The news that Avis Budget Group (CAR) will buy Zipcar (ZIP) for $491 million has evoked strong reactions, from Steven Pearlstein of The Washington Post arguing the car-rental giant will “ruin” its peppy former rival to Reuters’ Felix Salmon dubbing it a smart buy.
Despite the cheers and howls, nobody yet knows what will come of the marriage. But the Jan. 2 deal reinforces Steve Case’s belief that we’re moving toward a sharing economy. The AOL (AOL) co-founder, through his Revolution LLC fund, is Zipcar’s largest investor. Revolution stands to make about $96 million from the sale, according to reporting by Bloomberg News.
Case bought into Zipcar back in 2005 because, as he told me earlier this year, he sees “a generation shift from ownership to sharing experiences.” The key, as Zipcar showed, is to make it easier to share by giving people 24/7 access to vehicles parked in convenient locations at a reasonable price. (Even the gas is included.)
What’s driving the boom isn’t just that it’s easier to share, but that it’s often a hassle to own. Case has also invested in ventures ranging such as Exclusive Resorts, a high-end vacation club that gives members access to luxury homes worldwide, and LivingSocial, which encourages collaborative consumption with incentives for friends who buy together. He’s not alone. Witness the growth of Airbnb, which lets users rent their homes, to ParkingPanda, a new site that lets people rent out those precious parking spots when they’re not in use.
That said, many investors are skeptical about the trend in sharing everything from cars to homes. Some dismiss it as a fad that young hipsters will ditch once their incomes rise. Insurers have certainly balked at the idea of covering whatever damage is done by strangers using a policy-holder’s stuff. Landlords and municipalities can ban people from sharing for money, or at least demand part of the income. But such complications also give an edge to businesses that have the resources, infrastructure, and scale to compete.
For Avis, buying Zipcar is a bold bet. For investors, the ride hasn’t been all that smooth. While Avis paid almost 50 percent more than Zipcar’s Dec. 31 closing price with its $12.25-a-share bid, that’s one third less than the company’s IPO price of $18 in April 2011. (The Cambridge, Mass. company’s market cap rose to $30 in its first day of trading.)
The stock fell to $6.50 this summer as competition from players such as RelayRides, City Car Share, and Hertz On Demand (HTZ) cut into its growth. Zipcar’s biggest challenge though isn’t waning popularity, but rather too much: getting access to a vehicle in a prime location on weekends has become a bit of a lottery for Zipsters, as they like to be called. While the brand has built the kind of loyalty and buzz that JetBlue (JBLU) enjoyed in its early years, its executives know all too well that Zipcar won’t survive long if it falters on convenience and cost.
Besides capital, Zipcar’s new owner brings a welcome asset: cars. Zipcar has about 10,000 cars at the moment. That’s how many locations Budget and Avis boast worldwide. Moreover, Avis relies heavily on corporate clients whose demand for vehicles is lower on weekends. If Avis can share its fleet and expertise in managing it with Zipcar–and Zipcar can give its new parent more access to a hip urban clientele–that could take the sharing economy to a whole new level.
