Fractional Ownership: The Mercedes of Business Models

Last week, Daimler, the automaker of Mercedes Benz, Maybach, and Smart Car, launched the North American pilot of their new car2go business model in Austin, TX. car2go is a car-sharing service that allows users to rent a Smart car on demand without committing to a return time. Similar to Zipcar, car2go provides the following additional advantages:

• No reservations— see a car, swipe your card, and go!
• No time allotments—pay by the minute!
• No designated spots-- leave your car wherever you want!
  

car2go is a great example of a fractional ownership business model, where a number of customers share a single resource. In addition to autos, we see fractional ownership business models used in a variety of industries, including real estate (timeshares), aerospace (private jets), and staffing (temps).

Instead of forcing the customer into a make or buy, or even a buy or lease decision, sometimes the more intriguing option is to enable a shared usage model. Relative to other business models, fractional ownership:

1. Converts a product business into a service—Instead of being held captive in a low margin product industry, fractional ownership allows companies to shift products to a service business model, allowing for price premiums based on experience (not just functionality).
   
   
2. Enables a new customer segment—While more traditional business models focus on purchasing customers, fractional ownership allows companies to attract a new customer segment –“non-customers”—who otherwise could not afford the company’s product.
   
   
3. Reduces environmental impact—Rather than encouraging purchases of products and underlying raw material consumption, fractional ownership supports utility (e.g. buying uptime, not an engine). Environmentalists have been supporting the idea of product servicization for years.
   

Ever thought of making your business a fractional ownership business? If it’s good enough for Warren Buffett, who owns Netjets, maybe it's good enough for you!