Collaborative Consumption: Un-settling the situation

By Brett

I recently attended an excellent presentation by Robin Chase, the founder of ZipCar[1], in which she described the early obstacles to implementing ZipCar in the US.[2] In this post I will focus on Professor Macomber’s Framework #3 and argue that the innovation of collaborative consumption is that it blurs or ‘moves’ situations within the matrix framed. Zipcar used a new business model specifically to unsettle the transit situation in the US, thus creating an investment opportunity.

Chase explained how the settled systems of hard and soft infrastructure—including zoning, parking, and wireless technology—stood in the way of effective collaborative consumption of rental cars. For example, ‘normal’ (non-ZipCar) renters are charged a small tax (~$10) by the state for every rental.[3] An additional $10 fee for every single Zipcar use would have been a serious blow to Chase’s business plan. Instead (with the help of a good lawyer) Zipcar builds one $10 fee into the annual membership for Massachusetts users and every subsequent use is part of the same initial rental. As this example shows, entrenched interests had settled the system in favor of their own designs and ZipCar had to disrupt the infrastructure to create a viable market for its product. Continue reading

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Mobility on Demand: Not Enough

By WXZ

Mobility on Demand has become very popular over the past few years in developed countries with the rise of the likes of ZipCar, RelayRides, and Car2Go (see exhibit 1) in major urban centers.  These programs have been able to provide certain segments of the population—college students and young professionals—with more convenience and a reduced need for private cars.  However, government policies for private car owners needs to be tweaked in order to bring about a meaningful impact in increasing the “sustainability” of the city.

Exhibit 1 (clickable)Mobility WXZ

Source: Author compiled table based on information from company websites

 Zipcar is by far regarded as the most successful Mobility on Demand program in the US, and it has gained quite a bit of hype and press in major urban centers.  Yet, as of its 2012 10K filing, Zipcar only had approximately 673,000 users. After more than a decade, it had only been able to penetrate less than 0.3% of the urban population in the US (total population of the US = 315,299,632[1], 82% of the US population resides in cities and suburbs[2], which means 258 million people are the target audience).  Even if we only account for the cities where Zipcar has operations (see exhibit 2)[3], the market penetration is just over 2%.  And that is not to mention that the 2% is an optimistic upper limit, as many Zipcar members – myself included (thanks to a free membership from my summer employer) – do not use the service more than once or twice a year.

Exhibit 2 (clickable): 

WXZ Cities

Data source: US Census Bureau

The key here is not whether the likes of Zipcar are doing well.  These companies have great concepts.  However, it is not enough to just have car-sharing services in order to make cities more “sustainable.”  Even with the existence of these services and cheap public transportation, people want cars because it raises their social status.  Moreover, the tendency for humans to be overpowered by bad events over good ones is a well-documented phenomenon[4].  People remember best the times when they had very unpleasant experiences from not having a car, rather than when they had good experiences.  Therefore, individuals usually overestimate the value of car ownership to themselves.

There needs to be higher costs to effectively overcome the exaggerated values people place on car ownership.  Unless governments properly reduce implicit subsidies for private cars, car ownership will not decrease significantly.  One such example is the availability of cheap parking in cities.  Roadside parking and dedicated parking lots take up a large amount of land that are otherwise very valuable, especially in areas with prime real estate.  However, most parking fees are not priced to match the fair value of the land.  While there are many social, economic development, and political arguments for why it makes sense to charge significantly lower fees, we cannot expect to change the behavior of consumers unless such implicit subsidies are reduced.


[1] US Population Clock by the US Census Bureau. http://www.census.gov/main/www/popclock.html

[3] See list at http://www.zipcar.com/about/ under the “find cars” tab.

[4] Bad is Stronger Than Good.  Review of General Psychology 2001. Vol. 5. No. 4. 323-370 http://www.csom.umn.edu/Assets/71516.pdf