Today’s sharing economy is characterized by the co-production of consumers, which offers a lot of new opportunities to companies that can exploit new ways of generating revenue (Dellaert, 2018). One of the promising trends that can be seen in our sharing economy is the increasing popularity of ridesharing practices (Statista, n.d.; McKinsey, 2017). More and more drivers decide to fill up their empty car seats and offer these spots on online ridesharing platforms to a growing number of riders. One of the early companies that successfully established its business model around ridesharing practices is Carpooling.com. Moreover, this company was in 2012 world’s largest ridesharing provider. However, only three years later Carpooling.com seized to exist and was acquired and folded into its competitor BlaBlaCar.

So… what went wrong? How could such a large and powerful platform go down so quickly?

Timeline

Carpooling.com was created in 2001 by three innovative MBA students in Munich (Kite-Powell, 2012). These students captured the opportunity of an unmet need that existed in the automobile market. Moreover, gas prices were rising, congestion was worsening, and the majority of car owners was mostly driving in their car alone. To address these factors, Carpooling.com was launched with the idea to offer a platform through which drivers and riders are connected. Drivers could post their empty seats online and riders could book these seats. Consequently, drivers were driving less times by themselves, resources were shared, and an impressive impact was made on the CO2 emission (Jalali et al., 2017). For example, in 2011 the platform service saved drivers 27 million gallons of gas and prevented a CO2 emission of  205,000 tons (Kite-Powell, 2012).

In 2007, the platform was the largest carpooling platform of Germany. At this moment in time, the main revenue stream of the company came from advertising and key partnerships with associations or companies that were involved into the car industry (e.g. ADAC, the German automobile club). In 2009, the company received a capital injection and expanded its scope to other European countries. The company continued to grow due to the economic crisis, the improvement of mobile technology, and the emerging trend of the sharing economy. All of these factors increased the popularity of ridesharing and consequently led Carpooling.com to become the world’s largest provider of car-sharing services in 2012. In the following years, the company started some partnerships with the focus on sustainability and received another capital injection for its expansion towards the United States.

This sounds like a story similar to companies such as Facebook or Amazon that usually end with the facts on how great the company is doing at the moment (Haucap & Heimeshoff, 2013). However, in 2015, Carpooling.com got sold to its competitor BlaBlaCar, only three years after establishing its position as global leader. The question at hand is what mistakes the company made in order for it to go down so quickly; the answer can be found in some destructive adjustments in its business model.

Business model

Carpooling.com offered a platform at which drivers and riders were connected. Riders could choose which driver they wanted to join and could select from a variety of features, such as car size, comfort, and price. After each ride, drivers and riders could rate each other, building up a profiles of two-way reviews. According to Shen et al. (2015), a high rating results in increased attention and a better reputation; consequently, drivers and riders with a higher rating were more likely to be accepted for a certain ride. Furthermore, the users could use an in-app service that offered rides by public transport as a final step to get to their destination.

Revenue was generated through two different streams (Boyd, 2012). First of all, the company earned money by personalizing its software for bigger companies that wanted to use the service for their employees. The second income stream came from advertising, which was by far the largest revenue generator. Moreover, due to the large two-sided network effects that Carpooling.com was enjoying, the company’s user base kept growing and its website, on which ads were shown, was frequently visited by high numbers of users (Parker et al., 2005).

In 2013, Carpooling.com introduced a new revenue model in which a third income stream was added (Täuscher & Kietzmann, 2017). Moreover, the company became ‘greedy’ and started to charge its users a small fee per ride; this changed everything. Previously, payments were done in person after the ride. However, to be able to collect money from its users, the company now insisted that all users register themselves and pay the price of the ride up front and online. This led to a decrease in the perceived ease of use of the platform, because users had to put more effort in to book or sell their rides (Venkatesh & Bala, 2008). Consequently, a lot of clamor emerged on the platform and users heavily complained about the fact that a previously free service suddenly had been given a price label.

According to King et al. (2014), the importance of electronic word-of-mouth cannot be underestimated. Moreover, as a consequence of the dispersion of negative online posts about the company and the decreased user satisfaction, an initially gradient downstream of users started to appear who switched over to alternative carpooling sites. This downstream became increased rapidly, due to a loss of two-sided network effects (Parker et al., 2005). The less drivers that were active on the platform, the less riders could use carpooling services and vice versa. Consequently, Carpooling.com lost a large share of its users which weakened the company and made it vulnerable to the takeover from its main competitor BlaBlaCar.

Lessons learned

The case of Carpooling.com is a school example of having the wrong priorities and underestimating the power electronic word-of-mouth in our sharing economy. Consumer co-production offers many opportunities to companies and the ones that manage to exploit this successfully, receive high customer satisfaction and loyalty, and can enjoy terrific profits (Edvardsson et al., 2000). However, companies these days should prioritize their business focus on their customer, because customers have a great, potentially devastating, influence on the life expectancy of a firm.

References:

Boyd, C. (2012). Carpooling the German way. PRI’s the World. Available from https://www.pri.org/stories/2012-02-08/carpooling-german-way

Dellaert, B.G.C. (2018). The consumer production journey: Marketing to consumers as co-producers in the sharing economy. Journal of the Academy of Marketing Science, pp. 1-17. Available from https://doi.org/10.1007/s11747-018-0607-4

Edvardsson, B., Johnson, M.D., Gustafsson, A. & Strandvik, T. (2000). The effects of satisfaction and loyalty on profits and growth: Products versus services. Total Quality Management, Vol. 11, Issue: 7, pp. 917-927. Available from https://www.tandfonline.com/doi/abs/10.1080/09544120050135461?casa_token=KmKFB3GtqnIAAAAA:BaQrIvERmOA1eY_EbNy5RkWw1f2UdUHgs684MmWGzQigOp_GrTIB5M4TT_cdmm-O5LDMhjkOEAX6

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