In the summer of 2008, when my friend Pip Coburn (a former tech strategist for UBS who runs an investment advisory firm) came to visit, we ended up talking about two things we both saw coming: the inevitability of the Internet and how tomorrow’s leaders will amount to zilch if they are not technology natives.
In the past technology startups raided old guard companies (Netscape went to FedEx’s Jim Barksdale, for example) to get management help. In a world where the Internet is ubiquitous, we are going to see old guard companies embrace Silicon Valley types as their leaders.
Five years ago, it seemed a bit farfetched, but today on the first work day of the new year, I was reminded of our tête-à-tête. Why?
Just, look at the two major news stories of today:
- Google (S GOOG) is working with car companies like Hyundai, Kia, Audi and others to embed some of its services inside their cars.
- Avis (s CAR) is buying car-sharing pioneer, ZipCar (s ZIP) for about $491 million, a 49 percent premium over the closing price on December 31, 2012.
Recently, I got a chance to ride with a friend who bought a snazzy new Audi S-6 car. Given that I don’t drive and am in the minority of people who have no desire to drive, the car seemed like a technological marvel on many levels. The speed and the power may not be to the liking of Jeremy Clarkson, but the multimedia panel will win his approval. The most luscious part of that panel is the navigation system — based on Google Maps.
Today, Google announced that it is working with other major car makers such as Kia and Hyundai, to embed their technologies including maps inside those cars. Google is an internet services company that is now finding a home in cars, just like Pandora’s Internet music streaming found its way into Ford Motors.
Thermostats with live Internet connections that can be used to control the climate inside your home remotely was the stuff of science fiction until a few years ago. Now many utilities are playing with the idea of using such Internet-enabled devices, marrying them to data analysis technologies and turning them into tools for better energy management. A variety of startups born in Silicon Valley — like Nest, Opower and EcoFactor — are getting in on this trend.
These are early sign posts of a connected future where Internet technologies influence even the most mundane of industries. You know, like car rentals, or the power grid, or building climate systems.
At the turn of the century, the idea of sharing a car in increments would get you laughed out of a room. Car rentals were cheap and there were cars lined up outside of airports. Who would then want to rent a car by the hour? Antje Danielson and Robin Chase, two moms from Boston were crazy to have launched a company called ZipCar in 1999. It took awhile, but the world finally came around to their idea. It helped that the whole process of renting a car was convoluted, and the cars and technologies inside those cars very old fashioned.
Zipcar, instead focused on the casual renter — primarily a young Internet native, one who had grown up on the convenience of Google, Amazon (s AMZN) and broadband. The car-renter 2.0 is less likely to have the patience to deal with the inefficient processes of Avis(es) of the world.
The Internet changed a generation’s expectations of consumer services. But the emergence of the iPhone (first) and Android allowed companies such as ZipCar to create an efficient car-sharing ecosystem, challenge the established guard and grow like a weed.
Here is a little comparison between ZipCar and Avis. In 2005, ZipCar had revenues of $13.7 million (according to their S-1 filing). In 2012, they are estimated to have revenues of $278 million, according to Yahoo data. In comparison, Avis sales for 2005 were $18.24 billion and in 2012, they are expected to bring in about $7.3 billion according to analyst estimates collected by Yahoo. Agreed there is a big disparity in those numbers — billions versus mere millions — but still, you can see the demographic shift is pointing to a market reality against Avis.
As my colleague Katie Fehrenbacher pointed out in her analysis of the Avis-ZipCar deal, the acquisition has wider implications for the fast growing trend of sharing stuff and resources. While hitch-a-ride service like Lyft or black-car sharing service Uber might feel scary for both the incumbents (taxi companies) and the legislators, the fact is that our constant state of connectedness is continuously changing the rules of the game. It is impossible to imagine life, business or society without this connectedness.
Many believe that Avis is going to blow it and ruin ZipCar. I am in that camp — not because I want either of those companies to fail – but because when large, lumbering and mostly technologically incompetent companies try to buy innovation, they often times kill the innovator. (Avis rival Hertz started its own Hertz on Demand, though I have not been able to assess their success or failure.)
For this deal to work out, here is some free advise for Avis CEO Ronald Nelson: make sure you sign a nice free-agent deal with ZipCar CEO Scott Griffith and his team. Then make him your chief growth officer: one who understands technology, data and demographics to beat the living crap out of your rivals. And give his technology team the liberty to reinvent both the in-car and car-rental experience at the airport. Otherwise, in 2015, there will be another ZipCar-like company, beating the stuffing out of your profit margins.