Peer-to-peer car sharing service appeals to the urban and young people, and  that partly explains why college campuses and large cities like San Francisco have been the labs for companies such as RelayRides and Getaround.

One of the benefits of this type of the service is the ability for customers to rent a car by the minute or hour, something that traditional rental car companies don’t allow. But for San Francisco-based RelayRides, an increasing number of its customers are paying for daily, weekly or even monthly rentals, said Steve Webb, the company spokesman. The majority of RelayRides’ revenues come from those types of rentals, he said.

That trend is good news for car owners who are able to part with their cars for an extended period of time. They could make more money with fewer renters. That also cuts the amount of time the car owners would need to meet with their customers — RelayRides switched to promoting the in-person exchange of keys last year when it pushed for a national expansion.

The peer-to-peer car sharing market is growing but remains very small. To scale up, a car sharing service has to market well and sign up a large network of cars, create an easy way for car owners to manage rentals and get paid and for renters to reserve and find the types of cars they want. A good customer service unit to settle any dispute and resolve insurance and other issues is also a must. As GigaOm’s Katie Fehrenbacher pointed out, getting people to feel comfortable using the service remains a hurdle. Webb said many car owners prefer to meet their renters in person before handing over the keys.

Still, RelayRides decided it wanted a way for renters to access cars without having to arrange for a meet up. It announced yesterday the purchase of a competitor, Wheelz, which has developed software that allows renters to find, reserve and unlock cars using their smart phones. An electronic device installed inside the car makes unlocking with the phone possible.

This automated tech was something RelayRides used to hire people to install regularly. But it was too costly and time consuming that the company largely ditched that effort, though it still offers it to car owners who rent out their cars frequently, Webb said. The device and software aren’t proprietary technology and are designed for running fleet services. Buying Wheelz gives RelayRides its own technology that it can then customize and compete more effectively against the likes of Getaround, which gives the car owners the unlocking device that they can install themselves.

Will the long-term focus for peer-to-peer car sharing be a long-term trend? What do you guys think?

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The news was first reported by Kara Swisher. We heard about Pishevar’s exit a few days ago and since then have independently confirmed with two sources that he is leaving the firm he joined as a managing director in 2011. When we got in touch with Shervin, he said that he is switching roles from being managing director to venture adviser at Menlo and is going to join Uber as a strategic adviser.

The reason, he said was to start a new company — Sherpa, which is startup foundry. He explained that Sherpa is a company helping to build other companies, and it will be working with large corporations and other founders to come up with ideas. He declined to offer any details. It is rumored that he is partnering with Scott Stanford, a Goldman Sachs investment banker, for this new project.

“In his continued role as a venture advisor he’ll still be working with portfolio companies, sourcing deals and networking,” Shawn Carolan, managing director at Menlo wrote in an email. “This was a unique opportunity to let him pursue a passion at the formative stage while still have him active in the firm for companies further along.”

During his tenure at Menlo, Pishevar had invested in companies such as Uber, Fab, Getaround and Cinemagram. Pishevar is one of the most liked people in the entrepreneur community. He was an angel investor in about three dozen companies before joining Menlo Ventures in 2011.

Updated with comments from Menlo VC and Shervin Pishevar.

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The emerging sector is called a variety of things like peer to peer car sharing, car sharing 2.o, or neighborhood car sharing, and there’s a half dozen companies who have emerged to try to develop businesses based on this idea. Despite that the market is so new, and the hurdles are somewhat high, many of the companies in this sector have very high profile investors.

Relay Rides, another of these companies, raised money from the venture arms of Google and auto giant GM, as well as August Capital. Wheelz, another competitor, has raised money from traditional car sharing company Zipcar. Clearly forward-focused investors are intrigued with the idea, but is there a solid business model here? If so, it still needs to be worked out.

The business model needs to provide a cut for the car owner, for the insurance, for the initial tech installation or device, and for the cost to acquire users. I go more into the economics of peer to peer car sharing in this GigaOM Pro report (subscription required). Zipcar’s CEO Scott Griffith told me recently he thought peer to peer car sharing is a particularly hard business because of the revenue sharing with the car owner.

The industry hasn’t been without its growing pains. Relay Rides has pivoted a bit, and no longer installs its own in-car connected systems in the vehicles in its network. The company’s original model was to have its staff install the connected devices in the vehicles, which took money and time. Now Relay Rides is relying on its partnership with GM, and Onstar, to supply the vehicle connectivity and control system. And yes, the GM deal was a big win for the firm.

RelayRides also experimented with whether or not it should offer gas cards, and how to cover the cost of gas for very short trips. It’s not necessarily obvious how to set up a system like this, as the only precursor is traditional car sharing like Zipcar, where the company owns the cars and is responsible for their upkeep and gas bills. Both Relay Rides and Getaround have invested in substantial marketing, at least in San Francisco, one of their test markets.

Getaround sells connected kits for cars, which is a less capital intensive way of having the connected device system installed in the cars. But when I’ve talked to some potential investors, and yes competitors, they wonder how secure these systems are.

Safety and security are huge issues for this emerging industry. A company called HiGear, which created a business like this based on luxury cars, was the target of thieves and had to shut down. A startup called Spride Share, developed by investor Sunil Paul, never launched because of the concerns over insurance and the business model. Questions also remain about liability and insurance, which Relay Rides faced in a recent tragic event.

Peer to peer car sharing is an inspiring idea, and one that uses cars more efficiently, which is why some of these top notch investors have supported these startups. But the business models for these companies still needs to be worked out.

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RelayRides — which raised money from GM’s venture arm — says it is the first third party to use OnStar’s API, and later this Summer GM plans to open up the API to other third party developers, too. OnStar uses satellite-connected on-board units to offer connected services, but the primary application to date has been to summon help in the case of an accident or other emergency. GM offers the service to car buyers free for a few months to try out before initiating a monthly fee — the service can cost $200 to $300 per year — and is looking to offer more services to retain those trial customers.

Using the OnStar system, RelayRides members can use a mobile app to reserve a car and unlock and lock the door. Owners of the vehicles can earn money from renting out their cars, and set the price for how much they want their cars to be rented. Depending on the location of where the car is parked, car owners can earn hundred of dollars per month, says RelayRides.

RelayRides, which first launched in the Summer of 2010, has been building a network of car owners and drivers interested in using cars a service. For much of the time, RelayRides has been installing a communications device in the vehicles to facilitate the reservation process, which can be a somewhat expensive and labor-intensive process. But in the GM cars, the OnStar system acts as that control gadget. RelayRides also won’t be installing communication devices in its customer’s cars in the future, but will use a combination of the OnStar system and will facilitate key sharing for non-OnStar subscribers.

RelayRides isn’t the only peer-to-peer car sharing company out there. Getaround, which sells a kit to its car owner customers, and Wheelz, which has an investment from Zipcar are two other ones. The service can be envisioned as sort of “car sharing 2.0″, in contrast to traditional car sharing networks like Zipcar and CityCarShare, where the organization owns the fleet of cars.

One of the major hurdles with these services is security. HiGear, a high-end luxury peer-to-peer car sharing company was the target of thieves and shut down. Investor Sunil Paul backed away from his idea to launch peer-to-peer car sharing via a startup called Spride Share because of his concerns over insurance and the business model. RelayRides says the OnStar system makes its peer-to-peer service more secure, as the OnStar vehicles can be controlled and tracked in the network.

Auto makers have an interesting relationship with car sharing. Car sharing has been proven to lead to fewer cars being purchased, so in a small part, car sharing is cannibalizing the auto maker’s business. But a variety of automakers are realizing they can benefit from car sharing in various ways, including getting their cars in front of the young and urban who normally wouldn’t be test driving their cars. Other companies, like Daimler, and Volkswagen, are trialling their own car sharing pilots.

RelayRides is backed by over $13 million in venture funding from investors including Google Ventures, August Capital, Shasta Ventures and General Motors Ventures.

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Uber rides can currently cost up to double the price of a taxi, so that’s a big discount. Traditionally, Uber has offered only luxury town cars for its service, which is one of the reasons that customers have been willing to pay such a premium. Uber CEO Travis Kalanick tells the New York Times that the new service is its first effort to appeal to the masses and move down the cost curve. The hybrid service also costs less because part of the overall price is calculated due to the gas used — the less gas consumed by a hybrid, the lower the customer’s cost can be.

But the hybrid move is also a way for Uber to be more environmentally friendly. About a year ago, I did an interview with Uber execs about whether or not the company’s service was able to reduce cars on the road, or fuel consumed, in the way that car sharing services like Zipcar or Getaround seem to be able to do. At the time I had concluded that Uber wasn’t really all that environmentally friendly in the way that some collaborative consumption services can create a more efficient use of resources.

Uber, a startup that has raised $43 million from venture capitalists, is an example of one of a handful of startups that have been using San Francisco as a test bed for alternative transportation. Others include the first generation car sharing companies Zipcar and CityCar Share, the peer-to-peer car sharing companies RelayRides and Getaround, electric scooter sharing network Scoot Networks, on demand ride sharing services SideCar and Lyft, and commuter van sharing company RidePal. The city offers a condensed space for a test bed, a community of early-adopters to test out the services, and a lack of parking infrastructure to encourage alternative transportation.

I’m actually a major Uber user, and the only thing that dissuades me from using it more regularly is the high price. So I’m personally excited to check out this service this week.

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Alt-transportation overload! Why is San Francisco so chock-full of these services? I’ve been thinking about it for awhile and I’ve got a pretty good idea. Here’s why I think it is:

Tech, startup cluster: One of the more obvious reasons is just the vibrant startup and developer ecosystem in San Francisco. Most of these alternative transportation services are reliant on mobile and web technology development, and having a strong developer and startup ecosystem here means there’s more of a braintrust of young creators willing to work on these tools. For example Scoot Networks’ secret sauce is based on using the iPhone as a dashboard for an electric scooter and Zimride’s new mobile app connects commuters and drivers in real time. In addition, local tech companies can provide the testing ground for some of these projects — both Ridepal and Scoot Networks are starting off by selling services to fellow tech companies.

Muni, BART, taxis and parking suck: There’s actually a real need for alternative transportation in San Francisco. Unlike in New York, where you can get a cab in most places pretty easily, and the subways system is pretty efficient, San Francisco’s public transportation and taxi services are pretty lacking. There are also a lot of commuters that come into San Francisco, but there’s very little affordable parking downtown.

San Franciscans are early adopters: San Francisco-ans have always been early adopters, given the city is the heart of the Valley and was the location of the birth of the Internet. Services that are reliant on iPhone use can actual gain traction here, because of the high penetration of iPhones. San Franciscans also care more than most about trying to have more eco-friendly, and more energy efficient, transportation, like car sharing and ride sharing.

Small enough: San Francisco is also compact and small enough that a startup can launch a pilot project here and can actually cover a decent amount of the city. While the same pilot project might be overwhelmed in Manhattan, San Francisco can offer a more compact scale with which to experiment.

City support: The city of San Francisco is actually generally very supportive of these types of transportation. Anything that can help alleviate the public transportation systems and parking spots in downtown can potentially get support from the city.

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Zipcar’s decision last week to make a strategic investment in peer-to-peer car-sharing startup Wheelz surprised many. After all, when it comes to the debate over car sharing models, both sides of the argument — peer-to-peer vs. centralized ownership (Zipcar) — have touted their respective business models as superior.

But beyond the squabbling about whether peer-to-peer or Zipcar has a better capital structure, the investment tells us three other, more important clues about Zipcar’s overall strategy:

1. Zipcar is extremely intent on making college students a cornerstone of its strategy.
2. Zipcar can no longer ignore peer-to-peer car sharing as a strategic threat.
3. College students are a key demographic, not just to sell car-sharing services to but also as a demo to one day sell cars to. Part of this deal is to build a better relationship with not only customers but also automakers.

Wheelz is another way for Zipcar to access a young demographic, since the former distinguishes itself as a peer-to-peer car-sharing startup with its current focus solely on college campuses. It rolled out at Stanford and has plans for UC Berkeley, UCLA and USC. Similar to how Facebook first operated, users need a college email address to join, and the login process even uses a Facebook login. The company believes that closed social networks have the greatest potential because of the built-in trust factor that could matter when loaning one’s car to strangers.

Zipcar CEO Scott Griffith recently told the New York Times’ blog that Zipcar opted not to build its own peer-to-peer car-sharing service because it would rather learn the technological details of working with an owner base from a partner. And while there was certainly a part of Zipcar’s investment that was a defensive move just in case peer-to-peer car sharing prevails as the preferred method of sharing cars, there was one other reason people tend not to think about when discussing car sharing: Zipcar’s potential to market to young people.

In the past six months, Zipcar has itself been intently focused on deploying its services on 250 college campuses with cars supplied by Ford. Car sharing is a way to get cars in front of future customers, and you want to do that as early as possible, because once car owners become brand loyal, it is tough to change those loyalties. Cadillac owners rarely switch to buying Lincolns in their fifties, for example.

And so it is not a coincidence that the other investor in Wheelz is Detroit-based Fontinalis Partners, which is co-managed by the executive chairman of Ford Motor Company, Bill Ford. Adding to the love affair, William Helman IV, a partner at VC firm Greylock Partners and the lead director on Zipcar’s board, became the 15th member of Ford’s board last September.

The under-25 crowd historically has been largely ignored by the rental car companies, and often due to young people’s limited incomes, the automakers could only do so much with the demographic. But car sharing is changing that, offering the driving experience to anyone with a license. And the opportunity to gain greater access to college students’ behavior surrounding car sharing and to put cars in front of them that one day you want to sell to them becomes increasingly attractive. This is why the automakers are aligning themselves with car-sharing companies. GM has a deal with RelayRides to make all GM vehicles built after 2010 and equipped with OnStar rentable in the RelayRides peer-to-peer car sharing system. BMW, Daimler and Volkswagen have either rolled out or are trialing their own car-sharing services.

What is unique about all of these growing relationships among automakers, traditional car-sharing companies and now peer-to-peer car-sharing startups is that the 800-pound gorillas in the room — the automakers — ultimately need to sell cars, not participate in an industry that research shows reduces car ownership. The fact that automakers aren’t fighting the car-sharing phenomenon the way the hotel lobby has fought Airbnb and the music industry fought Napster back in the day suggests a certain maturity in their outlook.

Car sharing is a byproduct of the Internet age (you need online social networks to find and share cars), and if the automakers can build partnerships and exploit the emerging business model to better understand young consumers and make strategic investments in and partnerships with the best car-sharing companies, be they Wheelz or Zipcar, then they start to become part of the emerging ecosystem. That continues to give them access to young drivers and encourage driving as the ultimate transportation experience. College campuses are a great place to start.

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Wheelz, which only launched last September at Stanford University, has raised a Series A round of $13.7 million from Zipcar as well as Detroit-based transportation investors Fontinalis Partners. Other peer-to-peer car sharing startups like RelayRides and Getaround have also found major backing from venture capitalists and auto companies.

While Zipcar buys and owns (or leases) its own fleet of cars for sharing, Wheelz is promoting the use of other people’s cars. Wheelz also is targeting a narrower audience to start: college towns and connecting students who have cars with those who don’t but need them. The idea is to provide money-making opportunities for students, many of whom don’t need their cars often if they live on or close to campus, while making it easier for those who need rides for trips to, say, grocery stores or weekend outings.

Wheelz joins a growing number of companies promoting the idea of collaborative consumption, which refers to the use of the web for sharing goods and services (see GigaOm Pro’s analysis of the trend). It maximizes the use of stuff, while reducing clutter and waste. The concept works not just in sharing cars but sharing living spaces and has spawned a series of startups across verticals, such as RelayRides, thredUP and Airbnb.

While car sharing isn’t mainstream, it has gotten enough traction among consumers, particularly the younger urbanites, to spawn at least a dozen startups in cities around the world. Peer-to-peer car sharing especially has caught the fancy of investors and entrepreneurs, and there were at least five peer-to-peer car sharing businesses here in the San Francisco Bay Area alone as of last fall. The business model also arguably involves more logistics and liability issues because the companies don’t own the vehicles and must ensure that both loaners and borrowers are happy with the service.

Right now, car sharing services like those from Zipcar and City Car Share tend to offer members the ability to rent cars in 15 minute integrals, and cars are parked around urban areas, can be unlocked using a key fob, and can be reserved on the web or a cell phone. In addition, car sharing services often include fuel in the service fee. In contrast, more traditional car rental businesses tend to rent cars through actual stores, mostly rent cars only during business hours, and most of the time, don’t include fuel in the price.

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Fresh off its $1 billion valuation, Airbnb is the most common reference point for all manner of “this for that” pitches bouncing around the Valley right now, with many new ventures proposing to be the “the Airbnb of X.”

But Airbnb is only one species of the sharing economy genus — a genus that will stratify over the next few quarters.

Real-time makes your brand a hero

Hotel Tonight is a great example of the flip side of the Airbnb coin. It focuses on real-time reservations, and the real-time use of latent capacity.

Airbnb’s transactions typically take place five or more days in advance of a stay, and any requests inside that window are put on a standby list. In contrast, Hotel Tonight only offers rooms for the current night, with a cutoff of 2 a.m. local time. It’s a fascinating constraint, and one that has propelled their business forward. When people need a room immediately and you’re able to provide them one, they will remember you.

Real-time can command premiums, not just discounts

Of course, different markets and different kinds of capacity have unique sensitivities to time.

Uber’s car service business is incredibly time-sensitive. One of its most common use cases is trips to and from the airport, which usually involves a high-stakes deadline on at least one end of the journey.

Other popular uses are travel on a busy holiday (think Halloween or New Year’s Eve in New York City during a public transportation strike).

The more time-sensitive a market becomes for buyers and sellers, the more lucrative the corresponding business opportunity.

This is an old lesson — price and revenue optimization wizards hold time in the highest regard. And as the time-sensitivity of a situation increases, the number of parties we’re willing to entrust with our affairs dwindles to a small handful.

Real-time puts coveted data in your pocket

What Hotel Tonight, Uber and my company LiquidSpace have in common is that we all know a lot about our customers’ travel patterns.

Additionally, we can extrapolate a ton of information about preferences — from who customers are likely to collaborate with to where they like to work or hang out.

With this real-time data, we’re primed to find other ways to make your stay, ride or meeting that much more enjoyable. We can quickly provide add-ons that customers need, such as snacks or printing, or partner with other vendors who can.

Whether by offering new services or opening up this powerful real-time data, we are exposing new revenue streams that the sharing economy enables.

With enough time, any latent capacity can be utilized. Each year at South by Southwest in Austin, Texas, we see twelve month’s worth of planning make use of every nook and cranny.

On short notice, sharing economies are harder to organize, and they involve more risk. Real-time capabilities mean that you sit closer to purchasing decisions, closer to strategic imperatives, closer to profit and loss, closer to sealed deals and averted crises.

Real-time is difficult, and precisely because it is so challenging to do real-time well, and safely, the market will reward those who invest in making the “here and now” a priority. In short, you’re closer to risk, and closer to reward.

Consumers want real-time access, and businesses demand it. The sharing economy is not only online, it’s also picking up speed.

Mark Gilbreath is co-founder and CEO of LiquidSpace, a mobile application that helps people find and share available workspaces.

Image courtesy of Flickr user psd.

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