Zipcar: The Apple of Car Sharing

A story of innovation, ecosystems, and success from the author of Innovation X.

Companies that transform their industries usually do so by creating nicely integrated combinations of products, software, online experiences, and services. Apple, Amazon, and Google are top examples. Let me suggest that we add Zipcar to that list.

Zipcar was founded in 2000 with a pilot program in Boston by founders Robin Chase and Antje Danielson. The company has grown rapidly. In 2008, Chase and Antje bought their largest competitor, and they now operate in a dozen U.S. cities and over 100 university campuses.

What companies like Apple and Amazon do well is create ecosystems of different elements that all work smoothly together. These ecosystems allow the delivery of functionality and benefits that more isolated efforts cannot provide. Ecosystems can be very difficult to orchestrate (there’s a reason the list of strong ecosystem companies is short), but when done well they allow companies to radically change what they do and how they serve customers.

Zipcar succeeded by using this same integrated approach, allowing it to transform car sharing from something that only a small number of green enthusiasts would do to a mass-market service used by a wide variety of people.

Car sharing services have existed for many years, mostly in European cities (which, not coincidentally, tend to be more bike- and walk-friendly, and have better public transit systems). The service started out of a concern for the environment: One buys time in a car, rather than the car itself. For city dwellers, especially younger ones, for whom car payments, insurance, parking, and parking tickets can be prohibitively expensive, car sharing also offers an attractive supplement to riding public transportation or biking. The cars can be rented for very short periods—just an hour or two—making them suited to shopping or short trips out of town.

When Chase and Danielson were considering starting up the business, there were a handful of small car sharing operations in the U.S. The two businessmen soon realized that if they were to make car sharing attractive to a wider audience (and not just environmentally energized people) then they would need to radically rethink how to make the service work.

Chase presciently realized that the web and wireless technologies would play a large role in making the service easy to use, efficient to run, and scalable in size. To that end, Zipcar implemented a couple of key technologies:

RFID cards and readers: These are low-power transmitters embedded into the membership cards of each customer, who, upon arriving at their car, waves the card over a receiver in the car window. As far as the customer is concerned this simply unlocks the car (which has the keys inside). But there is a complex process going on in the background. The car sends a signal back to Zipcar’s computers checking that the person, the time, and the car are all matched, and if the car gets the OK, then it unlocks the doors. This technology makes the process of connecting customers with their cars both simple for the user and secure for Zipcar.

Wireless communications: The RFID information (in addition to GPS location and other data) is transmitted back and forth to the cars with a wireless network. Zipcar created a patented, proprietary system for this, which is built into all its cars and allows the web-based reservations system, back-end databases, and the cars themselves to all work seamlessly together.

A hallmark of companies like Apple, Amazon and Zipcar that are successful at ecosystems is that they sweat the small details. Many of these details are ones that the customers may not even see or think much about, but they are important to take care of because they smooth the working of the overall ecosystem, and make the experience easier and more pleasant. For example, Zipcar also thought about:

Parking spaces: To be useful, car-sharing services must have cars well distributed throughout their service areas. Zipcar negotiates sufficient spaces in convenient locations throughout a city, typically leasing them from an existing parking lot. Signs are erected to advertise the presence of the cars and prevent the spaces being taken by non-customers.

Fleet Management: Car selection and locations are load-balanced to meet local demand; utilization rates must be optimized for revenue and availability. (Zipcar has found that 40-50 percent strikes the right balance—unlike an airline, the unpredictability of usage requires a lower utilization rate.) All the cars are serviced at regular intervals.

Car Insurance: Is provided by a third party, and included in the membership fees so is essentially invisible to customers unless they need to make a claim.

Policies: A communal service, in which many people share a common resource, is all about creating incentives for mutually beneficial behaviors without appearing so draconian that people are turned off before they even join. For example, there is a hefty fee if a car is returned even a few minutes late, since that can inconvenience the next customer.

Zipcar even thought about what happens when a customer needs to refuel. They have a “credit card” in each car that allows the customer to easily stop at a gas station without having to deal with their own cash, or tracking receipts for getting reimbursed by Zipcar. Zipcar gets the gas bill directly.

As we try to move into a more environmentally friendly future, there will be many other cases where existing business models and products need to be re-thought from the ground up, just as car sharing does for car ownership. It is an example of converting customers from an ownership to a rental mentality, of converting a product into a service.

But when trying to envision and encourage this shift, it is vital that the quality of the customer experience and the benefits for customers are integral to the re-thinking, or it’s unlikely they will be able to scale beyond a niche group of enthusiasts. Many environmental alternatives are inferior in some way to the standard offerings, whether it be in price, availability, performance, or convenience. This requires a rethinking of how you approach customers, or the environmentally-friendlier versions will be rejected once you try to appeal beyond niche green customers.

Zipcar teaches us that a holistic approach to rethinking the business, and the entire approach to the offering, is a critical step to making environmentally friendly solutions successful on a large scale.

Adam Richardson is Creative Director at frog design, in San Francisco. He is also the author of Innovation X: Why a company's toughest problems are its greatest advantage.

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