WaiveCar of Santa Monica is testing the theory that there’s no such thing as a free ride.
The startup, which operates a fleet of 20 cars, launched last week offering free car rentals, but there’s a catch: The vehicles it rents are wrapped with advertisements and carry digital billboards on top. Anyone can walk up and use a car for free for two hours, with each subsequent 60 minutes costing $6.
In a business world grown accustomed to – if not weary of – app-based businesses that upend old models, here’s a company that, if successful, could disrupt several industries, including outdoor advertising, car rental services and even ridesharing app companies and traditional car dealerships.
“We are a Robin Hood company: We give and we take,” said WaiveCar Chief Executive Isaac Deutsch. “We give to the people that need cars and we take from the advertisers.”
Of course, there are questions about whether a business model based solely on advertising can generate enough revenue for a company to scale effectively.
“A lot of people have tried to do the model they are embarking on, but that model has proven not to work,” said James Heller, chief executive of Wrapify, a San Diego startup that sells car-wrap advertisements. “It’s interesting and it’s a cool idea, but I think there are a lot of capital, insurance and liability issues.”
FreeCar Media of Brentwood, which launched in 1999, also offered rental cars with car-wrap advertisements as part of its business model. But that company quietly went out of business, Heller noted.
Nonetheless, Deutsch is gearing up to expand WaiveCar’s fleet to more than 200 cars in greater Los Angeles by year’s end, pending closure of additional financing.
He’s unambiguously confident that his firm’s business model will work, citing the $1.5 million in seed funding the company has received as a vote of investor confidence. One of those investors, Jason Lieber, also made an angel investment in San Francisco ridesharing service Lyft, said Deutsch.
“The numbers work,” he said. “We wouldn’t be able to raise money if they didn’t.”
Keys for free
WaiveCar functions similar to short-term car rental programs run by Avis Budget Group’s ZipCar and Daimler AG’s Car2Go.
All customers need to rent a car is a valid driver’s license and credit card. Car insurance is provided by WaiveCar, though renters are liable for the first $1,000 worth of damage.
The company’s fleet of 20 electric Chevy Sparks are parked throughout Santa Monica at city-run electric charging stations, metered street parking spots and within WaiveCar’s warehouse at 7th Street and Colorado Boulevard. The company’s staff rotates cars to make sure they are positioned for easy access and fully charged.
As renters approach within 15 feet of a car, they can use WaiveCar’s mobile app to unlock the doors. Keys are kept inside. Each vehicle is equipped with four GPS systems – that’s partly to prevent theft but also to help the firm gauge where the ads are being seen.
Each car displays 10 advertisements running on 15-second loops on a rooftop digital billboard. The company estimates its cars will get about 44,000 impressions each day, citing foot-traffic estimates for downtown Santa Monica. One impression is equal to one person in range of viewing an ad. WaiveCar runs static ads to avoid the ire of city regulators and California Department of Motor Vehicles, said Deutsch.
The rules for on-car digital billboards aren’t entirely clear in California, said Lon Cecile, chief technology officer of Prophet Signs Inc., a Greensboro, N.C., company that operates a network of digital billboards in the back windows of airport taxis and limousines in North Carolina and Las Vegas. What restrictions do exist come from the federal government.
“The Department of Transportation prohibits video,” he said. “And, once the car starts rolling, you have to freeze the ad until the car stops again.”
WaiveCar complies with those rules, said Deutsch, though the company is looking at other ways to capture the attention of potential roadside ad viewers.
In the next few months, the company plans to geo-target advertisements. That means if a rental car approaches a Starbucks, for example, the ads would switch to pictures of lattes, Deutsch said.
WaiveCar has a three-month advertising partnership with Oscar Health Insurance Corp. of New York, but otherwise hasn’t started selling ads yet, according to Deutsch. In the next several months, it will charge $450 a month for one of 10 slots on its digital billboard. Car-wrap advertisements will cost $1,500 a month per car with a minimum six-month commitment. That would amount to $6,000 in revenue for each car per month.
Deutsch expects demand to be strong, citing the success of VeriFone displays on taxicabs in Las Vegas and New York as a business model.
“We don’t need to test it,” he said. “They tested it for us.”
Auto subsidies
Out of the gate, WaiveCar has found several clever ways to take advantage of government subsidies for electric cars to keep overhead low.
For starters, WaiveCar’s electric vehicles only cost about $16,000 each after government rebates, Deutsch said. What’s more, the company plans to charge its cars for free from time to time using electric charging stations provided by the city of Santa Monica. Metered street parking in the city is also free to electric cars and will be used to store vehicles throughout the day, saving the company additional money.
Surprisingly, cars aren’t even WaiveCar’s largest expense: Digital billboards cost about $20,000 each, said Deutsch. And those heavy 2-foot-by-4-foot LCD screens require pricey commercial insurance. Deutsch wouldn’t disclose insurance costs, but said the company had figured a way to make it financially feasible.
Yet the firm’s financial feasibility will mostly rest on its ability to charge advertisers. And the company’s advertising prices are slightly above market rates, said Prophet’s Cecile.
WaiveCar might still have enough wiggle room to make its model work, say some outdoor advertising experts. And if that happens, it could open the door to new ways to pay for transportation, putting pressure on traditional mass transportation, as well as car rental and ownership models.
“I think you’ll see more of these subsidized (transportation) models,” said Bryan Yeager, senior analyst at eMarketer of New York. “It sort of parallels digital media, where you have publishers that are challenged by (lower-cost) advertising-based media.”
Moreover, outdoor advertising isn’t prone to downward pressures on prices because there is a finite amount of ad space, he said, which could help WaiveCar maintain prices.
“It seems like (WaiveCar) thought about its business model thoroughly. It seems like it has a chance,” said Yeager. “It’s really up to them to generate demand.”
