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Rent your neighbor’s car with Turo
Turo, a peer-to-peer platform, enables its users to rent the exact car that is advertised and costing 35% less than traditional agency prices on average (Campbell, 2017). On the other side, it allows car owners to rent out their under-utilized car on the platform. Founded in 2009 in San Francisco, California - Turo has since become active in more than 4500 cities spread across 3 countries and now employs 110 people (https://turo.com/rentals). The providers on the platform also cover over 300 airports, providing a solid alternative for regular rental car agencies. Armed with its mission “to put the world’s one billion cars to better use” (Cave, 2015), the firm generates revenue with every car rental booked through the platform. Even though Turo has not yet reached profitability, it has raised more than $172m in venture capital and acquired two firms to expand its operations internationally (Etherington, 2016). Turo was also named amongst Uber and WeWork in the Forbes 15 hottest on-demand startups of 2015 (Solomon, 2015).
Peer-to-peer platforms are frameworks in the form of a website or application that create value by “acting merely as economical-technological coordination providers” (Hamari, Sjoklint, & Ukkonen, 2016). In Turo’s case, it provides the framework to match people who own a car and people looking to rent one - providing tools for booking, rating and insuring the rentals. The car sharing initiative has changed the way people travel and own cars, as Turo advertises on its website: “Rent the car, own the adventure” (http://www.turo.com).
First introduced over 20 years ago in Switzerland, car sharing has now gained worldwide traction: “in the past decade, car sharing has become a worldwide phenomenon, with copious news coverage and uptake by consumers” (Bardhi & Eckhardt, 2012).
A majority of the cars worldwide are under-utilized and costing the owners money, in the form of payments and depreciation. According to Turo the average cost of owning a car is $233 a month and the average earnings per month by renting out a car for a few hours a week on Turo is $250. In a study conducted by Katzev, it found that individuals only use their cars as little as an hour or less during a 24-hour day (2003, p. 8), which should create a natural incentive for people to rent out their car on a sharing platform so that they can monetize the remaining 23 hours. However, there is an initial trust barrier to overcome before people will let strangers rent their car. As Koen Frenken describes, platforms like Turo are attempting to create trust “among sharing strangers, mainly by providing a public review system and by providing micro-insurance” (2017).
This paper will attempt to answer the following question: “How has Turo’s peer-to- peer car sharing platform effectively contributed to the sharing economy by putting underutilized vehicles to better use?”. The answer to this question will make it clear whether Turo’s platform positively contributes to the sharing economy. A literature review will be used to answer this question, which consists of academic articles on peer-to-peer platforms, car sharing and Turo’s activity in multiple markets. This material is reinforced with data, analytics and reviews from the platform.
In the next section, this paper will describe Turo’s participation in the sharing economy by using Schor’s framework on the business models of platforms (2014, P. 4). In the third section the effectiveness of Turo’s platform on the reduction in under-utilization of cars will be evaluated. In section 4 the central question will be answered along with the limitations of the answer, and finally a conclusion of the paper in the last section.
According to Schor’s (2014) framework, Turo is a for-profit peer-to-peer platform that will aim to maximize revenue and is heavily backed by venture capital ($172m in the case of Turo). Schor argues that while all platforms create value by facilitating sharing, “the imperative for a platform to generate a profit influences how sharing takes place and how much revenue devolves to management and owners” (2014). Turo’s investors would likely expect a return on their investment, for example in the form of dividends. The profit motive could lead to deviation from its mission “to put the world’s one billion cars to better use” (Cave, 2015) and could in fact result into more under-utilized cars. Turo initially started with providing “more affordable access to a vehicle than owning and maintaining” (Cohen & Kietzmann, 2014), but has since seemed to have shifted its focus on rentals for travelers, considering the previously mentioned slogan: “Rent the car, own the adventure” (http://www.turo.com).
Car owners have an economic benefit when they rent out their car on Turo’s sharing platform. Hampshire & Gaites summarize the economic benefit “as the sum of all payments made by the renter less the transaction fees, depreciation costs and opportunity costs” (2011, p. 123). As mentioned by Schor (2014, p. 7) and Cohen & Kietzmann (2014), car sharing provides an affordable and accessible alternative to car ownership. Hampshire & Gaites further discuss how a study of car sharing users in the United States found that “users reduced their mileage driven by 63% after joining a service and reduced their car transportation costs to just $720 dollar per year”, which is significantly lower than the average cost of owning a car at just over $2,500 per year (2011, p. 123). As Russel Belk discussed. “many of the sharing and collaborative consumption organizations that currently exist benefitted from the economic collapse that began in 2008 that caused some consumers to lose their homes, cars, and investments and made almost everyone more price sensitive” (2014). Turo, named RelayRides at the time, also gained its initial traction by providing an affordable alternative to car ownership.
As mentioned by Schor, the amount of comprehensive studies on the impact of the sharing economy is minimal. There has however been a recent study into car sharing, which found “a measurable reduction in greenhouse gas emissions, but only because of substantial reductions from a small fraction of households. For the majority, car sharing, by expanding access to cars, increased emissions”. Schor also mentioned that this is due to the widespread availability and low cost, some people are diverting from public transport and instead use a car sharing platform to get around (2014, p. 7). Mohlmann also mentioned that the research into the sharing economy, more specifically the experience and satisfaction of the customers, is still little and has many shortcomings (2015).
To promote the long term environmental interest of sharing platforms, the government could introduce aid, objectives and regulations. Heinrichs mentioned a few government strategies that were used to promote the sharing economy, “such as the project Seoul, a Sharing City (see box) or the project Shareable Cities involving 15 major US cities” (2013, p. 230). Whilst it may be the case that Turo positively contributes to the sharing economy by providing affordable and accessible access to cars, at the same time it may also negatively affect the environment as the platform attracts people that might otherwise travel by public transport. A clear legal framework is also needed for car sharing platforms to operate effectively and to gain the trust of consumers. As mentioned by Hampshire & Gaites, “the state of California has taken the lead in clarifying the insurance regime governing P2P car sharing” and further discuss that clarification is needed with regards to public policy and insurance obstacles to support the development of the peer to peer car sharing platforms (2011, p. 124).
A study conducted by Baptista, Melo and Rolim on the effects of car sharing in Lisbon, found that its users mostly use car sharing for small errands such as shopping and health appointments. The car sharing platform replaced taxi-use in 17% of the cases, private cars in 13% of the cases and the subway in 8% of the cases. Interestingly “4% of the users mentioned the desire to stop owning a private vehicle” (2014, p. 34). The findings of the study also support the statement made by Schor, where people would choose car sharing over public transport (2014, p. 7). Even though the study was conducted in Lisbon and not connected to Turo, in all of the above cases the car sharing platform’s users were utilizing a car that would otherwise not have been utilized, which would mean that it is effective in reducing the number of under-utilized cars.
The previously mentioned statements all contribute to whether people would depend on a sharing platform, such as Turo, instead of owning a car. With the current underutilization rate of cars being considerably high (Hampshire & Gaites, 2011), it would appear that it could decrease by offering the under-utilized cars on a sharing platform - which would make using a car more accessible and affordable for others. This would have a decreasing effect on the under-utilization of cars. However, Turo can arguably also be promoting car sharing as an alternative to public transport. This could lead to a conflict of interest with the government, for example in the form of higher pollution levels or greater congestion in densely populated cities, especially if the government has assisted the platform such as the previously mentioned examples from Heinrichs (2013, p. 230).
The change in the number of under-utilized cars would also depend on the kind of cars offered on the sharing platform. If the cars on the platform are part of the ones that are sitting idle for 90% of the day, there would in fact be a decrease in the under-utilization of cars. However, if people purchase additional vehicles for the sole purpose of renting them out on the platform, there would not necessarily be a reduction in the under-utilization. As explained in an article by Guru, people are able to operate as a rental agency and can “make a bit of additional passive income”. Some even go as far as leasing a car for the sole purpose of renting it out on the platform (2016).
Since the “American consumer society has been proclaimed an ownership society” (Bardhi & Eckhardt, 2012) and American consumers are strongly attached to their cars (Ball & Tasaki, 1992), the mainstream adoption of sharing cars, with consumers in Turo’s main market, the United States, may experience slow growth. According to Hampshire and Gaites, as concluded from a recent case study in Pittsburgh, an adoption rate of 0.6% to 25% of car owners is needed to provide a reliable car sharing service (2011, p. 125). Turo has created several financial incentives in order to attract more car owners to their platform, for example the $500 that was offered to a couple to list their Tesla Model 3 (Muoio, 2017). The adoption rate could be further improved through signaling the increasing demand for cars on Turo’s platform, as a result of the previously mentioned shift of focus towards tourist or vacation rentals.
Taking all of the above into account, the answer to the central question of this paper would be that Turo does in fact put “the world’s one billion cars to better use” (Cave, 2015). Turo has contributed to the sharing economy, by creating an intuitive platform that effectively facilitates exchanges between renters and owners. However, the answer is provisional since the sharing economy, including the platforms, are a relatively recent phenomenon and there is still little research available on this topic, let alone on the individual platforms. It is currently not possible to precisely determine the effectiveness of Turo’s effort to reduce the under-utilization of cars, since there is little to no data available on the platform’s users and types of bookings. The answer would also depend on the proportion of actual under-utilized cars rented out as opposed to the cars purchased for the purpose of renting out.
The actual economic and social effects of a platform, such as Turo, can also be difficult to measure. It is unclear whether the number of under-utilized cars decreases or increases as a result of the car sharing platforms. A change in under-utilized cars can be measured, but it can be the result of other factors, such as changes in economic conditions, it does not necessarily have to be caused by Turo’s sharing platform. In order for Turo to have a significant effect on the utilization rate of the world’s one billion cars, it would require mainstream adoption of the platform, so that its platform users can benefit from network effects and have access to a large range of car. Turo would also need support from governments around the world, in the form of clear legal frameworks with regards to insurance and legal policies.
Further research should focus on gaining insights on car sharing platforms, in terms of the users, types of rentals, environmental effects and utilization rates of the cars. Research into the users could provide insights on the proportion of tourists as opposed to locals, which could be an indicator of local adoption of Turo’s platform. Research on the types of rentals could provide valuable insights on the most popular category of cars and could act as a signal for more car owners to rent out their car on Turo’s platform, further reducing the underutilization of cars. Even though the environmental effects are difficult to measure, due to the many external influences, actual insights on environmental effects could stimulate the governments to further develop policies on sharing platforms. If found that the sharing platforms have a positive effect on the environment or congestion, further government intervention could take place to stimulate mainstream adoption of the sharing economy. Further research should also be focused on the utilization rates of cars, as these can provide insights on geographical areas of improvement in terms of the sharing economy’s adoption.
As demonstrated by reviewing a variety of research and academic work, Turo has positively contributed to the sharing economy, since the platform does in fact effectively match car owners with renters and allows for previously under-utilized cars to be used. In addition to the improvement in the utilization of cars, Turo also creates significant value for its users by providing an affordable and accessible alternative to car ownership, as described by Hampshire & Gates (2011) and Cohen & Kietzmann (2014).
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- Quote paper
- Alex Broere (Author), 2018, How has Turo’s peer-to-peer car sharing platform effectively contributed to the sharing economy by putting under-utilized vehicles to better use?, Munich, GRIN Verlag, https://www.grin.com/document/426753