Someone on Zillow recently listed a parking space as a 75-square-foot condo and attempted to sell it for $100,000. The story sounds absurd, but it does highlight the appeal of an alternative to car ownership -- like Zipcar
When the bus doesn't cut it
Most urbanites already know about Zipcar. For those of you out in the burbs, it's a car-sharing service operating in 14 metropolitan areas and on 230 university campuses. Zipsters -- the company's nickname for its customers -- pay an annual or monthly fee, depending on their usage, and can rent a car for as little as $8 an hour. The price includes gas and insurance, making the rental a pretty good deal.
Zipcar differentiates itself from more traditional rental companies by making the process of renting a car more convenient. Here in the D.C. area, you can find Zipcars parked within walking distance of almost every Metro stop. Customers reserve a car online and then use either an RFID card or a smartphone app to unlock the vehicle. They'll find the keys waiting inside.
The service is perfect for city dwellers and college students who really only need a car a few times a month for errands or a day trip out of the city. They get the freedom of a car without the expense or hassle of ownership in the city.
So far, it seems that Zipcar lives up to its promise of being a viable alternative to owning a car. A recent survey of Baltimore's Zipcar membership revealed that 72% of them are less likely to purchase a new car and that nearly 20% reported selling their vehicles after joining.
Now that Zipcar has identified a clear niche, there is the danger that competitors will move in, but I'm not too concerned. Any upstart would be at a geographic disadvantage in Zipcar's established markets. If the company employed the same strategy in other metropolitan areas as in D.C., then it's already snagged all of the prime parking spaces. Newcomers would have to outbid Zipcar to win these spots. Doing so would drive up their costs and make it harder to compete with Zipcar's low rates.
Although not quite as powerful as the geographic advantage, Zipcar benefits from its catchy brand name. It strikes that perfect balance of punchy and descriptive that can help a brand become a synonym for the whole category -- see Johnson & Johnson's Band-Aid for an example. I've noticed that DC's urban hipsters have already begun to replace the term "rent a car" with "get a Zipcar." In comparison, the competitors' brands -- Hertz's
A few minor dings
I will admit that Zipcar does have a few potential risk factors. The company has yet to make a profit and can't say for sure when it will. It's also not encouraging that its first-quarter losses widened from $5.3 million to $6.1 million year over year. However, revenue increased 49.1% as a result of the company's acquisition of the U.K.'s Streetcar. If you factor out that purchase, revenue grew by 24%. Moreover, the company's four established markets -- Boston, New York City, Washington, D.C., and San Francisco -- posted a profit for the quarter.
Because Zipcar includes gas in the price, rising fuel costs could also pose a problem. The price of gas could force the company to raise its rates, and that may not sit well with Zipsters. The outcry over Netflix's
Above all, I like Zipcar because I believe it has that special Rule Breaker quality of taking the world forward through innovation. Similar to how Amazon.com has changed the way we shop and the way we read, Zipcar can change city dwellers' relationship to cars. As a result, I believe that Zipcar will succeed in the long run, and I plan to open a small position in the company once the Fool's disclosure rules allow it.
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At the time of writing, Fool contributor Patrick Martin owned shares of Netflix. You can follow him on Twitter at @TMFpcmart03. The Motley Fool owns shares of Hertz Global Holdings, Johnson & Johnson, and Zipcar. Motley Fool newsletter services have recommended buying shares of Amazon.com, Zipcar, Johnson & Johnson, and Netflix, creating a diagonal call position in Johnson & Johnson, and buying puts in Netflix. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.