entering into swaps. The swaps could

lead to additional revenue or additional costs, but either way, it will stabilize the revenues from

foreign markets. Similar to futures in the oil market, tax offsets could be possible if losses are

incurred.

While the company currently has plenty of revenue to cover interest expenses, it does

have over $30 million in debt at a high weighted average cost. By paying down the debt, Zipcar

could free revenue to make a profit. Interest expense is currently only around $2 million, with

losses in the range of $4 million.

If Zipcar is correct in its estimate that the residual value of the vehicles will be greater

than the 42% minimum, then Zipcar should continue to lease vehicles instead of purchasing them.

This will keep the inventory new and also relieves Zipcar of the burden of finding channels to sell

the vehicles.

With revenue staying at $55 per vehicle per day and expenses dropping as the number of

cars increases, Zipcar should purchase more cars for each market. Extending the rate at which the

expenses are dropping, we can see that 2010’s will have a 33% margin over fleet expenses.

This may well be the tipping point for turning a profit.

Yearly Results First Quarter Numbers Projected

Year 2008 2009   2009 2010   2010

Cars in fleet 5217.5 6169   5436 6085    

Revenue 52.25 53.25   48 54   55

Fleet expenses 44.2 41.46   44.96 38.38   37.14104

               

Rev/Exp 1.182127 1.28437   1.067616 1.406983   1.480842

               

Expense % y/y   0.938009     0.853648    

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