Zipcar’s Business Model is Flawed

As a city dweller, I face a plethora of challenges that don’t exist in the suburbs. But one of the biggest challenges I’ve encountered is living without a car. I actually don’t mind taking the subway to work at OpenView Venture Partners. And, it’s not like I miss it all the time, especially with the costs associated with owning a car. But merely the ability to walk out of my house, click a button — and off I go anytime I please — is something that I took for granted.

Enter Zipcar — the perfect solution for a regular guy like me. With over $50 million in venture funding, Zipcar has great low rates for hourly car rentals, fun cars, easy access (there are three zipcars located in the rear of my building) and a cool iPhone app to boot. But to me, Zipcar has two fundamental problems with their business model.

1. I have to pre-pay to use their service. Zipcar members must pay a one-time initiation fee to receive their “zipcard”. It doesn’t matter that the fee is only $25 dollars — whats the point? Roll the fee into the rates, make it easy for people to get access to a zipcard. After all, the more members there are out there the more likely they are to drive. Even at local gyms, they might advertise an initiation fee, but it is always waived upon sign up.

2. Whenever I need to rent a Zipcar, I can’t get one. Why? Because I have to wait 7 days before I get the zipcard. Where is the solution in that? I was in a car accident a few weeks ago and could have really used the easy solution of having a Zipcar for a few hours. But because there is such a lengthy application process I was off to Hertz or Avis.

“But Zipcar is doing well,” you might say. Sure, the company has grown its membership base, established itself in markets across the globe and acquired competitors (Flexcar). But guess what: since launching in 2000, the company has yet to turn a profit. In fact, after generating just over $33 million in revenue last year, the company incurred a net loss of $5.3 million! And recently, their company exit strategy is geared toward seeking a $75 million dollar IPO to pay of its debts.

Zipcar- you can do better!

Peter Zotto
Peter Zotto
GM

Peter Zotto is the GM at Price Intelligently. Previously he was an analyst at OpenView where he helped to identify qualified investment opportunities.
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