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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Updated: The tragic story, reported by The New York Times’s Ron Lieber last month, in which a man rented a car in Boston via peer-to-peer car sharing company RelayRides and wound up seriously injuring four people while losing his life, raised a familiar question for the share economy: Who’s responsible?

Addressing liability and security have become paramount issues as business models based on sharing items have emerged. Luxury peer-to-peer car sharing service HiGear abruptly shut down at the end of last year after a successful launch just four months previous. A criminal ring had stolen $300,000 in fancy cars and the HiGear founders felt they just couldn’t protect its users’ cars. And Airbnb’s lackluster response last summer to the trashing of two Airbnb hosts’ apartments highlighted how critical it is for people to feel safe before sharing their most important valuables like cars and homes, which also can have the best margins in the share economy.

In terms of peer-to-peer car sharing, RelayRides holds a million dollar insurance policy during the rental period, which is most often sufficient. But in the Boston accident, a lawyer for one victim has suggested total claims for the four victims would be in the $1.2 to $1.5 million range. Liz Fong-Jones, who rented out the car, told The New York Times that RelayRides has told her personal insurance carrier to deny any claims against it for the accident. From RelayRides’s perspective, liability should stop with RelayRides as it feels this is no different from any case where an insurance policy may be exhausted by the claims.

And in places like California, which have passed bills about car sharing, the law is clear. Deputy California Insurance Commissioner Joel Laucher clarified to me that California’s peer-to-peer car sharing bill, AB 1871, states that the car sharing program is the owner of the vehicle for all purposes and assumes liability during rental. On the emerging question of whether someone’s personal insurance carrier could drop them because they’re putting their car in a car sharing network, he added that it’s illegal to cancel or non-renew an insurance policy based on someone signing up for car sharing.

So that’s all well and good for states like California, Oregon and Washington, which have car sharing laws protecting consumers, but what about places like Massachusetts, where the accident occurred? RelayRides founder Shelby Clark recently told my colleague Katie Fehrenbacher that while he thinks state car sharing insurance laws provide clarity, he doesn’t think he needs them to operate, evidenced by Boston being an early market for RelayRides. The company has a deal in place with GM to unlock OnStar equipped vehicles registered in the RelayRides network via a mobile phone app, further opening up the number of available cars. One can only assume that GM also isn’t panicked about the liability issues and imagines this program operating in all states.

On a practical level, while there’s a big focus on what happens if the million dollar RelayRides insurance policy is exhausted, the larger concern may just be about what happens if auto insurance companies start non-renewing policies for folks who put their cars into car sharing services. Lieber reported that auto insurer USAA has indicated that car sharing participation would generally result in non-renewal. If multiple insurers go this route and are able to do so legally, then a larger problem would result.

While I think it’s unfair to single out share economy companies for the liability and insurance risks inherent in their business models (all companies have these concerns), it’s important to note that as these business mature they’ll have to confront the very issues of liability that all businesses encounter.

Airbnb’s initial poor response to the apartment trashing is indicative of a startup’s desire to grow and get traction, not manage customer care. In the aftermath, Airbnb installed a 24/7 customer hotline to report problems and a $50,000 insurance policy against theft and vandalism. Though interestingly, it excludes “personal liability,” meaning that if someone opens your closet and a box falls on them, that’s on you. And Airbnb is clear that its policy is not a replacement for renters or homeowners insurance, which raises the same question that has faced car sharing: how jazzed are homeowners’ insurers going to be about their policy holders renting out their homes?

The reality is that no insurer wants to take on additional risk, perceived or real. Conversely, the concern is that the focus on insurance and liability can be the enemy of truly innovative business like RelayRides and Airbnb. And whatever happens with the lawsuits resulting from the Boston accident, this is just an inevitable case of the business model being tested.

Update: RelayRides’s founder Shelby Clark reached out to clarify that he believes that ultimate liability should rest with the person who rents the car from the RelayRides network, and that RelayRides insures the renter up to $1 million. Meaning that if the renter is found to have caused the injuries in question, and the policy is exhausted by a verdict beyond $1 million, the renter (and not the car owner who rented out the car) is responsible for paying any damages beyond that million. The accident occurred in Massachusetts and California Deputy Insurance Commissioner Joel Laucher noted to us that in California, at least, AB 1871 states that “the personal vehicle sharing program shall assume all liability of the owner and shall be considered the owner of the vehicle for all purposes.” He added that as the statute reads, nothing limits the liability of the vehicle sharing program. These are new business models with new questions, and many of these issues are likely to get resolved by state courts.

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At GigaOM’s Net:Work conference on Thursday, executives from HIGEAR and Spiceworks discussed why startups tend to collaborate better than their enterprise brethren. The short answer is that they’re smaller, which means they’re more likely to know each other. “I don’t think humans are wired to deal with large groups of people,” HIGEAR President Murtaza Hussain said at the conference. HIGEAR currently numbers about 10 employees.

As for the tools they use — when it comes time to pick an application, the best advice is to adopt those which are easiest to use. Hussain said that HIGEAR leans heavily on Skype for chat and messaging, and employees tend to use Google docs. Why? Because they fit the lowest common denominator for access and usage.

Few organizations have success when a senior-level executive decides which tools or applications are best. Hussain said the industry is full of examples where a C-level executive feels that one particular piece software is great and pushes it down to the rest of the company to use. “The last thing people want to want to do is learn a new piece of software,” he said.

But one potential drawback to that strategy is that letting employees pick their own tools can relate in data silos across an organization, according to Spiceworks VP of Products Tabrez Syed.

At the end of the day, the best type of collaborative efforts are those that happen face to face, which is one reason why Hussain is a big believer in employee happy hours. “When a new employee comes in, we take them out for beers,” he said. “I don’t think there are any tools or technology to make that kind of collaboration happen.”

Photo by Pinar Ozger.

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Cars	Drive the next always-on gadget Katie Fehrenbacher	Work	Work is no longer a place Jessica Stillman
Stuff	Access trumps ownership Katie Fehrenbacher	Data	Data is the new digital currency Derrick Harris
Media	We are all media now Mathew Ingram	Identity	Identity is an industry Mathew Ingram
Body	Your doctor is a chip Stacey Higginbotham	Travel	Go anywhere, instantly Colleen Taylor
Web	The future web is alive Om Malik	Location	Where is the new who Ryan Kim

Images courtesy of Tesla Motors, DaveBleasdale, Petteri Sulonen, KatBPhotography, Urban Aquarium Video and Light, xurde, guiguis, kowitz, Marc_Smith, Aperturismo.

Go to page 2 (of 11) on GigaOM .

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Peer-to-peer car sharing (sometimes called distributed, neighbor-to-neighbor and car sharing 2.0) facilitates car renting between personal car owners and a network of interested renters. In contrast, for standard car sharing from ZipCar or CityCarShare, the organization owns the fleet of cars.

Probably even more companies will launch P2P car sharing services in the coming months, with new ways to target already-existing communities, and eventually the market will face consolidation. But in the meantime, here’s my cheat sheet of a dozen companies offering websites to facilitate peer-to-peer car sharing among neighbors.

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HiGear launched just two months ago, and has a network of about 200 cars that are being actively rented out to members of the network who pay prices anywhere between $125 to $600 a day to drive the cars. You can find some real fancy cars like a Dodge Viper ($600 a day, photo to the right), a Mercedes Benz SLK ($245 a day), and a 1965 Ford Thunderbird ($100 per day). HiGear provides up to $1 million in insurance and has stringent conditions for its drivers, like no DUIs in the past five years, no accidents in the past three years, and drivers under 30 can’t rent cars that have more than 300 horse power (bummer for the Valley’s underage wunderkind).

While there are a variety of peer-to-peer car sharing companies trying to build businesses out there, like RelayRides and Getaround, HiGear has taken an alternative — and possibly more lucrative, in the short term — approach. Getaround and RelayRides are focusing on renting out neighborhood cars for rates like $5 to $10 per hour, and many drivers use them to make small trips around town or half day trips out of town on a weekend.

In contrast Hussain tells me that the average HiGear rental is for 3 days, for about $410, and drivers are renting out their cars about twice a month. In essence the cars don’t have to be used all that much to help the car owner make some money, because the rates are higher and are per day (instead of per hour). HiGear’s members are mostly pretty well-off themselves, and include many professionals that already have cars of their own but that want to drive different sports and luxury cars.

HiGear is also different in that the car owner has to meet with the renter (often times in a public place) to exchange keys in person, and to make sure that the renter knows how to drive the car (many of the sports cars are manual). So HighGear doesn’t install the automated locking and unlocking devices in the car like RelayRides does (or Getaround has with a kit). That brings down HiGear’s costs, too, as installing devices in every car in the network can get expensive. Hussain told me HiGear looked into installing the automated devices, but stopped that plan because car owners wanted to meet with the drivers in person to “feel them out.”

Hussain tells me that HiGear will use the newly-raised funds to keep building out its website and bring in more members, including launching in LA in the coming weeks.

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• The economics of peer-to-peer car sharing
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