Congratulations to ZipCar: Another Billion Dollar Subscription Economy in the Making

June 9, 2010

by Tien Tzuo


Our regular blog readers know we are a big fan of Zipcar. Why? Because we believe they are a poster child for the Subscription Economy. Tens of thousands of people all over North America have realized that they no longer need to buy cars — or have to pay for gas, parking, insurance, oil changes, and get stuck with the same old car. Instead, they subscribe to Zipcar and get access to a fleet of tens of thousands of cars in all the major cities in North America. Talk about the power of rethinking your business around the service you provide, versus the product that you sell.


Well, a big congratulations to Zipcar for a major milestone — filing an S-1 to go public.


What caught our eye, though, is the following stat. The car sharing market is expected to hit $3.3 billion by 2016. $3.3 billion. That’s a lot of revenue to be siphoning away from GM, Toyota, and Volkswagen. But after we reported that we shifted over $1 billion in our first quarter to the subscription economy, we can’t say we’re really surprised.


Zipcar’s announcement also got us thinking: could the $3.3 billion estimate actually be too small? Could a big auto manufacturer reinvent itself as a major player in the car subscription market? We don’t think that idea is too farfetched. Just look at BMW. Whether they realize it or not, BMW already has one foot in the subscription economy. In 2008, over 60% of BMW’s revenues came from its leasing business. When you lease a BMW, you pay a one-time set up fee, and then a monthly fee over the life of the contract, the amount changing depending on how many miles you commit to driving each month. Oil changes and maintenance are included in that price.
That sure sounds like a subscription business.


But when you compare BMW to Zipcar, it just doesn’t match up. With Zipcar, I might drive a Toyota Matrix one day and a Mazda the next. If I’m a BMW lease customer, why can’t I switch from a 3 Series to an X5 for two months, and just pay the difference? If I’m out of town, why couldn’t I pick up a BMW for a few days from the local dealer? And why do I have to commit to driving 36,000 miles over the 3 years, and get hit with enormous overage charges if it turns out I drove too much?


These differences highlight the big challenge that some old-economy companies will face as they move to a subscription model. It’s not about slapping a new pricing label on your offering. Sometimes, it takes a fundamental rethinking of your business.
Could BMW shift their entire sales model to the subscription economy? Or what if BMW bought Avis? Now that would be interesting…