Turo: Airbnb for Cars or Platform of the Future?
Turo, the ‘Airbnb for cars’, has been growing rapidly and has set itself up for the future.
Turo, founded by three HBS alumni as RelayRides, has been described by many as the Airbnb for cars. [1][2] It’s always a bit suspect when a new company’s business model is described as the [insert unicorn here] of [new industry], but here Turo seems to be onto something. Just like Airbnb leverages excess housing capacity, Turo’s business model capitalizes on the fact that most cars are parked 95% of the time. [3] This significant underutilization of assets appear to make the space perfect for the sharing economy. Investors appear to agree, as Turo has raised over $170M, including a $92M round of financing just last year. [4]
Turo has to deal with many of the same issues with owners and renters as Airbnb. For the owners, it is important that they know renters will treat their cars well – here that includes mileage limits, cleanup fees, and even third-party insurance arranged through Turo. Renters want to ensure they will be riding in cars that are clean and well maintained. There are fees and penalties associated with breaking the ‘social contract’ from either side, but Turo also provides a system that provides ratings for each buyer, renter, and automobile on the platform.
When Turo began, it leveraged a number of ‘power renters’ to provide supply to the platform. In the early days, there were few cars on the platform and Turo spent much of its marketing efforts convincing owners to make their vehicles available. The argument was simple – you don’t use your car 95% of the time, so why not let someone else pay you to use it?
Turo now has over 4 million members and 170,000 vehicles on the platform and is offering drivers a new value proposition – buy your dream car and have Turo help with the financing. [5] Here the company is not offering any money to owners, but it is showing how individuals can buy cars they may not otherwise be able to afford and generate rental fees on Turo to help pay. This has brought a whole new segment of high-end automobiles into the market (see below) and attracted upscale users that a sharing economy business model sometimes struggles to obtain.
What excites me most about the Turo business model, is the ability to leverage the technology to take advantage of autonomy. Before companies like Uber, car rental companies, or auto OEMs offer fleets of on-demand autonomous vehicles, it is likely that individuals will be the first owners of these cars. If that is the case then Turo, as an established car-sharing platform, will already be the market leader in connecting owners with renters. A key for Turo is to work with car manufacturers to ensure that the platform will be compatible with features such as remote lock/unlock, but the firm has already succeeded in making such deals with OEMs. Though larger companies willing to own large volumes of assets – be it OEMs or an operator – will likely be able to offer attractive rates due to favorable pricing in the asset acquisition process, it is possible that Turo will remain competitive as long as some individuals continue to own their own vehicles. These owners will always be able to undercut rental company pricing, it’s just up to Turo to ensure they are willing to do so.
Turo has some issues to deal with (for instance, it is banned in the State of New York due to insurance concerns), but it offers a very compelling business proposition for the automotive industry today and could continue to succeed in the future.
[1] http://www.nytimes.com/2010/09/12/automobiles/12RELAY.html?_r=1&ref=automobiles
[2] http://www.businessinsider.com/turo-airbnb-for-cars-car-rental-review-2018-1
[3] http://fortune.com/2016/03/13/cars-parked-95-percent-of-time/
[4] https://www.crunchbase.com/organization/turo#section-funding-rounds
[5] https://qz.com/1070094/car-sharing-startup-turo-raised-another-92-million-to-help-people-pay-for-their-dream-cars/