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.
I lived in Berkeley andI had no problems, and I believe that San Francisco Bay Area has the best public transportation in the country. But still, if we wanted to go somewhere off the basic routes we needed to rent a car.
Even the large cities in the US are spread out -- cities like Los Angeles and Phoenix are relatively recent, they were built around cars, and therefore they are not friendly to public transportation.
Self-driving cars can solve a lot of these problems.
Very good point, Mashka. No, the US infrastructure on public transportation is spotty. Particulary here in California, where everyone travels independently for everything, and public transportation has been limited.
What does seem to be changing are the development of centralized centers that increasingly consolidate living, work, entertainment, etc., through developments and urban planning. It may take numerous developments to confirm the demand and advance the public transportation system that makes that feasible.
We clearly are not like Europe and have a long way to go for effective public transportation.
as America becomes increasingly urban, there's much less need for households to own a car, or a second car
Does urbanisation also mean a better public transportation system? As far as I know- there are not so many large cities in the States- in small towns, a car is still the only way to get somewhere- anywhere, isn't that? Or this situation has already changed and people need less cars anywhere in the USA?
For this merger to work, it really needs to be what I've sometimes seen referred to as a "reverse acquisition." Zipcar needs to transform Avis's business processes from the inside.
It sounds as if Avis at least recognizes the value in Zipcar, Alison. I like Mitch's point that their success has as much to do with the new business model, and use of technology, as their vehicles.
This truly will be fascinating to watch. If Avis puts the right combinations together, they will create a truly convenient process that will cause people to rely more on the service, creating a viable alternative to owning a car/per person.
Maybe an additional bonus can be the upgraded service models for all rental cars!
We tried Zipcar on a vacation in 2008 or so. It was a fantastic experience -- no paperwork, just get in the car and go is if you owned it. And they had a fun selection of cars too; we got to drive a Prius and Cooper Mini.
I haven't used Zipcar, but I have used Avis--and I hope the car-rental company takes a lesson from Zipcar, rather than the other way around. It's so frustrating today that companies cling to their reams of paperwork, despite having so much information about their customers already at their fingertips and deep within their databases. By leveraging the best of Zipcar, Avis would open itself to a younger group of car rental customers, naturally becoming the de facto car-rental choice for Zipcar customers who need a rental car. But if they mess-up Zipcar, they will alienate that entire customer population.
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