Car-share startup Flexcar may soon be looking at Seattle in its rear-view mirror. The company is considering moving its Pioneer Square headquarters...
Car-share startup Flexcar may soon be looking at Seattle in its rear-view mirror. The company is considering moving its Pioneer Square headquarters to Washington, D.C., to be closer to its new deep-pocketed owner, America Online co-founder Steve Case.
In August, Case acquired a controlling stake in the company, for an undisclosed amount, through his Revolution investment fund. Announced at the same time was a strategic investment by former Chrysler Chairman Lee Iacocca, who became a senior adviser and board member.
Case and Iacocca attended their first company board meeting Oct. 27 in Washington, D.C., close to Case’s home and where Revolution is based. “The center of our world changed when Revolution came on board,” said Chief Executive Lance Ayrault, a Seattle native. “As growth takes us in new directions, our headquarters will gravitate toward D.C.”
For now, however, the bulk of the company’s 40 employees remain in Seattle, working out of a bare-bones loft bookended by corner missions and the Seattle Metropolitan Police Museum. A homemade, bubble-printed nameplate marks the office entrance.
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That could all change very soon, however.
With more than $20 million raised since its inception in 1999, the company is gearing up for a dramatic expansion next year to outmaneuver similarly beefed-up Zipcar, from Boston, for the top spot in the fledgling car-share industry.
In the next 12 months, the company plans to triple the size of its fleet of 450 vehicles. The bulk of the new cars, mostly Civic Hybrids provided by strategic investor Honda, will be deployed in the four still-unnamed cities where it’s preparing to launch.
Flexcar operates in six markets: Seattle, Portland, San Francisco, San Diego, Los Angeles and Washington, D.C. In Chicago, it is the franchised operator for nonprofit I-Go.
The cash injection comes as car sharing is catching on.
Buoyed by high gas prices — gas and insurance are included in the $7 to $10 hourly rate for Flexcar users — the company has been signing up 1,000 members a month. Revenue is twice what it was a year ago and expected to grow even faster next year, Ayrault said.
As the company’s logo becomes more visible on the road and in curbside parking areas ceded by city governments, usage is also increasing.
In Seattle, Flexcar’s biggest market, the fleet of 150 cars logged a record 900 hours on a single day in October. Membership nationwide stands at 31,000.
“We’re getting to the point that in certain cities, finding a car is easier than finding an ATM or Starbucks,” Ayrault said.
Transportation experts worry, however, that growth is coming too fast to handle.
Reliability and availability are fundamental for car sharing to take root among its target markets — urban-dwelling professionals accustomed to the instant convenience of the Internet and to businesses looking for alternatives to the company car.
Currently, the supply of vehicles can’t keep up with demand.
In Europe, where car sharing has been around for two decades, a vehicle exists for every 25 car-share members. By contrast, the ratio in the U.S. is 75-to-1, according to Susan Shaheen, a researcher at the University of California, Berkeley.
“We haven’t reached the tipping point where people can confidently count on the system to meet their transportation needs,” said Shaheen, who briefly ran two car-sharing operations in the Bay Area in the 1990s. “A bad experience early on with car-sharing can turn a consumer off from the idea forever.”
Case, who’s directly involved in daily management decisions, says he’s confident the company can educate the public about the savings from car sharing and create a market far exceeding the 80,000 drivers who use one of 17 car-sharing programs in the U.S.
“I receive an e-mail a day from Steve, and for every e-mail I get from him, there are four more from his partners at Revolution,” said Ayrault, who needed all of one short lunch with Case to secure his financial backing. “The value of [Case’s] investment isn’t the money, but his experience as an entrepreneur and the incredible Rolodex Flexcar will now be able to tap into.”
Case declined to be interviewed but said in an e-mail that a target for Flexcar of 1 million members sharing 20,000 cars within five years was “absolutely attainable.”
Flexcar’s shareholders are overjoyed with having a super-star investor on board.
“[Case is] the guy who put those AOL CD-ROMs in everyone’s mailbox,” said Malcolm Witter, a shareholder and former investment banker for Flexcar. “We can all laugh about that now, but there’s no doubting he knows how to create a buzz for new products.”
Under Case’s tutelage, Flexcar plans to spend heavily on direct-mail advertising, Ayrault says. It has launched its first ever media blitz, placing ads with a call to “Free Yourself” — from high maintenance costs, skyrocketing gas prices, even the car itself — on National Public Radio. A new glitzy Web site is in the works.
Driving the aggressive marketing is intense competition from Zipcar, which received $10 million in August from Silicon Valley venture-capital firm Benchmark Capital, best known as an early investor in eBay.
Larger than Flexcar, Zipcar says it has 50,000 members and 900 vehicles spread across eight states on the East Coast and 40 cars in San Francisco.
Flush with cash, both companies are shifting into overdrive.
Flexcar claims that its insurance policy — $300,000 personal liability coverage with a $500 deductible — is more generous. Zipcar counters that a diverse fleet ranging from hybrid sedans to BMWs, each equipped with XM satellite radio, gives it an edge when it comes to the “fun factor.”
“Flexcar is where we were about one, two years ago,” says Zipcar CEO Scott Griffith, referring to Flexcar’s plans to rollout amenities like iPod hookups and personal navigation systems. “People don’t want plain white bread. Our members are early adopters of technology who see car sharing as a lifestyle choice, not just a convenience.”
Ultimately, both companies acknowledge superior customer service will determine the winner. For now, the market for car sharing is so small, just calling it an industry seems like a leap of faith.
In San Francisco, one of the two markets where Zipcar and Flexcar compete directly, their combined fleets don’t match that of their nonprofit local rival: City Car Share.
In the other city — Washington, D.C. — Zipcar has 200 cars to Flexcar’s 125, but Flexcar has valuable concessions at double the number of Metrorail stations served by the Washington Metropolitan Area Transit Authority.
“It’s scary how closely parallel the development of our two companies has been since day one,” Ayrault said.
Zipcar missed its Aug. 1 deadline to announce its West Coast expansion schedule. Griffith says that operations will begin here, followed by Portland, within the next year.
Both companies note research by Shaheen and others predict that in select urban neighborhoods, the car-sharing market could reach 10 percent of the driving-age population. Nationwide that would represent almost 2 million users.
“Any way you slice it, the potential for growth is huge,” Shaheen said.
Josh Goodman: 206-464-3347 or email@example.com