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.