How P2P car sharing could impact Zipcar IPO

Its CEO received an accolade last week. Yet, with 7,000 vehicles and more than 400,000 members, car sharing service Zipcar has struggled to reach profitability.

A slump in average revenue per member over the last year and mounting fleet costs spelled a net loss for Zipcar of $4.67 million in 2009. And according to recent company filings, it's now losing $4M-$5M a quarter with no guarantee of achieving profitability in 2010 or even 2011 … a familiar story from another large recent clean transportation IPO: Tesla.

Now, a handful of so-called peer-to-peer (P2P) car-sharing startups think they have a solution that could let them become profitable faster, while bringing car sharing to more markets and more potential users. Are they friend or foe to car sharing companies like Zipcar?

P2P models
While “traditional” car-sharing companies such as Zipcar acquire a fleet of vehicles that they then distribute, maintain, fuel, insure, and rent to drivers, P2P car-share companies like Whipcar (UK), RelayRides (Boston) and Spride (San Francisco) skip the ownership step. Instead, they aim to manage the relationship between car owners and drivers, much in the way that vacation rental services like VRBO connect vacationers with home and apartment owners.

The model isn’t just about cutting operating costs, though. P2P car sharing aims to capture two segments of the market left out of traditional car sharing:

• Commuters who use a vehicle to get to and from work; whose vehicles sit in an office parking lot all day and in the garage all weekend, and
• Drivers in less-dense areas who haven’t had access to car-sharing services at all

Little innovation needed
The ecosystem surrounding P2P car sharing is nearly identical to that for fleet-based car sharing, and relatively mature. The software and hardware components are largely in place—system operators need only make tweaks to off-the-shelf products from manufacturers and service providers. From in-car devices that operate vehicle permissions over cell networks to the data pricing plans carriers charge fleet operators to the online reservation systems for users, most of the plumbing exists.

An exception, however, is insurance. While homeowners can purchase insurance products that allow them to maintain coverage on a personal property when it is rented out to a vacationer, car owners cannot. Lloyd’s of London currently offers car sharing insurance to WhipCar and RelayRides where they operate, but many states allow insurers to invalidate personal auto insurance if the vehicle is used for commercial purposes (such as a car sharing program).

How P2P companies could benefit Zipcar
The better known fleet-owning car share companies like Zipcar could become formidable allies and exit partners for the smaller P2P startups. As one CEO pointed out to us recently, the market for P2P car sharing has a strong bias toward a single, trusted brand. Cars are costly personal investments; the company that is able to garner users' trust will be well positioned to capture a sizeable share of the market. Startups like RelayRides and Spride hope to capitalize on this kind of first-mover advantage. On the other hand, Zipcar already has a known brand.

In many ways, P2P sharing is a natural extension of traditional car sharing services, as it could allow them to offer their service in less dense areas than the urban cores and college campuses they currently serve. Unused vehicles are a financial albatross for car-sharing companies, making vehicle utilization rates a limiting factor for expansion; leveraging privately owned vehicles in markets with low utilization rates could be one solution. Similarly, privately-owned commuter vehicles could be used to expand the fleet during business hours in commercial districts, or on the weekends in residential neighborhoods.

P2P could also help speed returns on car sharing companies' non-vehicle investments. Zipcar’s IPO filing revealed fleet operations costs of $93.36 million in 2009—nearly 70% of its total operating costs. Expanding revenue-generating services without a proportional increase in vehicle costs could be an attractive option. (Similarly, Zipcar recently began offering its reservation software to fleet operators as a way to boost revenue without accruing additional vehicle costs.) While Zipcar hasn't publicly expressed interest in offering a P2P component to its service, others have. CityCar Share in the San Francisco Bay Area, for example, is partnering with Spride in an effort to bring P2P car-sharing to its members.

Source: Kachan & Co.

For more analysis of the expected impacts of P2P car sharing, or of other developments in the wider clean transportation sector, contact us.

A former managing director of the Cleantech Group, Dallas Kachan is now managing partner of Kachan & Co., a cleantech research and advisory firm that does business worldwide from San Francisco, Toronto and Vancouver. Its staff have been covering, publishing about and helping propel clean technology since 2006. Kachan & Co. offers cleantech research reports, consulting and other services that help accelerate its clients’ success in clean technology. Details at www.kachan.com.