Automobile and Business Model Essay Example for Free

Automobile and Business Model Essay ?Introduction In 2000, Inspired by car-sharing concept in Europe, Chase and Danielson started Zipcar to pursue the opportunity of car sharing in U. S. market. By mid-October of 2000, Zipcar had enlisted nearly 250 members with 19 vehicles located throughout Boston. I will evaluate this potential venture and its progress based on the framework of â€Å"OUTSIDE1†, including opportunity, uncertainty, team, strategy, investment requirement, deal and exit. Opportunity Market – The market size of this industry is estimated at 26,400 members, which is 0. 04%2 of general population3 lived in Top 20 U. S. Markets. Usage of this industry grows rapidly at 30% annually. There are two competitors in U. S. market, but they focused on the environmental impact rather than convenience and cost effectiveness. Customer – Target segment are college-educated costumers who drive less than 6,000 miles per year and live in urban area. Acceptance of this business is very high referring to Major players in Europe market, whose marketing investment in this industry is low but the growth rate is continuously high (30% annually). Uncertainties Competition – Two current competitors in U. S. market and potential competitors from car manufactures Acceptance – Customer acceptance is to be proved in Boston before the business model could be replicated to other cities Management team – Co-funder’s commitment is not very convincing and the structure of the management is poorly organized Financing – Overhead continues to grow against limited financial resources Team. There are missing pieces in its team as founders are lack of experience in operation and relationship with car manufactures As a co-founder, Danielson commits not enough as she still have full time job and focus more on family Strategy Chase keeps pushing to start business operation maintain their promise to investors although the company is not ready. This Strategy would have negative impacts in the future. Using technology platform to improve cost effectiveness and adopting word-of-mouth are consistent with its current situation. Investment Requirement. Zipcar’s cash flow requirement is very high. It spent $375,000 in first year, and need additional 1. 3 million to complete technology platform, prove the business model and better understand demand. Overhead excess the projection and continues to grow, which will further increase the requirement of cash. Deal The current investors holds plenty of convertible loan, which would have negative impacts on future share holders. Exit The options for exit are available as this industry grows rapidly. The founders are not in a very strong position to potential exit. Business Model Car sharing business provides a hassle-free â€Å"ownership† for urbanite who don’t need to own a car but need the convenience to run occasional errands4. In the model before December 1999, it’s revenue comes from $25 application fee and $300 annual subscription fee, plus $1. 5 hourly driving charge and $0. 4 driving charge per mile. However, Chase decided to change the pricing model with a lower membership fee and a tiered pricing structure, increasing hourly charge to between $4. 5 and $7 and adding a maximum daily rate. The data from actual operations in September gives me a concern as seen in Exhibit 1, that the net contribution from actual operation in September is negative because of the very low revenue, though cost is only a little bit over the estimation. Conclusion The next step for Zipcar is to adjust its pricing model to increase its revenue. Chase need to pitch investors in Springboard forum by focusing on this: Though its cash flow is negative now, Zipcar is a unique business model with cutting-edge technology and well-established customer base. Zipcar will provide a great chance for investors to be rewarded a new market with 30% annual growth. Citation: 1 This framework is developed by Professor Steven Kaplan from University of Chicago 2‘At The Wheel, Volkswagen Pioneers Car Sharing Programs,† Fastlane, October 1997 3U. S. Census, http://census. gov/population/censusdata/90den_ma. txt, December 9, 2002 4According to the case Exhibit 1 Financial Plan in May 2000 September Operation Data Total Revenue 29,616 14,645 Number of Cars 12 19 Revenue per car 2,468 771 Lease per car 367 400 Access Equip 42 42 Fuel 90 99 Insurance 142 142 Maintenance 33 33 Parking 50 63 Cost per car 723 778 Net Income per car 1,745 (7) Source: Company Data.