Zipcar Sale Casts Doubt on Business Model, Boston as Big-Business Hub

January 2, 2013

Cambridge-based car-sharing company Zipcar has been acquired by traditional car rental company Avis for about $500 million -- and the sale could reflect on the Boston business climate in addition to the car-sharing business model.

Howard Anderson, lecturer in entrepreneurship at MIT, told Boston Public Radio the deal seems beneficial for both companies.

“Avis usage peaks during the week,” he said. “Zipcar peaks on weekends, so the first real advantage you have is fleet optimization. The cost of running that fleet should go down for both of them.”

Still, Babson College lecturer Peter Cohan, author of “Hungry Startup Strategy,” said it may not work out quite so smoothly, since they have different customers – young people for Zipcar, businesspeople for Avis.

“The $500 million is a drop in the bucket for a company the size of Avis,” he said. “But I think there are some really significant challenges in terms of integrating the culture of the two companies.”

Zipcar’s stock had floundered after the company went public last year. Zipcar closed up almost 50 percent, at $12.18, on news of its acquisition, but it went public at $18.

“The beauty of any unprofitable company – and there are plenty of them that managed to go public -- is you can make up any story you want,” Cohan said. “There’s no track record of profitability. You can always say well if it just does this, it’s going to be a tremendously valuable company.”

Anderson agreed.

“It was a concept company,” he said. “It had a good brain. It went public and rose on the concept. Reality creeps in every three months.”

The deal is the latest in a long line of local companies acquired by larger, out-of-state companies. Cohan said Boston-area public companies don’t compare favorably with Bay Area-counterparts like Google.

“Boston and Cambridge are very good at coming up with new ideas that have a wide appeal, but in most cases, if they can even take them public,” Cohan said. “There’s something in local DNA limiting ability to manage companies.”

Anderson suggested people who are good at starting companies aren’t always equally as good at running them as public entities, which can be frustrating.

“At a certain point, you are made an offer – and I quote ‘The Godfather’ – that you don’t want to refuse,” he said. “It’s just too damn good.”

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