Technologies such as high-speed Internet, mobile broadband and GPS are enabling new ways of providing value to customers. In this article, Scott Griffith, CEO of Zipcar, describes how such technologies gave rise to his company’s innovative business model.

Not so long ago, the choices for anyone needing an automobile were to buy one, lease one, or rent one, by the day or by the week. In each of these alternatives, the car was likely to sit unused in a lot or a garage for long stretches of time. These models all provided great convenience—but at the price of great inefficiency.

With the arrival of new technologies, another model emerged: car sharing. Rather than buy or lease an entire car, customers buy just the amount of car they actually need. It could be an entire day’s worth or just an hour. The car is there when they need it—and in use by someone else when they don’t.

Zipcar is the world’s largest provider of car-sharing services. Our customers include consumers, businesses, universities, and fleets. We put thousands of self-serve vehicles in reserved parking spots in cities across the United States and Canada, as well as in London, and let our rapidly growing membership base of 325,000 users reserve and drive them by the hour or by the day. A single fee includes gas, insurance, parking in a reserved spot, maintenance, and 24/7 roadside assistance. Giving people on-demand access to vehicles in this manner saves our members money, reduces congestion and parking demand, and decreases greenhouse gas–forming carbon emissions.

Our goal is to make owning a car truly optional and, in doing so, to create a world where there are more car sharers than car owners in cities around the globe. To achieve this profound social impact, we must make car sharing more affordable and more convenient than car owning. We simply wouldn’t be able to do that without technology.

Since our goal is to supplant car ownership in major urban areas, our value proposition hinges on location, ease of use, and value. We know that if neighborhood residents can walk to a Zipcar in less than ten minutes, they are much more likely to use our service. But convenience alone won’t win the day; Zipcar must also be as easy to use as owning a car and cost less. Technology not only accomplishes all that but also enables a truly sustainable and scalable business model.

It’s no coincidence that car sharing first became possible in the late 1990s as wireless technology, high-speed Internet connections, and mobile devices became increasingly popular and reliable. Think about the complexity involved with our system, and you’ll see why. Here are just some of our requirements:

1. The user must be able to easily reserve a specific vehicle for a specific day and time.
2. The system needs to know which vehicles have been reserved, and for how long.
3. The system must be able to communicate that reservation to the car to enable access by the designated member.
4. The vehicle must be able to authenticate the member’s unique Zipcard, open the doors, and enable the engine to be started.
5. The system needs to keep a database of usage for the correct billing of automated highway tolls or unpaid parking violations.
6. A gas purchase card—which we provide, so members don’t have to pay out of pocket—needs to be authenticated for a unique member during a trip, in the event the gas drops below a quarter tank.
7. The vehicle must track and report back to the system the number of hours used and miles driven during a trip.
8. The system must correctly calculate the bill for that trip and charge the member’s credit card.
9. An array of information about cars and users must be kept current, up to the minute, to enable customer service agents to deliver on-demand 24/7 teleservice.
10. Our fleet-management teams need to schedule and perform all the regular cleaning, repair, and maintenance functions while maximizing the fleet’s uptime.

Without technology, how would Zipcar’s members know where the cars were? How would they get access to cars? How would the system know how long they had the cars and how many miles they drove? How would our fleet teams and customer service agents perform their jobs?

The answer is, “with a lot of overhead and a lot of self-reporting from members” (I know this because some early car-sharing programs began without much technology). While the system could work in theory, it would be impossible to make it successful in the long term. First, there’s no way to scale the business; second, there is too much room for abuse and fraud; third, it would not be more convenient or user friendly than owning a car.

To be successful over the long haul, any technology company must continue to make improvements as new functionality becomes available. At Zipcar, we have continued to invest millions of dollars to improve our proprietary car-sharing platform—from the back-end systems to our Web and mobile-device front ends for members to the in-vehicle systems that regulate and report usage.

Our research shows that Zipcar members are highly technically savvy, reporting heavy use of computers, smartphones, social networks, and other digital devices and services. As a member-driven company, Zipcar needs to continually innovate in a manner that matches the way our members live. For instance, the popularity of text messaging provided a great opportunity to increase convenience. Earlier this year, we launched two-way text functionality to help members quickly and easily extend or modify an existing reservation. Let’s say they are close to the end of a reservation and need more time to complete the trip. Our system sends them a text message with a simple query: “Do you want to extend your reservation?” If so, a quick press of a button or two on their mobile device takes care of it.

Likewise, the popularity of the iPhone and the software developer kit from Apple allowed us to introduce the Zipcar for iPhone application. The app, which generated more than 100,000 downloads within the first few days alone, links the GPS-enabled iPhone with the Zipcar vehicle database to instantly display a list of available Zipcars near a member at any moment. Members can then use the phone to learn more about the types of cars, and their rates and availability, and can make reservations right from the phone. When members arrive at the car, they can use the iPhone app to unlock and relock the vehicle. They can even honk the horn of the Zipcar they’ve reserved to help them locate it.

So far, I’ve talked about technology that has enabled and enhanced the car-sharing industry and the member experience. Technology also streamlines and automates many back-office functions at Zipcar. Such efficiencies result in lower operational costs, which give Zipcar a competitive advantage. As a result, we are able to generate about $23,000 per car annually, with each employee supporting about 30 vehicles. That’s about double the revenue and efficiency of a traditional car rental company.

In May 2009, we decided to leverage our investment and expertise by launching a new line of business, FastFleet by Zipcar. FastFleet offers government, university, and corporate fleets access to Zipcar software, which allows them to improve their data and information, increase fleet efficiency, and reduce costs. In this model, we outfit government and other fleet vehicles with Zipcar technology, connecting them to a hosted version of our system. Employees then reserve and drive these fleet vehicles by the hour or by the day.

A pilot program with the Washington, DC, Department of Transportation (DOT) projects savings of up to $6 million in the first year of operation, resulting from the elimination of more than 350 vehicles and the increased efficiency of the remaining fleet. Moreover, the DOT is able to permanently relocate cars to unstaffed locations near city departments that tend to use the cars frequently. This further improves employee productivity by reducing or completely eliminating wasted travel time previously needed to pick up and drop off cars at a central “depot.”

I would be remiss if I didn’t mention one more aspect of technology at Zipcar: we use information as a competitive advantage. We derive that information from our integrated systems, whether it’s determining the best location for a car (or market), utilization trends, member demographics and spending patterns, or usage prediction algorithms. You name it—we track it, analyze it, and base every major decision on the information we glean from our systems.

Despite the advances that Zipcar has been able to make by leveraging technology, none of this would be relevant without the preexisting level of comfort with and use of technology by consumers and businesses. People are ready to try a self-serve car because they have become comfortable with self-service banking and self-serve checkouts. I doubt people would be comfortable reserving and paying for the use of a car on the Web if they hadn’t already done similar e-commerce transactions, like having DVDs delivered by Netflix or buying an airline ticket online that allows them to check in at a self-service kiosk. And when it comes to FastFleet, I doubt whether businesses and governments would consider outsourcing fleet-management systems if they hadn’t already outsourced e-mail, Web hosting, and other mission-critical applications.

Our mission is “To enable simple and responsible urban living.” We believe our vision is achievable through the continued evolution of integrated technologies that will make our Zipcars more convenient, more affordable, and, ultimately, more available around the world.

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