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Avis Buys Zipcar and Enters Subscription Economy

Posted: 01/07/2013 1:20 pm

On Wednesday, Avis Budget Group announced it would be purchasing car sharing service Zipcar for nearly $500m, (£307m). To many, this purchase was only a matter of time. Five years ago, we saw the writing on the wall: from the rise of Salesforce to the popularity of Netflix to Zipcar's car rental revolution, we saw a brand new economy driven by subscriptions. The Subscription Economy, as we called it, would put a new emphasis on the customer relationship, on flexibility, and on recurring revenue. People thought we were crazy.

Now, 5 years later, Zipcar has become the poster child for successful subscription businesses, riding flexibility, convenience, and a solid customer relationship to accolades, huge membership numbers, and profitability. While the old power players were stuck with a single-purchase model, out-of-the-way rental locations, and long-lines, Zipcar gave customers the convenience of parking spots near their home or office, the ability to register online or via a mobile app, and the convenience (and cheapness) of subscriptions.

Not only has the company achieved nearly 800,000 customers and gone public, but it's completely reshaped the rental car industry. As the Wall Street Journal's Dennis Berman puts it:

"But there's no denying it: We live in a Zipcar world right now -- one in which we think little of "sharing" a car for a few hours, or renting a Parisian flat via Airbnb, or sharing sports gear, pets, or heavy construction equipment."

People who consider Avis' purchase of Zipcar to be a sign of Zipcar's failure are missing the point. The purchase of smaller subscription companies by bigger businesses is inevitable and a sure sign of the vibrancy and innovation in the Subscription Economy -- companies like Avis recognize the promise and power of the subscription model by buying Zipcar. Zipcar built a successful company with close to a million subscribers -- that's a clear validation of the subscription model. Zipcar's mistake was not raising enough capital to fuel its growth, and ultimately needing the deep pockets that Avis can offer. In the early days of any big transformation, there are mistakes, there are winners and losers. But the transformation is here.

Zipcar's influence won't end because of its purchase. Avis CEO Ronald Nelson has made comments indicating that the large rental car company would likely adapt many of the features that made Zipcar so successful -- mobile reservations, convenient parking spaces, etc. -- into Avis' practices. If anything, Zipcar now has a bigger megaphone to evangelise its customer-centric message. Zipcar's purchase proves the Subscription Economy isn't going away, it's going to be incorporated and leveraged by the best businesses of the next generation, and that now includes Avis.

 

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