Boston University School of Management BU Case Study 12-010 Rev. December 12, 2012 Acquiring Zipcar Brand Building in the Share Economy By Susan Fournier, Giana Eckhardt and Fleura Bardhi Scott Griffith, CEO of Zipcar, languished over his stock charts. They had something here, everyone agreed about that. Zipcar had shaken up the car rental industry with a “new model” for people who wanted steady access to cars without the hassle of owning them. Sales had been phenomenal. Since its beginning in 2000, Zipcar had experienced 100%+ growth annually, with annual revenue in the previous year of $241.6 million. Zipcar now boasted more than 750,000 members and over 8,900 cars in urban areas and college campuses throughout the United States, Canada and the U.K. and claimed nearly half of all global car-sharing members. The company had continued international expansion by purchasing the largest car sharing company in Spain. The buzz had been wonderful. Still, Zipcar’s stock price was being beaten down, falling from a high of $31.50 to a current trade at $8 and change (See Exhibit 1). The company had failed to turn an annual profit since its founding in 2000 and held but two months’ of operating cash on hand as of September 2012. Critics wondered about the sustainability of the business model in the face of increased competition. There was no doubt: the “big guys” were circling. Enterprise Rent-a-Car Co. had entered car sharing with a model of its own (See Exhibit 2). The Enterprise network, which included almost 1 million vehicles and more than 5,500 offices located within 15 miles of 90 percent of the U.S. population, posed a significant threat with enough scale and structure to implement car sharing in virtually every urban market. Other traditional companies including U-Haul, Hertz and BMW were following suit (See Exhibit 3). Griffith needed to make a move. Griffith picked up his phone and heard his secretary make the announcement that could change everything: “I have Ronald Nelson, CEO of Avis-Budget on your line. What do you want me to say?” The Share Economy During the last decade observers have noted that markets are giving way to networks, and alternative modes of acquisition and consumption are emerging to replace traditional ownership. While property continues to exist, the net result is that it is less likely to be purchased on the market and owned by an individual. Instead of buying and owning things, consumers want short-term access to goods, and increasingly prefer to pay for the experience of temporarily using them. In the words of one expert, ownership is no longer the ultimate expression of consumer desire that it used to be. The Share Economy—wherein where access to goods, products and services is enabled through the sharing or pooling of resources and redefined through technology and the engagement of peer communities—is thriving. Different models for non-ownership have emerged. Exhibit 4 highlights some examples of more traditional non-ownership services (as illustrated in the outer circle), such as those provided by public services including museums and public libraries, to more recent market-mediated and peer-to-peer access and sharing models such as bike sharing and file sharing (as illustrated in the inner circle).With access-based consumption, people pay membership fees to gain periodic access to goods and services rather than owning them outright. With peer-to- peer sharing, people share their own cars with others as brokered by an on-line company. In the car market, business models evolved from ownership to ride sharing to access-based consumption and peer-to-peer car sharing (See Exhibit 5). As of December 2012, commercial examples of access-based and sharing models included countless car and bike sharing programs (Zipcar, Hubway, RelayRides, Car2go, Getaround, JustShareIt, Wheelz, Lyft, Sidecar) and online borrowing programs for DVDs (Netflix) and fashion and jewelry (Bag Borrower Steal, Rent The Runway, Borrowed Bling). Parking Panda allowed sharing of driveway space. Airbnb, a Wall Street darling with 500% growth in 2011, proved that people will share their largest asset—their homes—with strangers. With Dogvacay people can share pets rather than own them. In 2012, a new co-parenting site called Family by Design was launched for people who aren’t in a position to have and support a child of their own. Public access to goods, as with borrowing books from public libraries or using public transportation, has been and continues to be the norm in some cultures and social contexts. Yet observers argue that the access-based consumption trend is different. Models of access are now mediated by the commercial marketplace rather than the shared social capital maintained by government. The trend is enabled by technology and social media that facilitate access and transactions in ways not possible before. Forbes estimates that revenues in the Share Economy will surpass $3.5 billion in 2013, with growth exceeding 25%. The Cultural Phenomenon of Shared Consumption The collaborative consumption movement at the heart of the Share Economy was first championed by Rachel Botsman in her classic book The Rise of Collaborative Consumption. Botsman frames collaborative consumption as a powerful marketplace revolution wherein people are relearning how to create value out of shared and open resources in ways that balance personal self-interest with the good of the larger community. Botsman stresses that when someone chooses access over ownership they are treading more lightly on the earth and reducing their carbon footprint; participants in collaborative consumption create value for others even if this was not their intent. This makes access and sharing sustainable consumption practices, in line with a burgeoning global trend. According to Botsman’s logic, people also join car sharing services or would rather rent an apartment found on Airbnb versus a hotel because these services allow them to feel a sense of community and meet others with a similar lifestyle and set of shared values. As Botsman demonstrates in her book, when people share, they create a sense of pseudo-kinship with others. Anthropologists support that we come together when we share things. According to Robert Putnam, author of Bowling Alone, people today hunger for connectivity and community. When people decide to collaborate and share things, they are also saying they want to be connected to their fellow man in a more communal manner. People who share feel connected to each other and the organization that brings them together and this kinship stands strong. Botsman and Lisa Gansky, author of The Mesh, also support that what is critical in making sharing models work today is the virtuous circle of trust enabled by social platforms and other web-based technologies. Businesses can now create trusting environments in which people can share assets in ways they could not before. Gansky argues that when trust is facilitated, a sense of collaborative ownership is allowed to thrive. Other changes in values support the emergent Share Economy model: rejection of materialist status symbolism, embrace of experiences over “things,” and a desire to be mobile and not weighed down by debt commitments or possessions. The concept of a “liquid society” is gaining prominence, further supporting the severance of ownership ties. In a liquid society, social structures and institutions are increasingly unstable, and people, objects, information and places considered solid begin to dematerialize. Access offers a way to manage the challenges of a liquid society. In contrast to the solid socio-emotional property relations embedded in ownership, access provides a more transient mode of consumption, enabling the flexibility and adaptability that liquid society commands. Further fueling the trend is the heightened concern about morality and ‘doing the right thing’ spawned in the wake of recent high-profile market failures. Select demographic groups have also been increasingly acculturated with an access versus ownership mindset. Millennials for example have grown up this way. They don’t buy DVDs or CDs; they use Pandora and stream shows. Indeed, “not owning” has gained in status and respect. From apartments to fashion items to cars, it has become increasingly cool and trendy to rent or access rather than buy (See Exhibit 6). As the New York Times reports, “Sharing is to ownership what the iPod is to the eight-track, what the solar panel is to the coal mine. Sharing is clean, crisp, urbane, postmodern; owning is dull, selfish, timid, backward.” (See Exhibit 7) Zipcar: The Car Sharing Pioneer Building on general trends supporting non-ownership, as exacerbated by life in difficult economic times, car sharing models have grown steadily in the U.S. Expected revenues for 2016 are $3.3 billion, up from $253 million in 2010. The New York Times reports 44% growth in car sharing since 2011, with 800,000 people in the U.S. belonging to car-sharing services in 2012. In addition to socio-cultural and demographic trends noted above, the rise in car sharing relates as well to declines in car ownership, and weakening consumer relationships with cars and car brands (See Exhibit 8). Zipcar is the pioneer in the car share economy. The world’s largest car-sharing company and the sole car sharing company in the US for a decade, Zipcar has become an icon of sharing among the business community. Since its beginning in 2000, Zipcar has experienced 100%+ growth annually, with annual revenue in 2011 of $241.6 million. By the end of 2012, Zipcar had more than 750,000 members and over 8,900 cars in urban areas and college campuses throughout the United States, Canada and the U.K. In 2011, Zipcar introduced Zipvan in San Francisco, to compete with U-Haul, and in 2012 Zipcar expanded into Europe by purchasing the largest car sharing company in Spain.