Turo: the Uber Model for Rental Cars
Turo: how I rented a Porsche for a week and didn't go broke
Last November, needing a rental car for a week while my own car underwent repairs, I turned to a relatively new car rental app called Turo in place of a traditional budget rental car firm. Turo offers a business model like Uber but for rental cars, allowing car owners rent their personal vehicles to interested customers. The app takes care of communications between the car owner and renter, as well as payments, insurance, and dispute resolution if necessary. As the app effectively does away with the significant overhead traditional car rental companies bear, a customer can rent a car through Turo often for less than half the price of a commercial car rental firm. But cheap price alone is not what drove me to rent using Turo. What did was a silver 1999 Porsche Boxster, a sleek, German engineered mid-engined convertible with a five-speed manual transmission and leather interior. Sure, the car had an antifreeze leak and looked like it had been ridden hard and put up wet, but the price was right and the owner sent me merrily on my way with three gallons of Walmart-brand coolant and instructions to “top off the radiator whenever the engine begins to overheat.” And just like that I had a German sports car to drive for a week, all through the marvels of the new sharing economy.
The Porsche I rented from Turo
Turo offers consumers much of the same benefits provided by applications like Uber or AirBnB. People with an underutilized car can rent it to a consumer through the app, relying on the app to take care of the details for the rental in exchange of a small percentage of the total fee. Founded by three Harvard Business School graduates in 2009, Turo (formerly RelayRides) was estimated to be valuated at nearly $311M in 2015, earning it one of Forbes’ “Hottest On-Demand Startups of 2015.”1,2 While the business was initially launched to focus on brief hourly car rentals (much like ZipCar), Turo reports most rentals now are a few days in length or longer. Not having to rely on a static fleet of cars, Turo can offer a diverse range of different vehicles to its consumers, ranging from a SUV for a family of four to use on a weekend ski trip to a compact sports car for someone like me to try on their midlife crisis 15 years early.
Yet the irony of a Turo’s rise to prominence is that the business model which Turo is built on very well may be its undoing. Business travelers (the primary consumers of rental cars) are now choosing to use firms like Uber and Lyft at a greater rate than rental cars. In fall 2015, 43% of those polled reported using firms like Uber and Lyft while travelling for business, while only 40% responded that they used a rental car, down from nearly 55% at the beginning of 2014. While the declines seen in rental cars are nowhere near as large as those seen by traditional taxi services, the trend is nonetheless unsettling.3 However, the threat posed to Turo by car hailing services does not threaten the key aspects of Turo’s business that makes it attractive to consumers. For one, the travelers surveyed reported turning to Uber and Lyft for brief trips where not much travel was expected; longer trips requiring more driving still usually warranted a car rental. And as far as car rentals are concerned, Turo is able to compete on price and vehicle selection. Not to mention that someone looking to pick up their Tinder date in a Tesla or roll into their 20–year high school reunion in a Corvette aren’t going to go to Uber. The risk posed to Turo by ride sharing apps becomes real if a large and well-established player like Uber decides to turn its focus to rental cars. Would the first-mover advantage held by Turo fend off the largess and mature customer network of a firm like Uber? We’ll just have to wait and see.
My recommendations to Turo is to continue to provide the greatest value to its consumers, namely, the widest selection of cars, the best available prices, and the best overall application experience. Only with a great business service (and strategic marketing and implementation) can Turo achieve the network effects that make these sharing businesses so effective. Not to mention that building and maintaining the greatest network is the only real defense a smaller firm like Turo has against competition should a firm like Uber decide to enter the rental car market.
Student comments on Turo: the Uber Model for Rental Cars
First, well done.
Second, how does Turo approach insurance? One of my big qualms with rental car agencies is that they charge a premium (if they don’t outright deny service) to people under age 25. Is a similar pricing scheme done with Turo?
Interesting post Alex, I hadn’t heard of this startup before reading your post. A couple of trends I’ve noticed in digital marketplace businesses are:
1. Lack of focus ultimately leading to failure.
2. Fierce competition leading to extremely low margins and coupled with the cost of user acquisition, a continuous need for additional capital to offset negative cash flows.
How do you think Turo can mitigate these risks? Relating to point 1, in your post you mention that they should focus on offering the widest selection of cars, is this realistic? Perhaps they would do a better job if they were to take on a smaller market such as the luxury car market or the van market? To point 2, with no real barrier to entry, are Uber the only worry for Turo? What about new entrants? How will Turo defend its marketshare without having to turn to huge levels of venture capital funding?
Nice post here, and I like how you pointed out that the rental car market will still be there, despite traditional ride share dominance in recent times. Corporate car companies are feeling the pressure from firms like Uber and if these rental companies really notice firms like Turo, I’d imagine that they’ll come down hard to try to crush the smaller competition. I’ll be interested to see how Tulo reinvents itself by hopefully focusing in say the luxury segment, as Adam points out.
A critical part of solving the digitization challenge for would-be digital startups is a concept known as “growth-hacking”. Uber got its start by plugging into the existing black car infrastructure. Airbnb began by scraping Craigslist ads and posting them (without owners’ consent) onto Airbnb. In both cases, an existing infrastructure helped catalyze the much larger disruptive event through clever growth-hacking. Do you have a theory on how Turo could inject quick growth in stock so that consumers who entered their app had more choice?
Nice post AVO. I have been an avid TURO/Relay Ride user -mainly attracted by the competitive pricing and selection of cars. Thinking back on my experiences the benefits of TURO has been the convenience. Most often, the individuals who rented cars to me would give me a code to unlock the car and I would be off – no long waits at enterprise, no extensive paperwork for insurance, etc. While I see a lot of benefits, I do find find it difficult for them to break out of this niche market. I believe the vast majority of people do not feel comfortable driving someone else’s car due to liability issues, which separates this from traditional sharing services like AirBnB. Turo has a challenge to change public perception and ensure that adequate protections are placed for both the driver and renter while still staying competitive with pricing. I also believe they need to scale up their offerings in major cities (the company is still not well known) by playing around with their margins.