The Airbnb Of Car Renting? How RelayRides Is Switching Gears

Once a ZipCar competitor, the company is now taking on the traditional car rental industry. Powered by people—and $25 million in funding.

In 2010, RelayRides launched as a peer-to-peer competitor to ZipCar, allowing people to rent their cars by the hour while they weren't using them, enabled by in-car access devices. The idea gained enough traction that GM partnered with the company in 2011 to simplify access to GM cars rented through RelayRides' marketplace.

But over the next two years, the inefficiencies of the in-vehicle hardware needed to unlock a stranger's car without them present—in addition to lingering inherent trust issues—led RelayRides to experiment with longer-duration rentals that allowed owner and renter to meet face to face to exchange keys. The pivot was so successful that RelayRides switched business models entirely to compete more directly with traditional car rental companies, and this week secured a new Series B funding round of $25 million, led by Camaan Partners.

"We watched these new longer-duration formats take off, while the hourly rentals were declining as a share of the total, and we saw how much more satisfied our owners and renters were when they actually met in person instead of going through the anonymous exchange enabled by the hardware," says RelayRides CEO Andre Haddad, who came to the company in 2011 after more than a decade at eBay. "Surprisingly for a technology company, we've removed some of the technology that we spent a lot of our early days developing, which is all the hardware we had in the car—now we have people connecting in person."

Andre Haddad

Now, as essentially an Airbnb for cars, RelayRides' minimum rental period is one day, and the company has grown to 2,000 city locations and 300 airport locations in the U.S. Haddad says that RelayRides' pricing on average is 35% lower than traditional rental car companies', and that another competitive advantage lies in the diversity of vehicle options. "We have more than 800 makes and models in the marketplace—everything from a Smart Car to a Tesla, with options you typically don't find in rentals," says Haddad. "We don't have to optimize for volume purchase or standardized maintenance, because we don't own the cars. Car enthusiasts are one of our most important groups of customers, and showing them our cars is like showing them candy at a candy store."

Convenience is also an increasing part of the value proposition, as car owners can be anywhere. "As the marketplace grows and becomes more dense, the convenience that the proximity offers can over time be a very significant advantage over rental companies' hub-and-spoke retail model," says Haddad. "They can only have locations where there's enough demand, and they can't have too many or they'll cannibalize each other. In our marketplace, you might have an owner renting their car within a few minutes' walk from your house."

Haddad says the average owner who lists their car on RelayRides rents the vehicle for eight to nine days in a month, and makes just over $250—which is also the average monthly cost of owning a vehicle in the U.S., including insurance, depreciation, and other costs. For this reason, 50% of owners on RelayRides are renting their only car. "What we've typically seen is that these owners need their cars during the week but not during the weekend, or vice versa," says Haddad. "We're finding that owners with only one car are often able to modify their transportation options to enable occasional rental, because the economics of renting it are so favorable." The other 50% of owners rent their second or third cars, or are long-term travelers, and are able to rent for longer durations of weeks or months.

To address safety and trust issues inherent in sharing economy marketplaces, RelayRides has enabled real-time driving record verification that accepts or rejects prospective renters instantly during the sign-up process, resulting in a 20% to 30% rejection rate. "If a renter has had any major violation in their driving history, ever, even a long time ago, they will be rejected, and if they've had frequent minor violations over the past two years, we'll also reject them," says Haddad. "So our pool of drivers is better than the overall population of drivers in other rentals, or even their own cars."

The company also has an insurance product in place that automatically acts as the primary policy during the rental without the need to opt-in, covering owners and renters for $1 million in liability, which typically exceeds the state minimums that people tend to carry on their personal policies. For physical damage, for accidents in the absence of a third party, renters can choose among three levels of coverage with different fees and deductibles, and can decline entirely if they have that protection with their personal policy. Owners are automatically covered for physical damage with no deductible.

"It's very important for us as marketplace managers to make sure people feel this is a place they can trust, that they're not going to rent their car to some crazy person who's going to wreck their car or steal it," says Haddad. "On the renter's side, we want to inspire confidence that they're going to get great cars in good working condition, and that if something does go wrong, we're there to assist them."

RelayRides' growth in both revenue and profitability over the past year resulted in the current funding round led by Camaan Partners, who are also active in other marketplace companies like Lending Club, bringing the company's total funding to $44 million. Also participating are RelayRides' earlier investors August Capital, Shasta Ventures, and Google Ventures. In addition to planned expansion outside of the U.S., Haddad says the focus of the funds will first be on raising awareness of peer-to-peer rental and RelayRides, which is still fairly low. "We'd like it to become a quasi-mainstream activity, and I think it's going to take a few years," he says. "But I think we're going to get there because it makes so much sense from an economic standpoint."

Another priority, he says, will be investment in the team and the customer service and product experience. "We want to make the RelayRides experience really stand out from a delight standpoint from traditional car rental, which I think you'll agree is not always very delightful."

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