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Summary:

If there is going to be one theme for 2013, then it is the inevitable march of technology (and the Internet) into everything we do and every aspect of our daily life. From car dashboards to rental cars – the fun is just getting started.

Zipcar CEO on How the IPO Hopeful Has Weathered the Recession

Connected Car Mouse In the summer of 2008, when my friend Pip Coburn (a former tech strategist for UBS  who runs an investment advisory firm) came to visit, we ended up talking about two things we both saw coming: the inevitability of the Internet and how tomorrow’s leaders will amount to zilch if they are not technology natives.

In the past technology startups raided old guard companies (Netscape went to FedEx’s Jim Barksdale, for example) to get management help. In a world where the Internet is ubiquitous, we are going to see old guard companies embrace Silicon Valley types as their leaders.

Five years ago, it seemed a bit farfetched, but today on the first work day of the new year, I was reminded of our tête-à-tête. Why?

Just, look at the two major news stories of today:

  1. Google is working with car companies like Hyundai, Kia, Audi and others to embed some of its services inside their cars.
  2. Avis is buying car-sharing pioneer, ZipCar for about $491 million, a 49 percent premium over the closing price on December 31, 2012.

Recently, I got a chance to ride with a friend who bought a snazzy new Audi S-6 car. Given that I don’t drive and am in the minority of people who have no desire to drive, the car seemed like a technological marvel on many levels. The speed and the power may not be to the liking of Jeremy Clarkson, but the multimedia panel will win his approval. The most luscious part of that panel is the navigation system — based on Google Maps.

Today, Google announced that it is working with other major car makers such as Kia and Hyundai, to embed their technologies including maps inside those cars. Google is an internet services company that is now finding a home in cars, just like Pandora’s Internet music streaming  found its way into Ford Motors.

Thermostats with live Internet connections that can be used to control the climate inside your home remotely was the stuff of science fiction until a few years ago. Now many utilities are playing with the idea of using such Internet-enabled devices, marrying them to data analysis technologies and turning them into tools for better energy management. A variety of startups born in Silicon Valley — like Nest, Opower and EcoFactor — are getting in on this trend.

How Zipcar Can Scale Car-Sharing Tech On the Cheap

These are early sign posts of a connected future where Internet technologies influence even the most mundane of industries. You know, like car rentals, or the power grid, or building climate systems.

At the turn of the century, the idea of sharing a car in increments would get you laughed out of a room. Car rentals were cheap and there were cars lined up outside of airports. Who would then want to rent a car by the hour? Antje Danielson and Robin Chase, two moms from Boston were crazy to have launched a company called ZipCar in 1999. It took awhile, but the world finally came around to their idea. It helped that the whole process of renting a car was convoluted, and the cars and technologies inside those cars very old fashioned.

Zipcar, instead focused on the casual renter — primarily a young Internet native, one who had grown up on the convenience of Google, Amazon and broadband. The car-renter 2.0 is less likely to have the patience to deal with the inefficient processes of Avis(es) of the world.

The Internet changed a generation’s expectations of consumer services. But the emergence of the iPhone (first) and Android allowed companies such as ZipCar to create an efficient car-sharing ecosystem, challenge the established guard and grow like a weed.

Here is a little comparison between ZipCar and Avis. In 2005, ZipCar had revenues of $13.7 million (according to their S-1 filing). In 2012, they are estimated to have revenues of $278 million, according to Yahoo data. In comparison, Avis sales for 2005 were $18.24 billion and in 2012, they are expected to bring in about $7.3 billion according to analyst estimates collected by Yahoo. Agreed there is a big disparity in those numbers — billions versus mere millions — but still, you can see the demographic shift is pointing to a market reality against Avis.

As my colleague Katie Fehrenbacher pointed out in her analysis of the Avis-ZipCar deal, the acquisition has wider implications for the fast growing trend of sharing stuff and resources. While hitch-a-ride service like Lyft or black-car sharing service Uber might feel scary for both the incumbents (taxi companies) and the legislators, the fact is that our constant state of connectedness is continuously changing the rules of the game. It is impossible to imagine life, business or society without this connectedness.

Many believe that Avis is going to blow it and ruin ZipCar. I am in that camp — not because I want either of those companies to fail – but because when large, lumbering and mostly technologically incompetent companies try to buy innovation, they often times kill the innovator. (Avis rival Hertz started its own Hertz on Demand, though I have not been able to assess their success or failure.)

For this deal to work out, here is some free advise for Avis CEO Ronald Nelson: make sure you sign a nice free-agent deal with ZipCar CEO Scott Griffith and his team. Then make him your chief growth officer: one who understands technology, data and demographics to beat the living crap out of your rivals. And give his technology team the liberty to reinvent both the in-car and car-rental experience at the airport.  Otherwise, in 2015, there will be another ZipCar-like company, beating the stuffing out of your profit margins.

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  1. Q3 technologies Wednesday, January 2, 2013

    The services industry is on the rise. Will we ever see a time when there are only car services and the concept of owning a car would’ve already ended?

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  2. Great article, I think this year will be amazing for tech.

    I do have one question, do you think that services like these are disrupting innovation, as in, investments in new sources of energy and/or alternate modes of transportation?

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  3. I appreciate this perspective on the new guard, the Silicon Valley technology industry, having matured to have our own very savvy business leaders with much to offer “traditional” enterprises.

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    1. Lloyd

      Keep an eye on American Express – they have a very clear idea of what they need to do.

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  4. This is a very smart strategic move. I just hope that the small-tech-culture of Zipcar is not smashed and corporativized.

    The combination of Zipcar + robotic cars + large-scale real-time car-sharing optimization provides a new open field to Avis’ future.

    IMO Zipcar is not complementary (as a main feature) to Avis biz. It provides Avis a viable NEW path to the future, and I am convinced that this new biz model will get Avis into taking a good bite from the following games:

    – taxi and car rental
    – public transportation
    – parking space
    – car retail (+service)

    This will be massive. Avis will have to change its mission statement from “We will be a leader in the vehicle rental industry by… ” to something like: “We will be a leader in satisfying people’s transportation needs by… ”

    I thought Avis was on the way to its extinction. This has proven me wrong.

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    1. Good points @flavio but the idea of old dogs learning new tricks is good in theory, never in reality.

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  5. Great article. One little point on content: “The world” did not come around to Antje & Robin’s idea, America did. Outside of the USA, Zipcar is actually quite small, unless they bought the local carshare (as they had to in the UK, Barcelona & Austria). This is one of the big reasons that Scott Griffith’s dream of “50 great Zipcar cities around the world” stalled, Steve Case bailed, and they had to turn to Avis to keep going.

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    1. CarsharingNet

      I think the world is coming around to ZipCar way of thinking and if anything Europe and Asia are going to be faster growing markets because the resource sharing is an inherent part of those societies. That said….I think ZipCar was on the right track, buying its way into Europe. Too bad they had to sell to others.

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  6. I love ZipCar. I am so-ooo afraid of what might happen.

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    1. John Black,

      You are not alone in that thinking. My ZipCar loving fans are nervous about the future that might be chock-a-block with GM cars.

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  7. Om, you’re talking about cars and technology but you missed self-driving cars. Long term, I think those are very major.

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    1. Rich

      Self driving cars are great in the long term — we are talking decades here. This post is looking at the world more in the near term.

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  8. So a shrinking behemoth buys a money losing upstart…I fail to see how this is a good thing. ZipCar seems revolutionary 12 years ago when they got started, but just stale to me nowadays. And I think it is a big stretch to suggest that the drop in revenue or profits for large rental car companies had anything to do with a timesharing model that was about 1/25 the size, at least as far as financials go. The rental car companies suffer far more from changes to insurance rates and laws as well as fuel price volatility than car sharing, although I do think that a sharing model could actually allow rental companies to do a better job of baking in fuel price and of smoothing out some of the peaks over time.

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  9. I read somewhere that owning a car in the US costs about $5000 per year. The average person drive 1 or 2 hours per day and leave our cars unused and depreciate for the other 22 hours . When I visited S. America, I found that people there could not afford their own cars, yet have access to efficient transportation through buses, van-pools and taxis for around $2 – $4 per day.

    The recent recession have forced citizens in America to find ways to get by with less income. The marriage of ZIP and Avis provides opportunities to improve transportation efficiency by making use of Avis’ under-utilized fleet of cars to provide ZIP with mass ubiquity in urban areas. Using smartphones, user are able schedule access to rentals in realtime. When hourly rental mass adoption becomes significant, users may no longer need to “hang-on to their cars” when they plan to park for more than an hour. They simply make their car available when they park and use their smartphone to reserve the closest available car 15 minutes prior to needing transportation.

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  10. Last Paragraph: free advice

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  11. Guru Ashish Sidhu Thursday, January 3, 2013

    Really like the article. The analysis and the advice is what a good eco-site should give so as to put the story in to perspective for a novice reader

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  12. Om, your “revenue chart” is totally fake. It reflects not at all Avis, but instead Avis + Cendant and then Avis. While Avis has nothing near the revenue growth of Zipcar, it’s a growing company and has been for years. Quite frankly, I have no idea what that Y-charts chart is showing or why you felt it was worthy of inclusion in what is otherwise a well thought out post, but it’s just… wrong…

    Avis annual revenue in 2006 was $5.7 billion, up from $5.4 billion in 2005. It was $4.8 billion in 2004, $4.7 billion in 2003 and $3 billion in 2002.

    My source, by the way, is Avis annual report, filed with SEC, not some ridiculously inaccurate Y-charts file that is for all of Cendant, presumably. It’s here: http://ir.avisbudgetgroup.com/secfiling.cfm?filingID=1193125-07-44472&CIK=723612

    The business is slow growing and dull — certainly Zipcar might provide some “zip” if you will — but it’s not falling off a cliff like your highly misleading chart would indicate.

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  13. Om, I wouldn’t hold your breath for power utilities to be hot to trot as change agents. They will likely do some experimentation in the hopes that great sites like GigaOm will write stories about them (giving the perception that they’re really out to help the customer). Utilities are regulated localized monopolies and there is very little incentive for them to change (where the changes would be harmful to their bottom line). Just ask Al Gore!

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  14. Zipcar is a fascinating example of this trend, and so are Google’s ventures into automotive technology. Maybe in the not-too-distant future people will think of cars as just one more kind of mobile device. Since automation will free up the occupant’s hands and attention for other things, I can envision cars becoming fully interactive environments, complete with downloadable apps, that just happen to be able to take you places while you’re working, studying, surfing the Web, etc. But who in the future economy will be able to afford these iCars? That’s going to be a big question. This piece is great food for thought – thank you.

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  15. This thread reminds me of a talk that I witnessed by the great Peter Drucker at a JD Power conference many years ago. I vividly remember the talk, because you could hear a pin drop in the room. His speech focused on the day when the automaker’s brand would become obsolete, because the consumer would eventually pick and choose pieces of vehicles from different makes based on their excellence (e.g. – Audi, quattro drive, Toyota engines, Honda bumpers) to assemble their own custom car. He envisioned a day, when this would all be done on a system – by picking, clicking and then having the vehicle built offshore or wherever and ultimately delivered directly to your home. No dealer, no brand, just a custom made vehicle to your specs. This was way before the internet. Interesting to see how close we are coming to his vision from some 20 years ago. It would not surprise me to see this actually occur in my lifetime.

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  16. In a close future we will be forced and motivated to become more efficient and savy in everything, from our time to spending on vehicles, houses etc. Zipcar kind of a solutios will pop in many industries.

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  17. Great story – so true that these traditional businesses need to learn and embrace ideas from the tech industry to be able to cater to changing consumer demand.

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