Thursday morning, the car-sharing company Zipcar raised $174.3 million in an initial public offering, breaking the ice as the first for a segment once ruled by nonprofits and local organizations. The profit prone IPO could be a boon for new business opportunities targeting alternatives to vehicle ownership as a potential revenue stream.
“It’s great to see Zipcar go for an I.P.O.,” said founder and CEO of Boston-based RelayRides, a start-up backed by Google Ventures that has hopes to promote individual, or “neighbor-to-neighbor,” car sharing. “It adds credibility for car-sharing as a viable business” he added.
In Zipcar’s 11-year existence, the provider has established a network of over 8,000 vehicles in 14 metropolitan areas and on more than 230 college campuses, mostly in the United States but also in Canada and Europe. The company staffs more than 560,000 members, and as RelayRide's CEO put it, Zipcar has “taken car sharing from a niche thing for environmentalists to a hip lifestyle choice.”
But Zipcar has yet to turn single dollar into a profit. In fact, the company has accumulated losses of $65.4 million, including a 2010 net loss of $14.7 million.
One of the biggest costs for Zipcar is acquiring, leasing and maintaining vehicles, which usually remains part of the company's fleet for two to three years. Entrepreneurs, like RelayRides, are among a group working on car-sharing business models that eliminate the high fixed costs of maintaining a fleet (and parking places). The idea is to establish a platform that allows members to conveniently rent their personal vehicles to other members.
Personal car-sharing platforms have emerged also across the country and in Europe. In California, which recently passed a law that clarifies insurance regulations for these auto transport services.
Zipcar’s initial public offering could help heighten exposure for and create excitement about these alternatives to car ownership, said global automotive aftermarket program manager at the research firm Frost & Sullivan.
That’s not a small feat, she said. Although Zipcar’s brand cache is more popular among many college students and some city dwellers, RelayRide's CEO noted “even in the most popular cities,” car sharing has not reached more than 5 percent of licensed drivers.
Yet companies like RelayRide feel that car sharing could reach as much as 50 percent of licensed drivers in cities. These business models see personal car-sharing services and car mover service as complementary, with Zipcar offering predictable service in dense areas, compared to the distributed model.
Innovative models of car-sharing could reap value from many of the trends that helped Zipcar render a solid public offering. The cost of owning and operating a vehicle, like in many car shipping is an overriding factor.
“People become far more interested in alternative forms of transportation,” ranging from public transit to car sharing, said one car hauler professional. This is especially the case in a down economy, the individual added.
