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Thursday, January 3, 2013

Daily Report: Avis Also Buys Zipcar Ethos

The $500 million acquisition of Zipcar by the Avis Budget Group represents a perhaps inevitable evolution for a company that has been more successful as a collectivist concept than as a profit-making venture, Andrew Martin reports in The New York Times.

Zipcar was one of the first businesses to use the sharing business model on a large scale in the United States. It has since been adopted and adapted by other start-ups like Airbnb. Last year, Randall Stross noted in his Digital Domain column in The New York Times: “Several car-sharing start-ups, including Getaround, RelayRides and JustShareIt, are eager to connect car owners with renters this way. The companies use different formulas, but participating owners receive, generally speaking, about two-thirds o f the rental proceeds.”

For Avis, the purchase represents a new direction in a fiercely competitive car rental market, and an about-face for Ronald L. Nelson, the company's chairman and chief executive, who had resisted entering the car-sharing segment.

“I've been somewhat dismissive of car sharing in the past,” Mr. Nelson said on Wednesday in a phone call with analysts. He said he had come to the realization that car sharing could complement Avis's more traditional car rental business and help it unlock new business opportunities abroad and with younger consumers. Avis's rivals, Hertz Global and Enterprise Rent-A-Car, already offer hourly rental services that compete with Zipcar.

Avis paid $12.25 a share in cash, a 49 percent premium over the closing price of Zipcar on Monday. The price, however, is well below Zipcar's value in April 2011, when it went public at $18 a share.

Among the beneficiaries will be Zipcar's early investors, including th e tech titan Steve Case. He and his investment fund own about 19 percent of Zipcar's outstanding shares.

The idea for Zipcar dates to 1999, when a 42-year-old woman named Robin Chase learned about car sharing from a friend who had just returned from Berlin. A mother of three with an M.B.A. from the Massachusetts Institute of Technology, Ms. Chase wrote up a business plan and secured financing. Zipcar was started in 2000.

Dennis Berman of The Wall Street Journal warned that the Zipcar technology had its limits: “The odd thing is that Zipcar came very close to perfecting its technology and customer experience. Its problem was that it just couldn't find a cost-efficient way of luring ever more members. Over the last three years, for instance, Zipcar kept adding customers, but the rate of growth was declining. There just weren't enough people who wanted to use a Zipcar, des pite Mr. Griffith's estimate that his was a $10 billion market.”

Sarah Lacy of PandoDaily took it personally. “Zipcar has made more inroads into this oligopoly than anyone. And now, it is part of it. Call me a cynic, but with the biggest disrupter gone and all the others still fledgling, it's hard for me to believe Avis â€" not a tech company by its DNA â€" will continue to push the envelope on making the service even better.”