Entrepreneurship. Rhonda Abrams

       challenge

      Innovate in a mature and overcrowded market

       solution

      Introduce a new business model

REAL-WORLD CASE

Entering a Mature Industry: How Zipcar Created a New Business Model

      When Henry Ford invented the Model T in 1906, he launched more than merely the automobile industry. Within a decade after the first Model T took to the road, the rental car industry began. More than 100 years later, a few large corporations own the handful of leading rental car brands. Mature industries such as this are notoriously difficult for new competitors to penetrate. But Zipcar did—by introducing a new business model.

      In 1999, Robin Chase sat in a café in Cambridge, Massachusetts, with her friend Antje Danielson. Danielson had just returned from Berlin where she saw the success of a new concept in rental cars—“car-sharing.” It was the height of the dot-com boom, and Chase, a serial entrepreneur and 42-year-old mother of three, was eager to start her own company. Not long after that conversation in the café, Chase would launch her own car-sharing company—Zipcar.

      The idea was simple in concept: Allow people to use cars only when they needed them, just for the amount of time they needed, if only for an hour or a few hours. They’d be spared the expense of owning and maintaining an automobile. Millions of Americans need a car, but the economics of owning one simply aren’t there for them, especially in urban areas where they can use public transportation. Many more people do invest in automobiles, but grossly underuse these expensive assets. And too many cars choke U.S. roadways, causing traffic jams, creating delays, and accelerating global climate change.

      Of course, people could always turn to a traditional rental car service, but those require rentals of a minimum of a day, and the cost and inconvenience to rent a car simply to pick up groceries, visit a big-box store to buy things in bulk, or drive to a party in the suburbs doesn’t make much sense.

      Car-sharing is a concept born of the Internet Age. Although the concept of sharing ownership of an expensive resource like an automobile has been around for decades, the logistics of scheduling, figuring out charge rates, tracking locations, and making cars conveniently available to people scattered over a large geographic area meant that executing the concept wasn’t feasible. Robin Chase immediately saw that the convergence of technology, economics, urban culture, environmental concerns, and young people increasingly accustomed to sharing over the Internet would open up a tremendous business opportunity. The time was right.

      Starting in Cambridge, the company bought a small fleet of cars and offered to rent them by the hour to city residents. To be eligible, people had to first join Zipcar by paying an annual membership fee, have their driving record checked, and then obtain a personalized electronic “Zipcard.” They could reserve cars by the hour, 24/7, 365 days a year. They were directed to the Zipcar parked closest to their neighborhood, and would use their Zipcard to unlock the door and start the engine. Zipcar paid for the car, the insurance, the maintenance, the gas, and the parking.