Zipcar Project

August 9th, 2010

MGMT 780: Strategic Management

Table of Contents I. II. III. IV. V. VI. VII. VIII. IX. X. XI. XII. XIII. XIV. Executive Summary Company History Industry Analysis Competitive Landscape Presence & Share Competitive Advantage & Strategic Thrusts Corporate Strategies Value Chain Supply Chain Product Successes and Failures Financial History Current Financial Position SWOT Recommendations

I. Executive Summary Zipcar is the worlds leader in the modern Carsharing industry. Founded in 2000 with the idea that a large population exists that finds car ownership too expensive, but would pay a per hour fee to use a car when they needed to. Zipcar has taken this simple idea global and is now in over 13 major domestic and international metropolitan markets and over 150 college campuses. Zipcars growth can be attributed to their superior technology which allow people to reserve a car on their computer or smartphone and access the car via RFID embedded member cards. Even with all this success Zipcar faces many challenges. As they have established dominance in the Carsharing market, mostly by stealing share from traditional car rental agencies, and they are starting to respond. Hertz, Enterprise and U-Haul have all begun Carsharing services as well these larger, more established and better funded corporations have begun to eat away at Zipcars dominance. New technology has emerged to allow people to share rides and share their own cars, cutting out the need for a supplier like Zipcar. These threats all come at a time when Zipcar is on financially shaky ground as their debt has increased from acquisitions as well as other macro forces including the global recession and swings in gas and currency exchange rates pushing them to prepare for an upcoming IPO in an effort to raise $75M to pay off some of their debt as well as to finance expansion. This report looks to explore the Carsharing industry as a whole, and Zipcars ability to navigate it successfully, we will examine Zipcars strengths and weaknesses as well as to determine their opportunities and threats. This is a very exciting time in Zipcars history because as the industry leader it is up to them to prove that Carsharing is an viable, profitable model that investors will get their returns and the consumers will support them.

II. Company History Zipcar was founded in 2000 based on the premise that there existed a market in large, densely populated urban areas, with high parking costs, and strong public transportations systems for wheels when you want them.8 Over the course of the last decade, Zipcar has endeavored to provide affordable and convenient car sharing services to individuals interested in this ageless concept. Initially, introduced in Boston, MA, Washington, D.C., and New York City, NY, the company has now expanded to thirteen major domestic and international metropolitan markets and over 150 college campuses. By carefully selecting the proper markets and strategically aligning themselves with local governments, universities and commercial operations, Zipcar has begun to disrupt an old transportation industry. The company was founded in January of 2000 in Cambridge, Massachusetts with Robin Chase, one of the co-founders, as the CEO. Chases other co-founder was her husband, Roy Russell, who served as the VP of technology9. Zipcar was founded on the idea that there were large numbers of people who needed a car on specific occasions, but not frequently enough that ownership was truly a financially sound decision. However, with the alternative being rental agencies, many of those people felt they had no choice other than ownership. Zipcar hoped that by providing cars, trucks, and SUVs on demand they would be able to service this population, while at the same time benefitting the entire populous with a smaller carbon footprint, less cars vying for parking spaces, and less traffic. Car sharing is not a new idea; in fact it was first attempted in 1948 by a housing cooperative in Zurich, Switzerland. The idea floated around over the next couple of decades without ever truly gaining a foothold. In the 1990s, companies began to form in Europe and America that aimed to provide car sharing services to their immediate areas, but none were able to create a sustainable business with the level of success that Zipcar has achieved. In January of 2000, a scant 20 months after inception, they were ready to expand from the Boston, MA market to new markets. They began moving into Washington, D.C., followed closely

by New York City in February of 2002. Boston quickly became a profitable market by 2003, but it took longer for NYC and Washington to become profitable. In February of 2003, the investors decided that the company needed a new leadership team and chose Scott Griffith to succeed Chase as CEO. At the same time, the investors raised an additional $5M to help with the growing operations. Griffith has served as CEO since that time and has been largely credited for the direction Zipcar has taken, as well as their success. There was a brief lull in expansion activity while the company rallied to make DC and NYC profitable, but given time they continued to expand. In August of 2005, the company opened up their San Francisco, CA office on the heels of raising an additional $10M in funds from Benchmark Capital in July. Over the last couple years, Zipcar has taken to expanding not only by opening new markets, but also by acquiring other companies. In October of 2007, Zipcar merged with a nowdefunct company named Flexcar. At the time, Zipcar had a fleet of 3,500 vehicles in 35 markets, and Flexcar had 1,500 cars in 15 markets. The companies agreed to retain the Zipcar brand for its value exceed the brand equity of Flexcar. Flexcars CEO remained an employee of Zipcar as the president and COO. At which time Zipcar wanted to expand into Europe, but rather than pursuing organic growth opportunities, again they decided to look outside. In December of 2009, Zipcar purchased a minority share in a company named Avancar, who had car sharing operations in Spain. In April of 2010, they acquired Streetcar in order to establish a foothold in London and continue their expansion into Europe. When starting out in Boston, the original plan for the Zipcar fleet was to maintain small vehicles ideal for city driving and living. However, as the company began expanding, they expanded the options for their customers. Quickly realizing that there was a demand for larger vehicles they started incorporating SUVs and trucks into their fleet. While the original intention was to provide more basic types of vehicles such as the Totyota Prius with minimal carbon output, Zipcar has expanded their fleet over time to provide their customers with luxury optionsl. The fleet now contains vehicles from premium auto makers such as Audi and BMW. While the

company remains committed to providing alternative energy options for their customers, they have in recent months begun to remove the majority of the Toyota fleet, due to recent manufacturing issues with Toyota.9 In addition to automobiles, Zipcar has developed other vendor relationships. In 2006, Zipcar entered into a strategic partnership with Cingular Wireless (now AT&T) to provide mobile connectivity for their fleet. By creating this partnership, it further enabled the convenience, which Zipcars customers had come to expect. The customized technology platform that Zipcar developed with AT&T incorporates RFID technology, which allows Zipcars servers to communicate with individual cars, allowing for security and reservation controls. When the reservation holder shows up with their Zipcard, they are able to use the RFID technology to open the car and begin driving. Without the embedded technology in each car, Zipcar would struggle to provide the speed and ease of use that their customers enjoy today.

III. Industry Analysis - Overview Car sharing, as a common practice, has evolved exponentially over the last 15 years. Starting in concept in Europe in the mid 1940s, car sharing made its way to the United States in 1994 and has evolved into a common form of transportation for the average American urbanite, college student, and working professional in order to meet the mobility gaps between public transit, taxi, bike, car rental, and private vehicle travel. Car sharing provides its members with the benefits of private cars without the costs and responsibilities of ownership.1 The principle of car sharing is simple: Individuals gain the benefits of private vehicle use without the costs and responsibilities of ownership. Instead of owning one or more vehicles, a household or business accesses a fleet of shared-use autos on an as-needed basis. Individuals gain access to vehicles by

Frost and Sullivan, http://www.frost.com/prod/servlet/market-insight-top.pag? Src=RSS&docid=190795176

joining an organization that maintains a fleet of cars and light trucks in a network of locations. Generally, participants pay a fee each time they use a vehicle.2 Car sharing has several fundamental principles that are common goals amongst providing organizations, which include: reduction of vehicle ownership and traffic congestion in the world; proving cost savings, as users only pay for their use of the vehicle lease, maintenance, repair and insurance; reducing emissions by lowering overall vehicle miles traveled and employing clean fuel vehicles (e.g., hybrid cars); facilitating more efficient land use (e.g., car sharing reduces the number of parking spaces needed); and increasing mobility options (e.g., low-income market segment) and connectivity among transportation modes. 2

Industry Analysis Business Structure Organizations that provide car sharing are structured in one of two ways, non-profit or for-profit entities. In the 15 years since car sharing has become emerged as an industry, far more car sharing providers have formed as non-profits, roughly 70% as of 2005. The decision to set up the company as a for-profit or non-profit relates to the founders personal beliefs and motivation. Despite the presence of more non-profits, for-profits companies generally control 80% or more of the total car sharing fleet and over 90% of car sharing members. A for-profit company may be more akin to satisfy a founder if the motivation for start up was financial. Without question, a successful for-profit has the potential to be far more lucrative then a non-profit. This can be achieved through the raising of funds through venture capital rounds and ultimately an IPO. A non-profit, however, can be the recipient of a substantial amount of goodwill from the local political government and community at large.2 Meaning, a local city government, local businesses, and also potential members, are more likely to embrace the concept and offer

Unversity of California, Berkley, http://www.car sharing.net/library/UCD-ITS-RR-0530.pdf

partnerships, time, and money to assist a non-profit. In the case of car sharing, this is extremely valuable as entities may be willing to commit parking spaces, a business membership commitment, and or donations. This concept adds to the allure of the founders when determining how to structure the company. Through the large part of the car sharing existence, the players have all been starts ups, however within the last few years large established, for-profit, companies have joined the game, adding to the competitive landscape of the industry.

Industry Analysis Growth Sectors In the 15 years that car sharing has been an industry in the United States, growth has gone from a primitive subculture to a growing business sector. The industry has ballooned to over 300,000 members, experiencing a 117% increase between 2007 and 2009. Industry experts expect this growth to continue, predicting over 4.4 million members by 2016. According to the same Frost and Sullivan report,1 the below table demonstrates the explosive growth of both car sharing members and shared vehicles in North America and Europe, through 2016, demonstrating the market potential.

Car sharing customers can be broken up into several user classes, allowing for growth models to be differentiated for each class. The user groups include urban dwellers, urban businesses, city governments, college campuses, and lastly partnerships with large corporations.

These can be defined in more detail as follows. Urban dwellers are people who live in an urban environment who either do not have a vehicle or have gotten rid of one. The concept of car sharing has affected this market potentially the greatest and given carless city residents the freedom they have historically lacked for a reasonable price. Urban business car sharing has given many organizations that have car allowances for employees or have a fleet of cars for employees a good reason to eliminate these vehicles (or the allowance). This can often translate to real monetary savings. The best example of this is Philadelphia, the first major city to partner with a car sharing organization in 2004.3 College campuses, a major car sharing growth market for the inherent reasons that college students typically lack the resources to own a car however still experience a need to drive (i.e. grocery shopping, etc). College campuses and car sharing organizations are truly helping each other by providing an amenity that colleges can promote to eliminate student isolation concerns. Lastly, car sharing organizations have begun to partner with large corporations for transportation needs. For example, IKEA has partnered with Zipcar to assist customers in transporting large items from the store. Having pickup trucks located outside the store allows customers the flexibility to purchase an item and utilize the larger vehicle to bring the item home. It is these sectors that car sharing organizations are continuing to grow, paving the way for the continued growth of the industry.

IV. Competitive Landscape While car sharing is relatively young and only recognized as an industry in the early 90s, the space has become surprisingly competitive for ZipCar. The competition for a users need for temporary mobility not only comes from other car sharing services, but from traditional car rental agencies that have lost share to ZipCar and other car sharing services, but also bike sharing, ridesharing and peer-to-peer car sharing

Foundation Center. Form 990 filings.

The competitive landscape within the car sharing industry is surprisingly diverse. Five business models have emerged: for-profit, nonprofit, cooperative (owned by its members), public transit (car sharing operated by a public transit agency), and university research programs (operations run by universities for research purposes, then shut down). Of these five, only two models are real threats to ZipCar, For-Profit and Non-Profit. Public Transit Operations often contact out the service and ZipCar can bid. By 2005, the market share of U.S. for-profit operators (five of 17) increased to 90% of members and 83% of the total fleet (8). As of July 1, 2008, 26.3% of the operators were for-profit (five of 19) in the United States; they account for 74.1% and 83% of the members and vehicles, respectively. 4

For-Profit Car sharing The big three for-profit competitors all hail from the traditional car-rental space, the space where ZipCar has clearly stolen most of its market share from. Hertz, Enterprise and UHaul have all started hourly car sharing business units as a direct result of the popularity of ZipCar. Connect by Hertz Connect by Hertz focuses on partnerships with Universities and colleges, they have also moved to directly compete in cities where ZipCar is, with over 400 cars just in Manhattan as well as 4 cars in Boston (ZipCars hometown) as well as a few in Chicago and San Francisco. They have also set up shop in the UK, Canada, Spain, Germany and France. Connect is principally focused making partnerships with University and Corporate Campuses, their foray into some of ZipCars established locations is clearly an aggressive move. With a well established car rental

[North American Car sharing 10-Year Retrospective http://76.12.4.249/artman2/uploads/1/Shaheen_-_Cohen_-_Chung__North_American_Car sharing_-_10_Year_Retrospective_-_2009.pdf]

network, Hertz already has the infrastructure to expand its market offerings, making it a competitive threat. WeCar by Enterprise WeCar has not moved as aggressively as Connect by Hertz as they do not want to cannibalize their extensive network of neighborhood rental locations. Their focus is mainly on university and business contracts. U Car Share by U-Haul U Car Share is in about 12 locations, of which are directly tied to universities. They have some cars available to the general public in Portland Oregon and Salt Lake City Utah, but these are merely toe-holds and they are not investing much in marketing this system. Non-Profit Car Sharing This space is city-specific and fairly fractured, only a few Non-Profits actually compete with Zipcar, and even then the Non-Profits are fairly unstable, have a very small fleet, change their prices and level of service often and may not succeed in the long term as for-profit companies move into their cities with investment capital and take away share. Here are a few that are in the same cities as Zipcar. Philly Carshare, Austin Carshare, Chicagos I-Go Car sharing are the three largest nonprofit car sharing organizations. With no real investment capital and encroaching well-funded competitors, the non-profits are really feeling a pinch. The non-profits often start in cities which have no car sharing at all and establish the market but never can withhold their first mover advantage. Philly Carshare lost a major account with the City of Philadelphia once Zipcar moved into town and underbid them. While Zipcar can move into a city with an already established and centralized back-office operations, each non-profit has to reinvent the wheel adding to their costs. Austin Carshare is already struggling and is considering moving to a cooperative model. Cooperative Car Sharing

Cooperative car sharing is mostly found in Canada, as well as within small tight-knit communities, such as the Dancing Rabbit Vehicle Co-op, which is an extension of the Dancing Rabbit Ecovillage, with 25 members and 2 vegetable-oil powered cars. Co-op members buy shares of the car and share the cars; these are not real threats to Zipcar. Substitutes to Car Sharing As technology allows for car sharing to exist, technological progress has increased the mobility options of potential Zipcar customers. Common substitutes to car sharing also include car ownership, public transportation, as well as privately operated buses and trains. Peer-To-Peer Car Sharing Start-up Relay Rides allows your car to be a car sharing vehicle. They install the hardware into your own car, you set the schedule of when your car is available for rent and Relay Rides takes a small fee and holds a separate insurance policy for the borrowers. Car Owners and Car Borrowers rate each other on timeliness and cleanliness in order to pressure the users to keep the car in good working condition and the Car Owners can earn a nice sum.

Carpooling Matching Services Zebigo, WhipCar, GetaRound, Spride Share are all companies that allow people to make their own car available for ridesharing. They match people who need rides with people to who would like to share the cost of driving to a certain location. They manage the payments and help to connect the drivers and riders. There are also Facebook apps that do similar things. Bike Sharing While not a complete substitute, bike sharing may be able to take a small bite out of the car sharing market, especially for tourists who want an easy way to get around a city, or when public transportation isnt a good fit. Bcycle with operations in Denver and Chicago and Bixi, which sells systems to cities, mostly in Canada but has a presence in Minneapolis. Washington DC Department of Transportation has their own system as well.

V. Market Presence and Share The overall market for car sharing services is still being defined as the market has yet to reach maturity. Projections, as noted above in the Industry Analysis section estimate of 4.4 million members in North America and 5.5 million in Europe by 2016. In a study completed by the Economist Intelligence Unit, Global Auto Sharing and commissioned in 2009 by Zipcar, the potential market for car sharing worldwide may reach 37 million customers and yield $10 billion a year in revenue. The report didnt specify a timeframe.

Chart 1: Car sharing in North America: market growth, current developments, and future potential, Transportation Research Board November 15, 2005

There are few companies in the car sharing space, and because of that, Were not even close to market saturation, says Long of Connect by Hertz. Only 10 percent of the U.S. population knows what car sharing is. If you take that figure, you could imagine that this could be a $1 billion industry in the U.S. alone. 5 Car sharing growth potential in major metropolitan regions is estimated at 10% of individuals over the age of 21 in North America. In the next five years, the car sharing industry will likely direct greater attention towards business markets in the U.S. and Canada (potentially representing as much as 22 and 15% market share, respectively). Fleet reduction strategies may accelerate government and business market penetration. U.S. operators will likely increase their presence in the college market (potentially representing 23% of U.S. market share), particularly among the younger student population, provided that the insurance impasse for drivers under 21 can be alleviated. Increased technological deployment, such as satellite radio and on-board concierge services (e.g., OnStar), may likely denote increasing competition among some car sharing operators.6 I dont think growth is an issue of consumer demand, but an issue of supplyparking supply, says (Susan) Shaheen. Access to dedicated, on-street parking and safe, public off-street parking are critical. A dense network of cars is crucial. Where the car is parked has a lot to do with how much people know about car sharing.5 Due to lack of consumer education, as well as lack of car sharing vehicles in place much of the market remains untapped and at this point there is almost a bottomless well of demand. This can be shown in the ratio of members to vehicles. It is generally accepted in the Car sharing industry that a profitable ratio of members to vehicles is 45 to one, according research conducted by Transportation Sustainability Research Center, UC Berkeley. Ratios of 50-60 members per car
5

(How to Run a Successful Car sharing Operation By Chris Brown, September/October 2009 in Fleet Acquisition http://www.autorentalnews.com/Article/Story/2009/09/How-to-Run-a-Successful-Car sharing-Operation/Page/2.aspx) 6 Car sharing in North America Market Growth, Current Developments, and Future Potential, Transportation Sustainability Research Center, UC Berkeley, Nov 15, 2005

produce overbooking issues. While the large membership of the five biggest programs, the overall average U.S. ratio was 64:1.6 Current ratios show that there is room for more cars on the street and that car sharing services can make a great deal of money off members who pay annual fees but rarely use the service, much like gym memberships. The car sharing market by nature is broken up city-by-city, in order for a city to have a sustaining demand for car sharing there are four key elements: 1) Parking pressures. Car ownership is more expensive and less convenient in places where parking is scarce, making car sharing a relatively more attractive option. If residents have to walk a block or two to their car, they may as well walk the same distance to a car-sharing location. 2) Ability to live without a car. Car sharing is not designed to meet a households entire mobility needs, but to work in concert with other modes such as transit. The availability of good public transportation is therefore key, along with local shopping opportunities and a pedestrian and bicycle network. 3) High density. Density has two major impacts on the viability of car sharing. Firstly, it means that there is a larger customer base within walking distance of each car-sharing vehicle; doubling the density will double the number of potential customers for a given vehicle. Secondly, it means that these potential customers will have a higher propensity to join, since dense neighborhoods have lower rates of vehicle ownership and travel. This is partly due to the effects of density itself, since the higher the density, the greater the number of nearby destinations and the shorter the trips; and partly because density correlates strongly with other factors, such as the availability of local shopping, parking costs and the pedestrian environment. 4) Mix of uses. Business members have been shown to have an important role in increasing utilization rates and evening out the demand cycle, since they tend to use the cars during the working day. In contrast, people using car sharing for personal trips have a peak demand in the evenings and at weekends. The potential for this pairing of user groups with different demand

patterns is greatest in mixed-use neighborhoods, where car sharing can attract both business and individual members.7

Zipcars Market Presence and Share Zipcar is in over 50 cities and over 100 University and College campuses in North America, and London, England, claiming to have over 400,000 members and over 7,000 cars. As the Frost & Sullivan Reports graph above shows, in 2009 there was about 500,000 US Car sharing members and they predict about 1,000,000 US car sharing members in 2012, as of now, Zipcar already claims 40% of the 2012 market, it safe to estimate that as of the writing of this report Zipcar has captured upwards of 90% of all Car sharing users. Due to the massive upfront costs of positioning 7,000 cars across the country, no new entrants have truly become competitive. But this doesnt tell the whole story, as Car sharing is competitive only on a city-bycity level. As of now no market is saturated, and no second player exists to truly take away market share. Zipcars numbers show a healthy ratio of cars to members at about 50:1. In most of these locations they are the only players. Currently only a handful of cities have multiple Car sharing operators, these are New York City, Philadelphia, Washington DC, Boston, San Francisco, Hoboken, and St.Paul, and of these Zipcar only faces a slight competitive threat in New York City and San Francisco. In most cities that have two Car sharing services, one is almost always Zipcar and the other is more often than not a Non-profit service. These non-profits are good for Zipcar as they raise the awareness of Car sharing as a whole, but often Zipcar is able to siphon off the Non-profits users via superior service and lower costs. As mentioned earlier, Hertz placed just four cars in Boston not in an effort to steal share but more to show off its muscle. Zipcar has

Car-Sharing: Where and Why it Succeeds, TRANSIT COOPERATIVE RESEARCH PROGRAM

never been shut out of a city, in fact the only reason Zipcar isnt bigger is the cost of the cars and placing them in locations that the user wants.

VI: Competitive Advantages As previously stated in this paper the use of technology in Zipcars operations is one of the largest competitive advantages the organization has and is likely the most critical factor to the companys success. As stated by Computer World in 2006, Zipcar has made reserving, accessing and using a Zipcar as simple as getting cash from an ATM. Now members have automated access to Zipcars using a Zipcard to simply unlock the door and drive away. And in 2010 the technology has continued to expand, making it even easier for consumers to reserve cars in addition to Zipcar monitoring their own fleets. Since 2006, Zipcars continual application development strategy lead by CEO Scott Griffith has continued to push forward. There is little to no human interaction when working with Zipcar, the company is a technology based organization. Today, a remote device within the car is sent a signal through AT&Ts Data Network when customers make a reservation. This provides instantaneous feedback to the consumer providing model availability and location pickup as well as providing monitoring feedback to the main office. Zipcar can remotely monitor the odometer, the cars health including engine ware and tear, battery lifetime and fuel levels. The system is so smart that if a consumer forgets to turn off the headlamps, the main office is notified so maintenance can be dispatched. A new application on the consumer side includes Smartphone technology. Time Magazine called this one of the Best Travel Gadgets of 2009. The article reads The Zipcar iPhone app amplifies the quickness and ease of the process... with clever capabilities like remote locking and unlocking and honking your car's horn from your phone when you inevitably forget what it looks like in a crowded lot. We agree that Smartphone technology is a strong

development in keeping this strategy aligned. However, Hertz and Enterprise are beginning to take some cookies from the jar as both companies begin to develop and acquire their own technology keeping Zipcar on their toes. An article put out by Market Wire last year reports, that Hertz Global Holdings, Inc. announced it has acquired Eileo S.A., the Paris-based leader in the design and deployment of best-in-class car sharing technology. Eileo's end-to-end solutions are utilized by Connect by Hertz, currently operating in London, New York City and Paris. Elieos front end solutions include member registration, car reservations, car access and payment applications. The backend provides Hertz management with alert and report functions, and remote vehicle monitoring. A unique, patented vehicle immobilizer function ensures the safety of each Company's car sharing fleet. Points of Interest IT has provided Zipcar with the ability to remotely monitor their vehicles. Creating a system based on technology has minimized Zipcars overhead. Utilizing a nation wide data network has created an environment for easy expansion into new markets. Onboard power regulating monitoring systems relieve battery drain concerns. Strategic Thrusts Ultimately the strategic thrusts born by Scott Griffith are to enhance the bottom line for investors by way of system development, acquisition and multi market expansion/domination. This concept of opening up new hubs is quite simple considering the information systems are already developed and AT&Ts network is already setup. Its a matter of acquiring new assets (cars and parking spaces) and continuing to develop savvy partnerships, which include organizations that use fleet services, landing on college campuses and partnering with government organizations. Through our research we find that the CEOs statements are very

consistent with one another however as a consumer the way we perceive this brand is that Zipcar is selling comfort, an economical means to car sharing and green living. Restated by Computer World Honors, by using modern and innovative technology, making its service easy and convenient as well as promoting its environmental and money-saving benefits, Zipcar has positioned itself as the largest service of its kind. From the Boston Business Journal, Lisa Van Der Pool writes, In terms of revenue, Zipcar has grown to more than $60 million from $2 million; membership has jumped to 105,000 from 5,000; and Zipcar's fleet of cars has swelled to 3,200. The company is in more than 14 cities, including Boston, New York, Washington, D.C., Chicago and San Francisco, as well as Vancouver, Toronto and London -- up from just two when Griffith arrived at the company. Lisa continues to discuss Scott Griffiths plan to expand globally in one city each quarter to surpass the $100 million revenue mark in addition to adding more college campuses to his group which includes more than 30 at its current state. A government agency rep comments on how Zipcar has helped his goals, Car sharing meets many of DDOTs goals: it reduces traffic congestion, air pollution and demand for parking, while meeting the increasing demand for alternative forms of transportation, Dan Tangherlini, Director of the Department of Transportation, Washington DC. To sum up Scott Grififths Thrust for the future of Zipcar we look at a recent clip from CNBC, where Scott discusses Zipcar on Squawk Box. He states, Were going to sell you a car, insurance and gas one hour at a time and its going to be parked in your neighborhood, whats better than that?

VII: Corporate Strategies Scott and his managers have found that an open forum for business development makes the most sense for Zipcar. They find that being open to both the consumer side and internal side

allows their business to more successful. They have a culture that encourages Kaizans a Japanese term we use when working in the Six Sigma space. From a recent interview with Peter Merholz of Adaptive Path, Scott Griffith remarks, Were constantly trying to refine and improve that map, we think about that whole experience as they use the cars for the first time or review their online billing for the first time One thing that weve done is really started to employ what Toyota calls their kaizen techniques. Anyone in the company can raise their hand and say, I see an inefficient process, or I see a user experience issue, and if we call a meeting and really review how were doing it now and review how we can improve it, that through better systems, better processes, or some unique application of the technology were not using yet, we could really change either the consistency of the delivery of our service, our member experience, or improve it overall. Zipcars management has attentively listened to community members, making the entire process of car sharing a relaxed one through the use of new technology and social networks. By maintaining a stronghold in these conscious consumer markets it appears Zipcar believes they can be successful. CEO, Griffith says, Our users tell us what they want, and we try to listen and provide it. Zipcar is uniquely a self-service business. What were trying to do is give you a very conveniently located automobile that doesnt require human interaction. Griffith continues to discuss internet and technology companies that rely more on clicks that it does on human interaction, drawing parellels to ING Direct and Amazon.com to Zipcar eliminating unnecessary overhead and bick and morter storefronts.

VIII. Zipcars Value Chain Zipcars car sharing services provide value to the consumer, the communities that they serve, and the environment in numerous ways. By sharing the costs of car ownership, Zipcar

estimates that its service has taken more than 20,000 vehicles off the streets, reducing traffic and parking concerns in the cities it operates8. The flexibility and convenience of Zipcar leads many of its members to sell existing cars that they own and forego future care ownership. The company notes that on average members report saving $435 each month by having reduced their car ownership expenses, not to mention the health benefits they experience by increased walking and biking. Zipcars fleet contains mostly newer fuel-efficient and hybrid cars helping to reduce green house emissions going into the atmosphere. As of 2009, Zipcar had 6,000 vehicles on the road being share among 275,000 drivers.9 That is a ratio of 45 people to ever 1 car. When you examine the firms value chain using Michael Porters model, it is clear that value is added in all of the primary activities of the firm.

8 9

ZipCar: Case Study, The Computer World Honors Program, Cambridge, Mass. 2006. Wikipedia, http://en.wikipedia.org/wiki/Zipcar - cite_note-Economist0609-1 i Science News, http://blog.taragana.com/science/2010/02/09/zipcar-pulls-2010-priushybrids-affected-by-recall-less-than-1-percent-of-fleet-5728/ iv The Street, http://finance.yahoo.com/news/Zipcar-Rebounds-From-Toyota-tsmf1259811315.html?x=0&.v=6 vii Philly car share, www.phillycarshare.org/vision/history viii Foundation Center. Form 990 filings. http://tfcny.fdncenter.org/990_pdf_archive/320/320025505/320025505_200712_990. pdf ix Securities Exchange Commission. Hertz 10-K submission. http://www.sec.gov/Archives/edgar/data/47129/000104746910001717/a2196932z10k.htm x Securities Exchange Commission. Zipcar S-1 submission. http://www.sec.gov/Archives/edgar/data/1131457/000119312510160406/ds1a.htm xi Connect By Hertz. Rate plans. https://www.connectbyhertz.com/signup/

Inbound Logistics (Suppliers) Zipcar sources fuel efficient, hybrid, and low emissions vehicles for its fleet. By maintaining a 6,000 car fleet, with a limited number of car manufacturers, they are able to negotiate pricing and service packages. Zipcars preference for environmentally friendly cars adds value to the companys image, its customers, and the environment. Operations Zipcars operational model, built on the technology platform that they developed with Cingular Wireless gives them a superior platform to leverage for car reservations and asset location management, as well as vehicle diagnostics. The early investment to build this custom platform to support their unique business model has proven to be a competitive advantage for them. The ability to monitor car systems like fuel levels and maintenance needs from a remote (central) location allows them to lower in-market staffing expenses, a key to profitability and expansion. The use of technology in operations is probably their largest competitive advantage, and is one of the most critical factors to Zipcars success. Outbound Logistics

Zipcars deployment of its fleet and the convenient locations of its cars make the outbound logistics of their business a competitive advantage against their local market competitors. Dedicated Zipcar parking spaces are secured throughout cities, and also in popular retail locations, making the pick-up of a Zipcar easy. Sales and Marketing Zipcar believes that car sharing should be fun and exciting, and aims to offer a unique fleet of the coolest and newest cars on the market. They have more than 20 makes and models of cars such as MINI coopers, scions, Hybrid Toyota Priuses and BMWscars that people want to drive, but may not be able to afford or want to own and maintain. Zipcar also provides its members with several perks that differentiate them from competition. For example, every Zipcar comes equipped with free XM satellite radio, local market competition and traditional car rental companies rarely offer this benefit for free. As well, Zipcar has developed partnership incentives like discounts at ski resorts, discounted tickets to local events, and parking partnerships with retailers like Ikea and Whole Foods to encourage membership, trial and adoption. Service One of the primary service issues that is encountered when car sharing, is how to deal with lost and found items in a car. Zipcar knew that it would be a nightmare for them to take responsibility for coordinating the exchange and return of lost items. Instead of running a big lost and found service by retrieving the items from the cars, then figuring out how to redistribute them to the members, Zipcar created a self-service system. Members who find a lost item are encouraged to leave it in the vehicle and report it online. Members who lose something are also encouraged to visit the online lost and found and check to see if anyone reported it found. You are only able to see lost and found items reported in cars you recently reserved. If the item you lost is reported, and a match is made, you simply reserve that car again and reclaim your item. In addition to customer service for lost and found items, Zipcar take service and reliability of its car availability very seriously. They know that if cars arent easily accessible,

available on short notice, and clean and well maintained, then repeat usage and membership will not increase. To ensure that a superior customer experience, Zipcar deploys a staff of local market employees that have responsibility for moving cars within the market to meet demand. They also maintain and clean the cars within the market, based on data received at the central data center.

IX. Supply Chain Car sharing, beyond addressing a need for several primary classes of customers, is essentially bundling the temporary use of a vehicle and insurance, supported by technology to allow the experience from reservation through payment to be seamless. From that perspective, the elements of the supply chain and how users are able to efficiently utilize the service are easily defined. Car sharing fleets are managed in one of two ways, as typical with a consumer car buying experience leasing or purchasing. Car sharing entities are able to make these decisions based on mileage, cost and trade value. Buying / leasing in volume present potential significant purchasing power which is often considered when budgeting for growth periods. Insurance is notably one of the largest expenses for annual operating expenses for car sharing entities, estimated to be $2500 per year, per vehicle. Due to the large expense, car sharing companies are continuously looking for ways to reduce the expense through three fundamental strategies. First, like any car owning consumer, lowering deductibles and lowering limits that the insurance company has to cover are analyzed when determining your risk versus out of pocket annual reduction in payments. Another way car sharing entities can reduce the annual expense is self insurance. As of 2005, self insuring the fleet was a growing trend among car sharing organizations. Lastly, car sharing affinity groups have been emerging as a means to pool organizations together to form higher fleet totals, thus reducing the per vehicle expense.2 Another key aspect of the supply chain function of car sharing organizations is technology. Successfully managing a fleet of vehicles, billing systems, entering and exiting

vehicles for numerous customers per day, among the many other inherent challenges these organizations face is carefully managed through state of the art technology systems. A solid technology platform can either be the key component to success for a company or the key reason for failure, therefore its importance is paramount. As of 2010, it is clear that organizations with top platforms have made the user experience a more enjoyable one and are reaping the benefits of expansion.

X. Product Successes & Failures: When discussing Zipcars products there are two aspects you must consider; their true product, which is a service, and what their customer views as the product, which includes the vehicle they are reserving. Zipcars fleet is continually praised for how well it is maintained, how clean the vehicles are, and how easy it is to reserve and access vehicles. For all intents and purposes, their product has been a resounding success. Very rarely are there malfunctions with the reservation system, and when there are they can be easily remedied because of the level of remote access that the company has set up. The RFID Zipcar functions very efficiently in terms of facilitating reservations, and also for the purchasing of gas. Their cars are mechanically maintained well and little to no complaints can be found regarding broken down vehicles, which is impressive considering that they maintain a fleet of over 5,000 vehicles in non-centralized locations. A less often considered aspect of their product is the fact that Zipcar also provides insurance to their customers when they are operating one of their vehicles. It operates in the standard way of insurance, with the customer responsible for an initial deductible, and Zipcar paying for the damages beyond that. The fleet of cars, while not technically Zipcars product, has to be considered here because the average consumer still identifies the vehicle they reserve with Zipcar itself. Their fleet is diverse enough that all customers can reserve the type of car that they want and typically

do not have to go far to get to their specific vehicle. Occasionally, with vehicles that are not as common in the fleet, such as the luxury vehicles, customers may have to travel further to get their vehicle. Despite the fact that their fleet, at one time, had a considerable number of Toyota vehicles, Zipcar was able to completely avoid the negative public relations backlash that has hit the Toyota brand throughout the course of 2010. They removed 2009 and 2010 Toyota Prius in February of 2010, per the Toyota recall iii and repaired all of their Toyota Matrix iv in early 2010, which combined comprised 6% of their fleet.

XI. Financial History Financing Little information is available for review from the inception of the company, but in July, 2005, Zipcar was able to establish a $10 million line of credit with Benchmark Capital. Zipcar used these funds to lease more vehicles and open additional offices in San Francisco and Toronto. In May 2006, another line of credit was established with GE Capital for an additional $20 million. These funds were again used for more vehicles and expansion into the London and Vancouver markets. M&A Zipcar is the largest car sharing company in the world, and has merged or acquired other smaller companies. The first company to be acquired was Flexcar in November of 2007. This merger used a stock for stock trade that was tax exempt. The total number of Zipcar convertible preferred shares traded for Flexcar shares was 14.3 million. At the time of the acquisition, Zipcar shares were estimated to be in the $2.30 range. Shortly after the acquisition, Zipcars number of members doubled by January, 2008. Zipcars second acquisition was really an investment in a foreign car sharing business, namely Avancar; Avancar is a Spanish based car sharing firm. The investment was completed in

December of 2009 at which point Zipcar had purchased $0.3 million of Avancars shares with cash. Currently, Zipcar still has the option to become a major shareholder of Avancar. Zipcars third, and latest, merger was of Streetcar, a London based car sharing operation. The merger was signed in April of 2010. The merger was broken into three forms of payments: first was a trade of 8.2 million shares of Zipcar common stock valued at $4.37 at signing; $7.7 million in cash to shareholders of Streetcar; and additional $5 million in bonds, payable upon completion of the merger. In addition to the shares traded for the Flexcar and Streetcar transactions, additional warrants were issued at varying values to the stockholders of both companies. Finances Zipcars revenue history is a model of stable but strong growth. Zipcar derives it revenue is the form of usage and membership fees. Growth rates have shrunk from 142% (2005-2006) to 24% (2008-2009), along with the slowing of year-on-year growth, per member revenues have fallen from $496 in 2008 to $429 in 2009. This flattening of income represents a saturation of markets, and increased price competition. To continue the growth trajectory, Zipcar will need to find new markets to expand into. Additionally, the reduced revenue per member can be related to the recessionary impact on the economy. However, the good news is that the revenues are still growing, and with the new merger between Zipcar and Streetcar, there should be a sizeable increase from 2009 to 2010. Additional analysis of the financials shows that the majority of the income, greater than 97% comes from the domestic market, but that number is decreasing currently by about 1% a year. It can be expected that the merger with Streetcar will substantially increase that number. Opposing the revenue are the operational expenses. Historically, they have been around 113% of revenue with exceptionally high expenses in 2007 at 124% of revenue. It is possible that the 2007 blip is due to the increased expenses associated with the Flexcar merger.

Operational Costs A breakdown of the fleet expenses, those expenses that are tied directly to operating the fleet including: fuel, insurance, repairs, and parking among others. This number has historically been around 77% with a corresponding spike in 2007 of 87%. This can be explained with the thought that the Flexcar merger required additional maintenance of the fleet to bring the Flexcar fleet in-line with the expectations of Zipcars customers. A breakdown of the fleet expenses divided by the average number of cars in the fleet for the year and then dividing out by 365 days in a year gives $44.2 (per day per vehicle costs) in 2008 and $41.5 (per day per vehicle) in 2009. Zipcar explains the additional expense in 2008 as a result of the increased fuel costs. Zipcars financial risk and profitability is heavily impacted by the cost of fuel and the companys credit rating ( and impact on interest rate). Zipcar has two forms of financial liability: debt to investors and leases to car companies. Each carries different interest rates, but debt to investors has ranged between 11.1% in 2008 to 16.8% in 2009 and 16.0% in 2010. The leases carry a guaranteed residual value of 42% which, Zipcar feels confident about meeting or exceeding, thus resulting no liabilities. Zipcar, due to recent global expansion, is now exposed to currency risk.

XII. Current Financial Position Initial Public Offering Zipcar has declared an IPO in the hopes of raising $75 million in cash. The intended usage of the revenues from the IPO are to pay off some debt, especially that associated with the Streetcar merger, and to invest in more cars and markets. As yet, Zipcar has not specified the number of shares that it is going to offer, but it can be reasoned that the price per share will be around $5.30 as calculated by Zipcar using the Black-Scholes option valuation method. There are already a large number of common and preferred shares outstanding, but these have not been offered to the public. Zipcar has stated there will be no dividends associated with their stock,

which could push away potential investors. Zipcar has yet to make a profit, but carries large amounts of cash per its lease agreements, and its operational revenue is much larger than its debt, providing incentives to investors. Revenue Topline revenue is still growing, but it is slowing down based on first quarter results in 2010. Again, the majority of revenue comes from the domestic market, but Streetcar merger in April 10, will produce top line increases. The revenue is still steady at $55 per vehicle per day which is a good thing as it allows Zipcar to plan income based on the number of vehicles it has in the fleet, which is growing. Operating Expenses Operational expenses are dropping as a percentage of revenue for the first quarter of 2010, and this is reflected in the fleet costs, which have dropped to $38.38 per vehicle per day. These decreases in expenses are occurring as a result of economies of scale from the number of cars used, and in opposition to the rising fuel costs.

XII. SWOT

Strengths: -Strong position in current market -International presence -Strong technology platform in place -Strong brand recognition Opportunities: -Growth of market -International expansion -Company acquisitions -Reduce costs via economies of scale -Possible IPO

Weaknesses: -High debt ratios -Managing international issues currency and culture issues -Lack of private label programs Threats: - Rental car companies entering the market -Public transportation expansion need for a car reduced -Rising supply chain / operating costs -Increased competition due to high growth sector

XIII. Recommendations Zipcar should look at franchising opportunities. Zipcars key competitive advantage is their superior IT and branding. Their key liabilities are owning and maintaining the cars and parking spaces, the costs of which slow expansion. By franchising, they put those liabilities onto the franchisees. As Car sharing is a city-by-city market, local franchisees know their city the best, they know where to place the cars and which cars to use. Zipcar has several options for franchising. Traditional Franchising would be a faster route to National and Global expansion, if a local businessperson feels their city could support Zipcar, they could become a Zipcar franchise and be given control over a certain city or region. Franchisees would have to adhere to Zipcars branding and level of quality and service, but they would be able to choose which type of car and where they would go. Private Label Franchisees, this would be mostly permitted only to Non-Profit Operators. Non-Profit Operators would benefit from Zipcars superior technology, and economies of scale.

The Non-Profits would be able to keep their branding and would greater margins than going solo or trying to actually compete with Zipcar. Peer-to-Peer Franchising, Zipcar should at a minimum explore the Peer-to-Peer Car sharing market as this threat could move virally through the Car sharing marketspace. They have the best system and should use it to follow customer demand. Continue to innovate through the use of IT and by listening to customer feedback on the social network sites. Look for strategic partnerships with suppliers or other potential providers of services that Zipcar could leverage to improve its service or add extra value. Potentially become strictly the software side of car sharing and allow the Car rental companies to maintain the assets. Zipcar needs to begin hedging against fuel prices by buying futures in the gasoline or oil market. Doing so may actually raise the cost of fuel on the whole, but will stabilize the fluctuations, allowing for better usage of revenues. Additionally, the losses incurred could be used as a tax offset. Now that Zipcar will have a large presence in Europe, London specifically, it should begin to protect itself against fluctuations in the rates by entering into swaps. The swaps could lead to additional revenue or additional costs, but either way, it will stabilize the revenues from foreign markets. Similar to futures in the oil market, tax offsets could be possible if losses are incurred. While the company currently has plenty of revenue to cover interest expenses, it does have over $30 million in debt at a high weighted average cost. By paying down the debt, Zipcar could free revenue to make a profit. Interest expense is currently only around $2 million, with losses in the range of $4 million. If Zipcar is correct in its estimate that the residual value of the vehicles will be greater than the 42% minimum, then Zipcar should continue to lease vehicles instead of purchasing them.

This will keep the inventory new and also relieves Zipcar of the burden of finding channels to sell the vehicles.

With revenue staying at $55 per vehicle per day and expenses dropping as the number of cars increases, Zipcar should purchase more cars for each market. Extending the rate at which the expenses are dropping, we can see that 2010s will have a 33% margin over fleet expenses. This may well be the tipping point for turning a profit. Yearly Results 2008 5217.5 52.25 44.2 1.18212 Rev/Exp 7 1.28437 0.93800 Expense % y/y 9 0.853648 1.067616 1.406983 1.480842 First Quarter Numbers 2009 2010 5436 6085 48 54 44.96 38.38 Projected 2010 55 37.14104

Year Cars in fleet Revenue Fleet expenses

2009 6169 53.25 41.46

Additional Charts