The Car as a Service: Why Renting, Not Owning, is the New Frontier

When the Smart Car first appeared in the US in 2008, it raised some questions, perhaps the biggest being: would Americans used to trucks, sports cars, and open highways drive such tiny vehicles?

While European drivers had been using Smart Cars for years, the driving conditions in Europe—congested cities, high fuel costs, and relative proximity—are certainly different than the vast highways and low gas prices enjoyed by the American consumer.

But it turns out that Smart Cars excel in one area that Americans are increasingly adopting, and that’s city life. The little vehicles are easy to park on crowded streets, cost little to run, and are simple to maneuver in tight spaces. And with millions of Americans moving into urban areas, the Smart Car suddenly became commonplace among some city drivers.

And companies were listening. Take, for example, the rise of car2go, a car rental service run by Daimler, Smart Car’s parent, that provides a fleet of the little cars in cities across North America, Europe, and Asia. Business is booming, with new locations opening worldwide, 100,000 members in Vancouver alone, and 78,000 users in China after only two months in operation.

And though Smart Cars are undeniably convenient for city dwellers, there’s something else that car2go offers that makes it different from a standard rental car company: ease-of-use.

With a car2go account, it’s simple for a driver to unlock any of the company’s Smart Cars they see parked nearby. And then, when they’ve arrived at their destination and parked, they simply end their ride and are charged for the appropriate mileage. Unlike earlier car share companies like Zipcar, which require renters to drop their cars off at designated locations, car2go works as long as the driver parks the car in a legal parking spot within an approved driving zone.

This is, essentially, “cars as a service”—the automobile equivalent of Software as a Service (or SaaS), where we see users pay monthly installments to use a cloud-based software rather than buying the program outright. Rather than buying a car and worrying about the accompanying insurance, fees, and maintenance costs, drivers can now use “car as a service” providers like car2go (to drive themselves) or Uber and Lyft (to have someone else drive them.)

That’s one of the reasons why Morgan Stanley issued a report recently that predicted that “the market for private automobile ownership is likely headed for disruption” and that the car of the future would drive itself, be all-electric, and be summoned on demand rather than privately owned. The researchers are, essentially, taking the concept of “car as a service” to its logical conclusion.

And it’s not just the automotive industry that’s shifting toward this model. From lodging (AirBnB) to camping (Hipcamp) to fancy clothes (Rent the Runway), we’re seeing the idea of the “rental” begin to eclipse the idea of ownership in many categories.

For consumers, it often makes a lot of economic sense. Why shell out thousands of dollars, for example, for the latest version of Adobe creative products, only to have to spend the same amount in another years’ time to update to a newer version? It’s easier for most consumers to use the SaaS model here, paying a monthly installment to access continually updated versions of Adobe products and not have to worry about upgrades down the road. The same holds true for a car in a city like New York or San Francisco, where parking is limited and the cost of owning a vehicle can be prohibitive.

This new trend also makes sense for companies because of several new developments in the way we use digital technology to make purchases.

Consider that:
It’s easier than ever to measure how much consumers use a service. With the advent of big data, it’s no longer a challenge for companies to figure out how much their customers are actually using their products and services, and then refine their offerings using that knowledge. Consider how hard it was for a traditional taxi service to track their passengers. Now think about how easy it is for Uber to remember your destinations and preferences in order to give you a more customized experience. That’s the power of data collection.

It’s easier than ever for consumers to pay for services on the go. Smartphones are the key to success in this category: when everything from groceries to rental cars can be ordered up on a phone, the barriers to entry are lowered for consumers nationwide. If it’s easy to pay for something, it’s easier for first-time customers to give it a try.

It’s easier than ever for companies to track where their products and services are being used. GPS technology and other digital tracking services enable companies to have a sophisticated glimpse at where their products are being used right now, and determine how best to get Product A to Customer B in the shortest amount of time. By cutting down on delays for customers and ensuring that the customer is kept updated about their wait time, many service businesses can now make the purchasing process even smoother.
We may not see the all-electric driverless rental vehicle of the future in the next few years. But with the trends in the auto industry—and many other industries—heading in that direction, the future of ownership might just become the old-fashioned rental with a digital twist.

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