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Zipcar: A Business Model Innovator That's Changing the Way People Think About Cars <strong>Web:</strong> <a href="https://www.zipcar.com" target="_Blank">www.zipcar.com</a> <strong>Introduction</strong> Zipcar is a car-sharing service that Cambridge, Massachusetts, residents Robin Chase and Antje Danielson launched in 2000. Scott Griffith, a former Boeing engineer, now leads the firm. Although Zipcar didn't pioneer the idea of car sharing-it first emerged in Europe-it is the largest car-sharing company and is changing the way people think about car ownership in urban areas. From its start in 2000, the company now has over 500,000 members. A total of 40 percent of its members say they've either sold a car or have decided to not purchase a car because of their Zipcar membership. <strong>Business Model</strong> Zipcar is a membership-based system. It charges a one-time application fee of $25 and an annual membership fee of $50. Zipcar cars have permanent parking spots in convenient locations in urban areas. Each member is given a membership card (called the Zipcard) that gets them into the cars. Reservations can be made from minutes before a car is needed up to a year in advance. Once a reservation is made, the member simply approaches the car, opens it with the Zipcard, and drives it away. It costs about $9 an hour or $65 per day to rent a car. The cost includes the car, gas, and insurance. The car must be returned to its original parking space. The member simply leaves the keys in the car, locks it with the Zipcard, and walks away. Zipcar is an entirely self-service business. As much as it loves it members, it tries to talk to them as infrequently as possible. None of its locations are manned. Cars are available 24 hours a day, seven days a week. As of December 2010, Zipcar offered a fleet of over 8,000 vehicles in urban areas throughout 28 North American states and Canadian providences, as well as London. Zipcar's goal is to take the concept of car ownership and turn it into a service. As a result, it doesn't see its competition as car rental companies, like Avis or Hertz; rather, it sees its major competition as car owners. <strong>Piggybacking on Environmental Trends</strong> Zipcar envisions itself as ideally positioned to take advantage of environmental trends. Currently, about 50 percent of the world's population lives in urban areas, a number that's steadily on the increase. According to surveys conducted by Zipcar, the two biggest complaints that people who live in urban areas have are (1) the high cost of living and (2) traffic and congestion. Zipcar sees itself as at least a partial solution for both problems. In regard to the high cost of living, Zipcar has found that only about 10 percent to 15 percent of the people who live in urban areas and own cars need them on a daily basis. It costs anywhere from $6,000 to $10,000 a year to own a car in an urban area, considering the cost of the car, insurance, maintenance, gas, and parking. In some areas of New York City, for example, it cost upward of $500 per month just to park a car. According to independent research firm Frost and Sullivan, Zipcar (along with other car-sharing programs) can save urban residents 70 percent of their total transit costs, because they only pay for the hours they use the vehicle, with no responsibility for gas, insurance, maintenance, or parking. In regard to congestion, Zipcar has documented what it calls its "1 to 15 phenomenon." For every parking place that a city designates for a Zipcar, about 15 cars are taken off the road. This number results from the 40 percent of Zipcar members who say they either sell their car or decide not to purchase one as a result of their Zipcar membership. This statistic hasn't gone unnoticed by city governments, which are trying to develop comprehensive strategies to address traffic congestion. London, for example, has literally removed traffic meters in some locations and has given parking spots to Zipcar and other car-sharing services because they help relieve congestion. Zipcar also contributes to environmental sustainability, although that's not the point that the company emphasizes in its advertising and promotions. Its cars are energy efficient. Studies have shown that when people rely on a car-sharing service rather than owning a car, they drive about 50 percent fewer miles per year. Based on 500,000 members, Zipcar members reduce CO2 emissions by more than 500,000 tons a year as a result of fewer miles driven. Another trend favoring Zipcar is that an increasing number of young professionals are either moving to or staying in urban areas. There are upscale neighborhoods opening in the inner-city in places like Miami, St. Louis, and Atlanta, where young professionals are deciding to locate and start families rather than moving to the suburbs. This demographic is an ideal target market for Zipcar. <strong>How Zipcar's Business Model Changes Its Members' Behaviors</strong> A particularly interesting aspect of Zipcar's business model is how it changes its members' behaviors. The reason people drive less when they use a car-sharing service rather than owning a car is that when they pay for a car an hour at a time, they tend to group their trips more efficiently to save money. In addition, they tend to think of alternatives to driving that they might not have thought of otherwise. Through surveys, Zipcar has found that its members not only drive less but use public transportation more often and walk and bike more as a result of their Zipcar memberships. When people own cars, they tend to want to use them to get the full value from the car. When people rent cars by the hour, they tend to not want to use them to save the hourly rental charge. Zipcar is fine with this. It believes by saving individual members money, they will spread the word about Zipcar's service which will lead to more members. <strong>University, Organization, and Business Partnerships</strong> Zipcar has several programs aimed specifically at universities and businesses. In 2004, it launched a program called Zipcar for Business, to allow businesses to use the firm's service in the same way individuals do. Since 2004, it's signed up 10,000 small, medium, and large companies. The program works nicely for both Zipcar and the businesses. Rates are cut for Monday to Friday driving, when businesses use vehicles the most, which helps businesses control/reduce their costs. Zipcar can then rent the same cars to individuals on the weekends when individuals tend to use cars the most. Zipcar is also active on many university and college campuses. More than 225 universities and colleges are now partnering with Zipcar and providing parking spaces on their campuses. In 2009, Zipcar launched a service called FastFleet, to help cities use the cars they own more efficiently. Rather than having different departments maintain their own carpools, cities can now maintain a single fleet of vehicles, strategically located throughout the city, and have city employees reserve them and use them in the same manner that Zipcar members reserve and use cars. Zipcar provides the back-end functionality for the system. Washington DC, which was the first city to use the system, reportedly saved more than $1 million in the first 12 months. <strong>Continual Expansion of the Business and Business Model</strong> Zipcar is still growing rapidly relying on organic growth as well as mergers and acquisitions to do so. In 2007, it merged with Flexcar, its primary domestic competitor. In 2009, it acquired a minority interest in Avancar, the largest car-sharing company in Spain. In April 2010, it acquired Streetcar, a London-based car-sharing club. Zipcar pegs the worldwide market for car sharing at about 8 million users. It's currently at 500,000. While it sees continual growth in North America and Europe, it sees its biggest potential market in Asia, an area where it currently doesn't have operations. It's not clear how Zipcar will penetrate Asian markets. Zipcar feels that it has just scratched the surface of its markets and the possibilities its business model presents.