November 13, 2003
Posted by Gordon Smith

Thanks to TJ's Weblog for pointing to this story. Like all great startups of the past decade, Zipcar has a wonderful creation story, and the business plan contains the obligatory "save the world" angle. (In this case, having communal automobiles will save the environment.)

Speaking of the founding epiphany, the Zipcar web site proclaims:

The user experience would be THE key to success, they thought. Eventually there would be Zipcars parked every few blocks all over the city. People would achieve transportation nirvana by having a transit pass and a Zipcard in their pockets. The result would be reduced congestion, fewer auto emissions, more green space, and a revolution in urban planning. And that was just for starters.

Apparently, this business has been around since 2000; it has won all sorts of awards; and similar services are "in place in 450 European cities, serving more than 150,000 members." Moreover, Zipcar recently received $2 million in Series C funding from Evercel, a battery company. Still, this looks to me like an idea with a flat tire.

The big problem is that Zipcars can never provide "transportation nirvana." Several problems:

(1) This may be less expensive than owning a car, but it is not more convenient. To use one of the Zipcars, you need to make a reservation. Then you walk to the "nearby car." Once you are done, you return the car to its place. How many people are willing to suffer the constraints imposed by the requirements of advanced planning, fixed return times, and set return locations?

(2) People will abuse these cars! Rental cars take a lot of abuse. Cars rented by the hour would be even more expendable.

(3) Saving the environment does not necessarily make a profitable business. According to Zipcar, the environmental savings result from reduced driving: "Because people have to pay the full cost of using the car each time they drive, they choose to drive only when it makes economic sense." What isn't making economic sense is Zipcar's sale's pitch. People aren't paying "the full cost of using the car"; they are paying a big premium to use these cars. That would explain why people who are in this system would drive less, but why would someone enroll in such a system? Look again at the numbers: 150,000 people in 450 European cities? That's just over 300 people per city. Apparently, not many people do enroll in such a system. And my guess is that most of these people use Europe's generally excellent public transportation as their main means of transport, relying on Zipcar-equivalents for occasional jaunts.

In short, this does not look like it has the potential to be a big business, and it will not survive as a small business.

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