http://www.businessweek.com/articles/2013-01-02/with-zipcar-avis-backs-steve-cases-sharing-economy

M&A

Steve Case on Avis, Zipcar, and the Sharing Economy


A Zipcar during a promotion in Times Square in New York

Photograph by Spencer Platt/Getty Images

A Zipcar during a promotion in Times Square in New York

The news that Avis Budget Group (CAR) will buy Zipcar (ZIP) for $491 million has evoked strong reactions, from Steven Pearlstein of the Washington Post arguing that the car-rental giant will “ruin” its peppy former rival to Reuters’ Felix Salmon dubbing it a smart buy.

Steve Case says “this merger signals that the sharing economy has come of age.” The AOL (AOL) co-founder, through his Revolution fund, is Zipcar’s largest investor. Revolution stands to make about $96 million from the sale, according to reporting by Bloomberg News.

Case says he bought Zipcar back in 2005 because he sees “a generation shift from ownership to shared use and experience and community.” That belief has informed much of his investment strategy over the past decade as Case believes the ease of connecting online will disrupt a range of industries. “Even if you had the idea for Zipcar 20 years ago, you couldn’t have done it.” Zipcar and its rivals now have the tools and the critical mass to give people 24/7 access to vehicles parked in convenient locations at a reasonable price. (Even the gas is included.)

What’s driving the boom isn’t just that it’s easier to share, he says, but that it’s often a hassle to own. Case has also invested in such ventures as Exclusive Resorts, a high-end vacation club that gives members access to luxury homes worldwide, and LivingSocial, which encourages shared experiences with incentives for friends who buy together. He’s not alone. Witness the growth of Airbnb, which lets users rent their homes, to ParkingPanda, a new site that lets people rent out those precious parking spots when they’re not in use. Next in line for an overhaul, Case argues, are areas such as education, health care, and government services. His fund has invested in FedBid, which lets government agencies buy through online auctions, and Echo360, which works with colleges serving more than 1 million students to bring more teaching and learning tools online.

Still, many investors remain skeptical about the trend in sharing everything from cars to homes. Some dismiss it as a fad that young hipsters will ditch once their incomes rise. Insurers have certainly balked at the idea of covering whatever damage is done by strangers using a policyholder’s stuff. Landlords and municipalities can ban people from sharing for money, or at least demand part of the income. But such complications also give an edge to businesses that have the resources, infrastructure, and scale to compete.

For Avis, buying Zipcar is a bold bet. For investors, the ride hasn’t been all that smooth. While Avis, with its $12.25-a-share bid, paid almost 50 percent more than Zipcar’s Dec. 31 closing price, that’s one-third less than the company’s IPO price of $18 in April 2011. The Cambridge (Mass.) company’s shares rose to $30 in their first day of trading.

The stock fell to $6.50 this summer as competition from players such as RelayRides, City Car Share, and Hertz On Demand (HTZ) cut into its growth. Zipcar’s biggest challenge, though, isn’t waning popularity but rather too much: Getting access to a vehicle in a prime location on weekends has become a bit of a lottery for Zipsters, as they like to be called. While the brand has built the kind of loyalty and buzz that JetBlue (JBLU) enjoyed in its early years, its executives know all too well that Zipcar won’t survive long if it falters on convenience and cost.

Besides capital, Zipcar’s new owner brings a welcome asset: cars. Zipcar has about 10,000 cars at the moment. That’s how many locations Budget and Avis boast worldwide. Moreover, Avis relies heavily on corporate clients whose demand for vehicles is lower on evenings and weekends—around the same time that Zipsters want a car to run quick errands. If Avis can share its fleet and expertise in managing it with Zipcar—and Zipcar can give its new parent more access to a hip urban clientele—both parties will be winners in the deal. That, of course, makes it easier to share.

Brady_190
Brady is a senior editor for Bloomberg Businessweek in New York.

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