The idea of everything as a service (XaaS) may be new to most companies. But for the car industry, it’s old hat.
Take for instance, GoGet: an Australian car share company that's been pushing the idea of XaaS and collaborative consumption for the better part of a decade.
What’s unique about this type of technology is that it reinvents the concept of ownership. It uses networked technologies to enable the use of physical assets and services without having to buy the asset or the infrastructure to run the services inhouse.
However, it should be noted that to take advantage of a service like GoGet requires totally rethinking how you use a car. Instead of being an asset you own, (and therefore can lease or keep for when you need it), your car driving becomes more like a utility that has a monthly membership fee and gets charged out in units of time used, like a mobile phone or fitness centre bill.
The growing Xaas economy
Our world is increasingly becoming one where many items that used to be a business capital expenditure (capex), requiring large cash outlays, are now available as XaaS. As the cost shifts to operational expenditure (opex) XaaS companies are starting to disrupt industries, outside of traditional IT infrastructure, which are inflexible or traditionally require upfront capital expenditure and unpredictable ongoing maintenance fees.
In Western countries we are increasingly shifting to a services/knowledge economy. Jeffrey Immelt, CEO of General Electric has suggested that this doesn’t represent a cyclical change but the world after the recent global financial crisis (GFC) “is an emotional, raw social, economic reset. People who understand that will prosper. Those who don’t will be left behind.” XaaS companies have a key role to play in that economic reset, especially as consumer behaviour starts to change.
Organisations using Software as a Service (SaaS) services like Salesforce, Xero and Google Apps are naturally more likely to consider signing up to XaaS companies for transport (GoGet), accommodation (Airbnb), Odd jobs (Airtasker) etc. Along the way, they can also make the most of some of the hidden benefits of these type of services.
This network node heatmap supplied by GoGet shows an interesting and unexpected extrinsic benefit of car share companies, which is the vast amount of data they gather as their cars move around.
Once aggregated and de-personalised, this data can be shared with university researchers, councils and government transport authorities. Visually explaining how car share members use the service, where they drive to and the routes they take can help improve congestion and provide more car share parking if needed.
There are several examples of community car share services overseas but the biggest by far is ZipCar. Founded at the beginning of this century the company has over three quarters of a million members across North America and Europe.
During a recent trip to the USA, we had a close look at how ZipCar operated in the Bay Area of San Francisco, where it has over 720 cars available.
It's been a bumpy road for the company despite the impressive membership numbers. ZipCar was a loss making business and a lack of investor confidence played havoc on its share price last year. With its share price taking a hit, it was little wonder that shareholders gleefully accepted a $500 million buyout offer by the Avis Budget group in January. The deal was cleared by US and UK competition regulators a few weeks ago.
In an ominous move, ZipCar CEO Scott Griffith resigned immediately after the regulatory clearances, telling staff in an internal memo that “this is a bittersweet decision because I don’t feel like my work here is completely done”.
The US media echoed the worries of ZipCar members with headlines like “Dear Avis, please don't screw up Zipcar (CNN)”, “How Avis will ruin Zipcar (Washington Post)” and “The Wrecking of Zipcar? (New York magazine)”.
GoGet is the largest and most established car share player in Australia. The local car share company, privately owned by founders Bruce Jeffreys and Nic Lowe, claims to be more convenient than car rental, cheaper than car ownership if you drive about 10,000km/year and a great way to help the environment.
We tried out GoGet in Sydney over an extended period to see how it worked. GoGet allows members to book online or by phone for as short a period as an hour, half a day, overnight or even for an extended period, if required.
Once a GoGet member has booked a specific car, they walk to wherever it’s located (usually in a special reserved parking spot), they pass their RFID membership card over the windshield sensor to authenticate themselves, drive away and return the car parked in the same spot.
Members get an itemised usage account every month, much like a phone bill. Car usage hassles are reduced to making sure that the petrol tank is at least a quarter full before your return it, paid for using the fuel card in the car.
What car share members avoid are the other time and money consuming requirements such as NRMA/RACV membership, cleaning the car, taking it for mechanical checkups and paying expensive operating costs like new tires, insurance, servicing and registration.
Property developers and large corporations have recognised the value of GoGet and are working with them to locate vehicles within their parking areas eg: Sydney's Central Park and the Optus campus at Macquarie Park.
Stephen Davies, Director of Consulting firm Urbis told Technology Spectator that they have about 50 staff using GoGet.
“Everyone likes the convenience. The Kent Street car park is only a few doors away from our office and there are a many additional GoGet vehicles in the vicinity,” Davies says.
“GoGet is faster to access and much cheaper than hire cars which is important because it allows us to lower costs for our clients while improving our productivity.
“Our people need to travel frequently to carry out our work which often requires being on many different sites in a day to evaluate first-hand what we are assessing. GoGet also works well for travel to places not well-served by taxis. If you are going to Vaucluse, even Bondi, getting a cab back to our offices is virtually impossible. GoGet gives us options and the reception in our business has been extremely positive.”
City of Sydney’s example
Car share has more than tripled in Sydney over the past three years, easing traffic congestion, freeing up parking and saving residents $21 million a year, according to an independent study commissioned by the City of Sydney in late 2012.
The study claimed that the economic benefits of car share to local residents and businesses outweighed costs by a ratio of 19 to one.
The concept of contention ratios (ratio of potential maximum demand to capacity available) will be familiar to readers in the telecommunications industry. Statistics supplied to us by GoGet show that a contention ratio of about 12 or 13 members to each car in North Sydney is sufficient to meet member demand.
The City of Sydney provides access to 398 on-street car share bays to three car share companies: GoGet, GreenShareCar and Flexicar (Hertz). Around 10,000 residents and business users have joined car share programs in the City of Sydney locality. GoGet remains Sydney’s largest car-share operator, with more than 18,500 members across the metropolitan area.
Small businesses are joining in growing numbers, making up 30 per cent of membership. Benefits for them include reducing their overheads and avoiding paying for their own vehicles that would be parked, depreciating in value while idle for many hours of the day.
According to Lord Mayor Clover Moore, the study showed resounding support for car sharing in Sydney.
“Each car share parking space in the city replaces the need for 12 other cars, on average, to park within a 250 metre radius. With limited space on our inner city streets, this study shows car sharing can significantly reduce competition for the parking spaces we do have. Car share is a smart way of having access to a car when you need it, without the cost of buying, insuring, registering, maintaining and running a car”, Moore said.
Future of car share
Peer to Peer car hire is a new and potentiallly disruptive force, however, to date overseas operators have had mixed success, especially regarding difficulties with car insurance.
Looking at the overall impact to car owners who participate in Australian peer to peer schemes like Ride Eco and Car Next Door, we feel that when all the costs and risks such as potential for car theft, insurance issues and accelerated depreciation are taken into account, it's probably not worth it.
Early UK peer to peer operator Whipcar recently shut down citing “barriers to widespread adoption of peer-to-peer car rental in the UK” and an inability to meet “scaling challenges”. In the US and Europe it remains to be seen whether Avis Budget will change how ZipCar operates and the fees it charges. ZipCar members worry that potential changes in the future could include “nickel and diming” them with the kinds of added fees, charges and insurance costs which the car rental industry is notorious for inflicting upon customers.
GoGet has managed to survive for over a decade in Australia by operating in a conservative and careful manner, thereby outlasting the GFC and competitors such as CharterDrive which went broke and Flexicar which is most active in Melbourne but seems to have been neglected since it was taken over by Hertz. Time will tell if it can take that next leap to viability or end up following the same route as ZipCar.