Why Zipcar is tapping the college market

This first appeared earlier this week on our subscription research service GigaOM Pro.

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.