I was so excited to turn 21 during my senior year of college. Of course, the bar scene in Boston was fun to experience…but so was the newfound freedom of being able to rent a car to escape campus on my own volition! Enter Zipcar, since I was still 4 years shy from 25 to be able to affordably rent from Avis, Enterprise, and the big rental companies my parents used for road trips and vacations. I signed up through Harvard, got approved, received my handy ‘Zipcard’ in the mail, logged into my account, and voila! I could reserve cars anywhere around the city when I needed. I had become a loyal Zipster, using the car to drive my friends and I to late-night parties off campus or make a 1AM run to Star Market for groceries. No hefty price tag of using a taxi and of course, I got to avoid some awkward taxi convos.
As a college student on a budget in a big, dense city like Boston where parking is difficult and a car impractical, ZipCar solved the problem of the need for flexible, affordable occasional driving on-demand—with gas and insurance included. And of course, a stamp of approval for contributing to less pollution, congestion, and sitting, unutilized cars. In short, a ton of value creation. In turn, through its subscription-based model, fee-for-use rental structure, and ads (on some vehicles), Zipcar captures tremendous value.
The barriers to entry in the car sharing space are not incredibly high; in fact, a number of competitors including Hertz and Enterprise have launched their own car-sharing models. However, despite stiffing competition, Zipcar’s expansive (convenient) presence, membership model, mobile app experience, web portal, RFID unlocking/tracking, centrally convenient/highly trafficked locations, and value-added services create high switching costs that help maintain loyalty. Chief among these elements is network effect.
With close to one million members and presence in over 25 US cities, Zipcar has its teeth firmly in the market. In fact, as the number of users grows, Zipcar can justify placing a denser network of cars in a given city. And with a large fleet of cars conveniently located, consumers are attracted to Zipcar. With a denser network of cars, Zipcar can take advantage of economies of scale in minimizing costs (e.g., maintenance and cleaning) per vehicle, invest in better app/interface experiences, And with greater demand from users, and subsequent revenues, Zipcar can invest in placing vehicles in arguably more desirable (and expensive) locations. Thus, a critical mass is essential for both consumers and the company to reap the optimal benefits of both sides of the coin.
Zipcar users see increased value with an expensive fleet of cars in their own respective communities. With more users on the road, Zipcar can take advantage of advertising in the form of large car logos that can attract more users. The company also runs promotions to current users whereby they can get driving credits for referring friends, thereby directly using its network of users who trust and use the platform to convince new users to sign up. Its University program creates a trusted environment of users who, with the appropriate incentives, will join the platform as well.
A number of partners also benefit from Zipcar’s increasing presence. Insurance companies, malls/storefronts where cars are parked, and gas stations benefit from increased user foot traffic and more vehicles–an indirect network effect.
But in a city like Boston where rideshares are becoming increasingly popular, the Uber and Lyfts of the city have comfortably replaced many Zipcar use cases due to their ubiquity and extreme affordability—especially with the attractive option to split fare costs with friends. Thus, a quick ride to the grocery store is often cheaper and more convenient than looking for a Zipcar, driving the car, finding a place to park, and rushing back to meet the window of the rental time. It will be interesting to see how Zipcar and its competitors position themselves in the Uber era.