In the ideal vision of the "sharing economy," people own less stuff, while the stuff they do own gets used far more, thanks to hyper-efficient marketplaces that use mobile technology to share all this stuff with the rest of the world.
The problem is that making those connections costs money -- sometimes too much money to make the sharing worth it. Such was the experience of RelayRides, the peer-to-peer car-sharing company that announced today that it's abandoning hourly rentals in favor of a model much closer to the traditional rental car industry.
When it went live in 2010, RelayRides focused on providing "instant mobility," says CEO Andre Haddad. Imagine you need a quick ride from one side of town to the other: Just pull out your phone, find people near you renting out their cars, and hop in.
With enough people offering up their vehicles for rent, especially in dense cities, it's easy to see how such an approach could make owning your own car less important. But Haddad says the costs associated with making a car available for an hour or two at a moment's notice ended up being too high.
>Haddad says the costs associated with making a car available for an hour or two at a moment's notice ended up being too high
The main issue was the hardware RelayRides was installing on cars to make them accessible. Haddad says that in order to make hourly rentals viable, it would be impossible to insist that owners actually be present to hand over the car keys to drivers. Instead, RelayRides was installing equipment that allowed drivers to unlock cars using their smartphones.
Haddad says the cost of the hardware plus installation came to about $700 per car -- which turned out to be way too much, given what they found to be the soft demand for cars by the hour. What's more, car owners could decide they wanted to take their cars off the rental market. And even if the car remained available for rent, RelayRides couldn't get a handle on how successful that particular car would be. In the end, the cost of sharing by the hour was just too high. "We've come to the conclusion that it's just not economically viable," Haddad says.
But turning away from its original mission doesn't mean RelayRides is winding down. The company says that while rent-by-the-hour wasn't working, renting other people's cars by the day, week, or longer is growing at a serious clip.
While RelayRides doesn't share how exactly how much revenue its pulling in, the company does say tens of thousands of cars have been rented through its platform. As the chart below shows, nearly all of its revenue growth has come from rentals lasting a day or longer:
What this means is that a small startup that once imagined it was competing against small car-sharing companies (Zipcar) and ride-sharing startups (Uber, Lyft) is now positioning itself to battle the likes of Hertz, Avis, and Enterprise.
Such an undertaking might sound doomed from the start. But Haddad and company believe they can win on the most compelling metric of all: price. Since RelayRides doesn't have the overhead that comes from buying and maintaining fleets of cars it owns itself, the company can charge much less.
>'That's where the community is pushing us. It's not like this is a decision we made sitting alone in conference rooms'
Andre Haddad
A key part of the company's business is determining just how much less. RelayRides engineers spend much of their time crunching data to determine exactly how to undercut the big competitors while maximizing returns for the owners renting out their own cars. And even if RelayRides only manages to capture a small chunk of the traditional rental market, that could end up being a big piece of a $23 billion industry in the U.S. alone.
RelayRides is also focusing on making cars available at airports, which has always been prime turf for the traditional rental car companies. Car owners renting out their vehicles through RelayRides can choose to have their vehicles turn up in searches for rentals at various airports. At San Francisco International, RelayRides has also set up a dedicated off-site lot with a shuttle that ferries travelers straight from the airport.
Haddad says RelayRides is still in discussions with SFO to ensure that the company is meeting regulations for airport-dependent businesses. If the experiment goes well, it's possible to imagine a RelayRides counter right next to baggage claim.
"That's where the community is pushing us," Haddad says of RelayRides customers. "It's not like this is a decision we made sitting alone in conference rooms."
