Zipcar Car-Sharing Business Case Study

Introduction

Zipcar, incorporated in Janurary 2000, is an organised car-sharing business. The company offers short-term, on-demand access to private cars that are located in exclusive designated parking areas throughout central Boston. Services are characterised by convenience, low cost and eco-friendliness. Zipcar's target consumers are those who do not need to drive to work, university or college, but would value having access to a car for the purposes of running errands, attending appointments, visiting friends or leaving town for short periods of time.

Origins of Zipcar

The first organised car-sharing business was established in Switzerland in 1987. By 1999 there were approximately 200 car-sharing companies operating in 450 European cities. European studies have shown that each car shared removes the need for 7.5 privately owned cars. The European car-sharing industry is growing at 30 per cent per annum and it is believed that similar growth levels can be achieved in North America.

Boston contains 15,000 people that have been identified as possessing the key characteristics of a Zipcar subscriber - relatively young, well-educated and logging less than 6,000 miles per year. Success in Boston would lead to the expansion of Zipcar to at least 14 other U.S. cities.

The CEO of Zipcar, Robin Chase, works full-time at the company. Chase's equal partner in the business is part-timer Antje Danielson, Vice President of Environmental Affairs and Strategy.

4

Chase and Danielson used personal resources to fund initial company expenditures. Additional funds have been obtained gradually by way of convertible (equity) loans, angel investors, family and friends.

Porter's five forces applied to Zipcar

Threat of new entrants:

Potential new entrants include existing car rental firms, companies that currently supply cars to car-sharing businesses (such as Volkswagen), and new start-up car-sharing ventures. As Zipcar is operating in only Boston, there are opportunities for new entrants (with sufficient resources) to establish themselves as dominant car-sharing service providers in other cities. This threat to the profitability of Zipcar's planned future expansion activities would pressure Zipcar to expand rapidly in order to remain ahead of the competition. A major barrier to entry is Zipcar's patented technology involving wireless transmission of usage data between the shared cars and a server. New entrants would require substantial time, human, financial and technological resources in order to design, build and implement technology to rival Zipcar's patented systems. They would also need to reach agreements with car manufacturers concerning the supply of vehicles, and secure parking spaces exclusively for subscribers.

Threat of substitutes:

Major substitutes are taxi, rental car and public transport services. As prices must remain below or equal to those of aforementioned substitute services, a price ceiling has effectively been imposed on Zipcar.

5

Bargaining power of suppliers:

Suppliers have little bargaining power as consumers are price sensitive and would face few switching costs in replacing Zipcar with available substitute services.

Bargaining power of buyers:

Buyers have the power to force prices down by threatening to switch from Zipcar to substitute services.

Rivalry among existing competitors:

Rivalry between car-sharing businesses is limited