Chase's business education is also evident in two of her early decisions: to pursue millions in outside funding before year two and to invest up front in the technology that would help the company grow. So far, she's raised $1.3 million, of which $300,000 has gone to build a Web-based system for reserving and tracking the vehicles. Chase thinks the system gives her a "9-to-12-month technology lead" on her U.S. CSO counterparts, none of which has an up-and-running Web system yet.
Despite the company's big Web-site investment, Zipcar customers still have to fill out paper logs so that the company can track their vehicle usage. In that regard, Zipcar is no different from other CSOs. But Chase hopes that won't be the case for long. In the works, she says, is a system that will wirelessly transmit vehicle-usage information from a car's clock and odometer to Zipcar's billing system.
Zipcar customers pay a $75 annual fee, a $25 application fee, and a $300 security deposit. The company then sends users monthly bills for mileage (at 40¢ a mile) and usage time, at hourly rates of from $4.50 to $7, depending on the car type and location. Zipcar's prices are easily the highest among the industry's start-ups, which is partly attributable to the company's pricey Boston locale. Nonetheless, other start-ups admit that Zipcar's success has prompted them to reconsider their rates. "Most of us have priced it to get folks to join, and we've done it too low," confesses Kevin McLaughlin, cofounder of AutoShare, in Toronto, and keeper of www.carsharing.net, a site devoted to the nascent industry.
Since its opening, Zipcar has added roughly 25 members a week. Most customers hear about the service through local press or word of mouth. As a result, marketing expenses have been minimal. The biggest costs have been cars, insurance, and staff. Zipcar has 10 full-timers in its Boston headquarters but plans to open in each new city with only 5 people. Chase believes that such a quintet -- consisting of a regional director, an office manager, and one person each for marketing, customer service, and parking-spot acquisition -- can manage a 70-vehicle fleet in any city.
Chase is looking to raise an additional $5 million to help the company expand beyond Boston. Destination #2? Washington, D.C., to open this spring, with New York City on deck as a possible next target. But recruiting and securing parking in new markets may be tough. For one thing, city officials may prefer to deal with either established car-rental companies or regional nonprofits. Last year, for example, nonprofit car-sharing groups that debuted in Chicago and San Francisco secured more than $500,000 each in government funding.
If the car-rental giants decide to enter the CSO space, Zipcar's head start would provide some competitive advantages, Chase believes. "We'll have the long-term relationships with members," she notes, and expertise in managing a dispersed fleet of hourly drivers -- something that the rental agencies don't have. If the Hertzes of the world do invade the market, what's her best-case scenario? That the big guys would rather buy than build.
Ilan Mochari is a reporter at Inc.
Country club
It's easy for city dwellers to see the benefits of car sharing. But what if you live in the country?
Neighbors Bob Otwell and Sharon Flesher cofounded CarSharing Traverse Inc. a year ago in Traverse City, Mich., a rural community (population, 15,000) surrounded by rolling hills and cherry orchards. Otwell and Flesher have made it their mission to rid their community of extraneous vehicles.
Both of them had made the same observation: in Traverse City, walking is often an option. The town covers about eight square miles; the downtown area is concentrated in a tight six-block-long area. But since many residents own cars (for the occasional downstate drive to bigger cities or the airport), they tend to use them for shorter trips, too.
In major cities, where owning a car can cost a fortune, car-sharing businesses try to appeal to customers' wallets. In Traverse City, where parking is plentiful and insurance is relatively cheap, Otwell and Flesher are appealing to customers on an ideological level: Simplify your life. Keep our town clean.
So far CarSharing Traverse has 22 members who share three cars. The founders hope one day to put vehicles within a five-minute walk of any resident, which they figure would require about 15 cars. However, since the business is recording a small loss on first-year sales of $10,000, the cofounders have yet to quit their day jobs. --I.M.
Q&A
Will car sharing stall?
As first movers, the current crop of car-sharing start-ups have a huge jump on securing parking spots and member relationships in their given communities. But will that be enough when they're facing potential competition from billion-dollar rental companies? C. Kenneth Orski, transportation consultant and founder of Urban Mobility Corp., in Washington, D.C., has been reporting on trends in U.S. transportation since 1991 in his newsletter, Innovation Briefs. Inc. asked Orski for his take on car sharing.
Inc.: Can car sharing work in America?
Orski: Yes, on a limited scale. It won't be a mass phenomenon. It certainly works in communities where there are dedicated environmentalists. In places where car sharing would be based more on economics than ideology, places like Manhattan and San Francisco, I could see it bloom or at least be a sound economic proposition. But the question is, Could you actually run a car-share there? Where would you store those vehicles, and how much would you pay to store them?
Inc.: Why is all the start-up action happening now, as opposed to five years ago?
Orski: I wouldn't attribute the start-up action to changing economics. The relative cost of owning a vehicle is not higher -- it could even be lower -- than it was then. Correspondingly, the relative cost of offering customers shared vehicles is no cheaper today than it was five years ago. I think the car-sharing concept spread to America simply through word of mouth. As the concept grew in Europe, then in Canada, more American travelers and transportation experts wondered if it could work here.
Inc.: Are the car-rental giants and automakers paying attention?
Orski: The rental people are watching it much more carefully than carmakers are. I suspect that if the rental agencies see car sharing taking off, they'll move in and establish neighborhood-based rental outlets. They're watching -- quite carefully.
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