Avis's $500 million Zipcar acquisition is all about IT. Facing a disruptive business model based on new technology, Avis chose to buy a company that has mastered the new way.
With the Zipcar deal, expected to close in the spring, Avis would get access to a fast-growing and promising segment of the car rental industry. Zipcar says the US car-sharing business has grown to nearly $400 million. The company has more than 760,000 members (it calls them Zipsters) in 20 major metropolitan ares in the US, Canada, and Europe and near more than 300 college and university campuses. If the deal closes, all those assets would become Avis's.
I learned about Zipcar's business model in October from a presentation by CEO and chairman Scott Griffith. The company is driven as much by mobile and Internet technology as it is by the internal combustion engine. Rather than going to a rental location, filling out a lot of paperwork, and renting a car, Zipsters sign up online, reserve a car parked nearby, unlock it with an RFID, and go. Customers can rent by the hour or the day.
I wrote then:
Zipcar is working on several approaches to integrate smartphone apps into its cars and services. It's currently developing a tool that allows nonmembers to sign up and rent a car in minutes, simply by sending in a photo of their driver's license. Zipcar is also working on a smartphone dock that will fit in its cars, allowing drivers to use a Zipcar app -- safely -- while driving, to download playlists, get special location-based marketing offers, or get instructions on how to operate an electric vehicle (which can be a little tricky for drivers using them for the first time).
Zipcar's business model is brilliant, and customers love it, but the company just hasn't been able to make it work. Felix Salmon wrote in a Reuters blog:
Zipcar is the little company that couldn't. The model is a very attractive one to consumers, who rent cars by the hour; both gas and insurance are included in the price. But as a business it's much tougher.
The acquisition would give Zipcar access to the money it needs to stay in business, Salmon wrote. "The car-rental business is at heart a financing business: you need to be able to finance the acquisition of new cars, efficiently dispose of them once they get too old and too used, and generally make profits by juggling enormous cashflows both coming in and going out." Zipcar had trouble meeting demand on weekends.
Meanwhile, from Avis's point of view, it's buying the clear leader in what is probably the future of car renting. We're only at the beginning of a long secular decline in the number of cars owned per household: as America becomes increasingly urban, there's much less need for households to own a car, or a second car -- and it becomes much cheaper to just rent cars by the hour or the day when you need them than it is to own a car outright and just leave it parked and useless for 99% of its life.
The best possible outcome: marrying Zipcar's Internet- and mobile-driven convenience and friendliness with Avis's economies of scale.
Of course, it all could go bad, resulting in a company matching Zipcar's inefficiency with Avis's inconvenience. But it's a promising beginning.
— Mitch Wagner , Editor in Chief, Internet Evolution