RelayRides – The New Era of Car Sharing Economy

The network effect of RelayRide’s peer-to-peer car sharing platform.

Are you tired of always getting the same Nissan or Toyota model from one of the big car rental companies? Are you frustrated with high daily prices that ZipCar charges? RelayRides, a peer-to-peer car sharing marketplace, was founded in 2010 to address those challenges. The company was started by Shelby Clark, an HBS alum, in Boston and later moved to San Francisco, where the company is headquartered today, before expanding nationwide.

The RelayRides webite and mobile app connect car owners with renters. Car owners, who typically have a spare car or low usage of their primary car, list their vehicles on the RelayRides platform and handle logistics of pickup and dropoff. In return, car owners are compensated with daily payments that more than offset depreciation and maintenance costs. Car renters, who do not own a car or need specific vehicles for special occasions (think a water blue BMW convertible for your Napa vacation), can filter available vehicles by model, location, price, etc. RelayRides earns a flat fee per transaction and extras from premium insurance packages.

The platform has substantial network effects. Owners are more likely to list their vehicles and actively manage rentals on RelayRides if there is a large number of renters, especially given competition from other platforms, such as Getaround, etc. More importantly, a large selection of cars, i.e. participating owners, is key to acquiring and keeping renters on RelayRides. Renters choose RelayRides for convenience (e.g. a car within walking distance) and choice (e.g. luxury/economy cars of different models and colors) among other factors. They are less likely to use RelayRides if they perceive a lack of supply.

To overcome the challenges of building a two-sided network from scratch, RelayRides adopted a city-by-city expansion strategy. By starting in densely populated metropolitan areas, RelayRides ensured that there was abundant demand and decent supply and that they were able to focus marketing and support efforts to achieve critical mass. After the platform achieved a certain level of concentration, it required a lot less nurturing as new users were acquired through word-of-month from existing users and user satisfaction increased drastically.

As RelayRides scales and expands to hundreds of cities, it faces threats from traditional rental companies (Hertz, Avis, etc.) as well as on-demand car rental service (ZipCar). The company is slowly taking customers away from incumbents and has adopted several important strategies to fend off competition –

First of all, RelayRides has shifted away from hourly to daily or longer duration rental. RelayRides, which does not hold fixed assets, offers cheaper rates than traditional rental companies that need to buy and maintain a large fleet of cars. The price differential has become a lot more pronounced and meaningful to consumers with longer duration rentals. In addition, this shift also moved RelayRides away from the territory of ZipCar, which has been a successful and innovative company itself.

Secondly, RelayRides also started offering airport pickup and dropoff. Realizing that many users rent from the airport and that owners want to park and rent out their cars when they are leaving the airport on vacation, they partnered with airport hotels and hired attendants to manage airport rentals. Airport rental has created more liquidity and enabled RelayRides to take customers away from traditional rental companies.

However, it will take RelayRides many years, if it ever happens, to gain significant market share from incumbents. The web- and mobile-centric platform alienates customers that prefer in-person transactions, which are offered by rental companies with staff at physical locations. The friction in peer-to-peer transactions deter certain customers who prefer one-stop guaranteed service at big rental companies. RelayRides currently also incurs higher insurance costs per car due to its limited scale. The company will need to address the above challenges to win against incumbents. Incumbents might also leverage their scale and resources to develop services like RelayRides, which would be a big risk for the company.

Just as Airbnb has revolutionized the lodging industry, RelayRides is trying to revolutionize the car rental industry by building a direct peer-to-peer network and mobilizing the second biggest asset for most households. It has made car rental cheaper and better for avid users like me and has the potential to change the existing industry landscape.

 

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9 thoughts on “RelayRides – The New Era of Car Sharing Economy

  1. Thanks for the post. It does seem like network effect is crucial in this model for customers to buy into that the value that RelayRides offer is better than other car rentals. Not only would it lower the price, but also convenience is a huge factor to win in this market. I like the fact that they start entering into airport to enhance convenience for both the renter and the car owner. I also wonder how RelayRides could create even more values going forward – for example, could RelayRides help arrange some kind of logistics to make things convenient for both owners and renters (just like AirBnB that provides clean up services for the apartment)? What about providing insurance for owners to limit their risk of getting their cars damaged?

  2. Great post! Indeed, network effects here are extremely important. You need a critical mass of users since there are many variables: available dates, vehicle class, location, price. If you take the different combinations of these variables you need a large network in each city to successfully match supply and demand.

    I worked for FlightCar this summer which operates exclusively in airports. It is an attractive market and it makes sense for owners to rent un-utilized vehicles while they are away. However, peer to peer becomes difficult in airports since it is difficult to time the vehicle exchange for the owner and the renter. You need an intermediary to facilitate the transaction. This is doable but as you pointed out you need an attendant, partners, possibly real estate, and more capital. It is doable but since it is a different business model I am curious to see how they will execute and how much they will expand in airports.

    Peer to peer transactions are indeed challenging. You need excellent customer support and technologies to make these transactions easier. You are relying on the owner and renter to go through important procedures: inspect vehicle condition, mileage, gastank etc. Most of the time these go smoothly but when things go wrong there are liability implications. Standardizing these processes to make the exchange process smooth is key.

  3. I love the idea of businesses allowing consumers to monetize their underutilized assets. We have seen this with in many other industries and most recently with VillageLuxe, attempting a similar model with renting high-end fashion clothing in between wears. Its interesting to consider how consumer behavior plays into the network effects for these type of models. Consumers are used to relying on rental cars and now zipcar, so using a service like RelayRides requires a change in user behavior. Changing consumer behavior is hard to do and adds a level of complexity to the already challenging task of scaling the userbase. It will be interesting to follow RelayRides and see if they can make this business model successful!

  4. It seems like RelayRides has been around for a long time now and hasn’t gained a huge amount of traction outside of a few markets like Uber and Lyft have. I don’t have a great sense for who, if anyone, will emerge as the dominant and sustainable player among the key competitors here. There are of course GetAround, FlightCar, or even ZipCar and a few others.

    I found this post pretty interesting: https://medium.com/@ddddarby/city-car-share-vs-getaround-vs-relay-rides-vs-zipcar-vs-straight-up-ownership-d33d46f14f08

    Although it’s from 2013, RelayRides seemed to come out well in the annual cost category compared to these other services. But I think the competitive dynamics and multi-homing will drive whatever profits exist down among these companies.

  5. You may have just encouraged me to look into renting a car this weekend through RelayRides! The peer to peer transactions for longer duration (same as a rental car vs. the shorter model where Zipcar dominates) is something that is ripe for transformation just as AirBnb did in lodging. There is likely an excess of cars not utilized for a week due to business trips or vacations. This additional income for car owners can offset the high parking rates in cities like Boston, NYC and SF. In addition, the asset-light model that RelayRides can partaken in allows it to scale very economically.

    Networks effects are essential in this multi-sided platform as more renters encourage more car owners to rent out their cars while they are not being utilized. My only concern though is that when an owner needs a car and a renter is late or perhaps if there is serious damage to a car while driving, the downside effects can be detrimental to the car owners daily life. Perhaps I am adverse to change, but I worry that car owners will not want to rent out their cars not due to personal invasion, but rather personal inconvenience. AirBnb got over this hurdle as home owners could plan around so long as they had an alternate housing option so perhaps RelayRides can similarly get over it.

  6. Very interesting to read your well-written assessment of RelayRides! I do have a number of concerns regarding this idea, some mentioned above already:

    1) Is there a sufficient number of people willing to rent out their car? Personal reasons, and the risk of someone driving recklessly with your car, can be hard to detect
    2) If someone speeds when using your car – is a receipt from RelayRides enough to prove that you were not the driver and will the driver be held liable?
    3) Is the existing concept – traditional car rentals – expensive enough to make people shift behavior?

    As it seems like RelayRides is struggling to generate enough activity, perhaps an opportunity could be to enter a deal with Uber, to allow Uber-drivers to use RelayRides’ cars during a set time-frame (e.g. monday-friday when you are in the office for 10 hours), and then return it where you parked it? The car owner earns extra money, the uber-driver gets a vehicle to drive for Uber, and Uber now has an additional driver. Win-win-win!

  7. I have not heard of RelayRides–but think this business has a lot of potential, based on your explanation of the business model. One of the concerns you point out is the potential alienation that users feel in not being able to talk to the person at the rental counter. Some companies, such as Enterprise who has Emerald Club, have actually eliminated that personal connection as much as possible to the benefit of the customer, by allowing the individual to check in, choose the car either online or from the Emerald Car aisle. It seems as though the use of RelayRides, if the car owner can input the coordinates of the rental car into a platform when they arrive at the airport and the user can simply receive the coordinates upon booking, may be the most streamlined approach and encourage additional users to the platform. I do see more of the logistics issues to this plan, however, such as who pays for the parking while the car is in the carpark prior to pickup?

  8. Great post! RelayRides seems like a good alternative to ZipCar — it starts so cheap but I’m always frustrated by the final price tag. There are so many under-utilized vehicles that sit in driveways and in parking garages and this puts them to use. It’s too bad that RelayRides isn’t still focusing on the peer-to-peer carsharing. Shifting over to airport rentals seems to be an indicator that they aren’t able to compete head to head with Zipcar. I agree with you that they exhibit network effects, but I bet other factors are holding them back. As we discussed in class today, quality seems like a major issue here. It seems like a high friction transaction between renter and rentee with the onus on the two parties to meet and exchange keys. If they could somehow automate this process, ala Zipcar, I think this could really take off.

  9. I think that Relayrides will struggle to be successful. I don’t see any opportunities in the high end of the market (luxury segment) and I see significant barriers to success in the budget segment as well.
    Luxury, “non-price sensitive”, renters will not bear all the risks and uncertainties of renting a car from a stranger. These risks include quality assurance and safety, third party insurance liability and lack of breakdown / roadside assistance. Additionally, there is no lack of supply of luxury vehicles at the incumbents; you can get virtually any luxury vehicle you want. We have also seen how this price segment has responded to Airbnb; Airbnb has been successful at selling to budget travelers not the luxury segment. Why would you stay in a high end AirBnB instead of the Ritz?
    The budget car rental market is highly dependent on deals and is dependent on corporate partnerships. Budget car rentals are frequently bundled with flights and hotels and purchased through credit card rewards programs. I doubt that Hotels, Airlines and Credit Card reward programs will work with Relayrides. I think this lack of deals makes Relayrides far less attractive than incumbent budget rentals.
    Maybe the only segment that Relyrides can target is the “non-consuming” segment i.e. people who do not currently rent. They could do this by listing very old cars at very low prices. I do not know how low the prices can get because incumbents already have deals as low as $15 a day. Will anybody rent their personal car to a stranger for less than $15? I am very skeptical about this company’s ability to compete……..

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