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!

Westin: Power of economic incentives in driving environmentally-conscious behavior

Yesterday, I checked in at the Westin Cincinnati and came across the sign above which describes a new "Green Choice" program: decline housekeeping, conserve natural resources, and get 500 Starwood Preferred Guest (SPG) points (or a $5 gift card)!

500 SPG points is quite a lot. In fact, a 2 night stay at the Westin Cincinnati typically yields 504 points for me. By declining housekeeping, I basically double the point value of my stay!

This is obviously an operations win for the Westin. Eliminating the need to clean another room reduces the overall expenses of running the hotel. Apparently, the cost of cleaning a room is approximately $5, based on the value of the gift card.

The "Green Choice" program also speaks to the power of economic incentives as a means of encouraging environmentally-conscious behavior. During my time at the EPA in the late 90's, I worked on a couple of great programs that leveraged economic incentives to encourage environmentally-friendly behavior by consumers and companies. It's good to see that forward-thinking firms, like Starwood Hotels, have found ways to adopt the model as well. The enviros of the world will make the "Green Choice" for environmental reasons, and the frequent business traveler will do it for a good reason too...free points!

And although the "Green Choice" program is not a true business model unto itself, the program does offer an interesting example to leverage in thinking about business opportunities: The Westin is paying you to NOT provide you a service! What would be the parallel in your industry?

Standardizing Corporate Greenhouse Gas Measurement

Yesterday, Autodesk Inc, the design software company, announced that they have created a new approach for corporate greenhouse gas target setting. Called Corporate Finance Approach to Climate-stabilizing Targets (C-FACT), the open source methodology is intended to create a standard for how direct and indirect carbon emissions are reported by companies.

At Peer Insight, we always tell our clients to identify their control points—things they are leveraging to lock out the competition and lock in customers. Creating the standard is a common control point approach, especially in the technology arena. We see this everyday in consumer technology markets (e.g. AAC vs MP3 for digital music, Blu-Ray vs HD DVD for DVD players).

In GHG reporting, creating a common standard will be essential if the upcoming Copenhagen discussions go as planned. As the Autodesk press release suggests, GHG target setting is a little bit “like the Wild West, with few laws, little scrutiny, and quite a bit of aimless shooting.”

It’s hard to say whether Autodesk really is the right company to own the standard (and hence, the control point). But it’s great to see that a design-oriented company is using its resources and knowhow to address a key environmental issue.

Food Delivery business model version 2.0

Like many of you who participated in Halloween merriment last weekend, there came a point in the night where my friends and I became really hungry. So what did we do? Go to an all night diner? Grab a slice of pizza from the late-night pizza joint? Feast on leftover candy corn at home?

The answer: go to SeamlessWeb for delivery.

SeamlessWeb is a web service that allows you to find all of the restaurants that deliver to your address. For each restaurant, an up-to-date menu is provided, online ordering is setup, and payment (including tip) is handled by credit card. Once you complete the order and the restaurant acknowledges it, you receive an email confirmation that displays your order and the estimated time of delivery.

At first blush, the SeamlessWeb concept sounds like an incredibly simple business model. And the barriers to entry seem very low. So as a business model analyst, you have to ask yourself: what are the control points that lock-in the customer and lock-out the competition?

Like all websites, SeamlessWeb offers basic functionalities that encourage stickiness with customers. For example, the web site offers customers easy click-thru for repeat customers. If you have a favorite meal at a restaurant, SeamlessWeb allows you to reorder the same meal in just a couple of clicks.

More importantly, SeamlessWeb has established relationships with many of the large law firms and investment banks in New York City. The SeamlessWeb system provides “seamless” integration to corporate accounting systems, enabling greater accounting efficiency, reduced admin costs, and better budget control. In doing so, SeamlessWeb creates loyalty and builds recurring revenues with a customer segment that orders lots of catering and late night delivery.

And as an added bonus, SeamlessWeb's corporate business allows the company to form strong relationships with high income, B2C customers (e.g. lawyers, bankers) who order delivery often.