Some activities can benefit from access to assets that that no single user would consider making on their own, because the barriers to entry were too high, or their utilization was too low to justify. A review of a practical example of such an asset can help reveal the complexities in evaluating costs and benefits of such assets. The example I will use is based upon the automobile, and draws from the economics of automobile usage. Even though the total cost of ownership for such vehicles generally is as much as twenty percent of an individual's total income in rich countries, demand continues to grow among poor nations. 

The benefits of ownership and use of private vehicles are perceived quite differently across individuals and cultures, and vary considerably depending upon the distance from home to work, the congestion within the transportation network, the frequency of trips that require such vehicles, the availability of investment funds, the pleasures of driving (at least, under the right conditions), and how one values their personal time. Related factors may also include less tangible benefits, such as the freedom to use transportation spontenously, a desire for personal independence, and the value of convenience. 

Since cars rapidly depreciate in value, and have a service life that is difficult to predict, they rarely can be considered to be a good investment, but are a valued status symbol, as well as a critical means of traveling from point a to point b. As a result, while the costs of automobile usage can be traded off against the benefits under different service delivery models, intangibles in such models are difficult to quantify. Real costs include acquiring the vehicle (whether through purchase or lease), performing repairs on it, and the costs of operation: fueling, depreciation, maintenance, fees, licensing, taxes and insurance. Social costs can also be quite high, however; by 2020, the World Health Organization predicts that road fatalities will be the world’s third-leading cause of death, and the impacts to the environment can be even more significant.  However, for this analysis, such social costs will not be included.

Given these many contributors to the total costs of utilizing a vehicle, and the fact that most vehicles are privately owned today, it should not be surprising that the efficient use of such assets, and their underlying support infrastructure, have been difficult to improve over time:

• Private vehicles typically are underutilized, when measured in hours of usage per day.
• Depreciation is a significant proportion of each vehicle's total cost.
• The average occupancy within each vehicle is below 1.5 passengers in most places of the world.

If vehicles were more expensive, you might think people would be more motivated to share assets... and this indeed is likely the case in countries in which users cannot afford their own vehicles. However, compared to common carriers such as airplanes, buses, and trains, private vehicle utilization of roads does not scale well. Once traffic reaches certain levels, throughput drops off rapidly. Thus, it should be recognized that the costly asset in transportation is the highway, not the automobile. The car is really just the means of servicing the expensive community asset. And since roads are typically financed with public funds, it is in the interests of government to try to improve the utilization of that infrastructure.

Congestion on highways is, as Alan Pisarski describes it, “people with the economic means to act on their social and economic interests getting in the way of other people with the means to act on theirs.” It is a problem that has been pursued by many creative strategies, but perhaps none are more effective than that to simply reduce the number of vehicles in use. Attempts to introduce innovations into public infrastructure to improve overall utilization of expensive common assets, such as high occupancy lanes, have met with limited success, at least partially because of public perception problems. Since traffic moves in time and space, observations of vehicular volume can be deceiving. Drivers in a congested lane may perceive HOV lane as empty, though this perception may just be due to the large headways between vehicles moving at much higher speeds than their own lane. The HOV lane can achieve a higher throughput than the single occupant lanes, due to the fact that those drivers are going considerably faster, while carrying more passengers per vehicle.

One way to reduce the number of private vehicles on highways is to provide more attractive alternatives to private ownership under different scenarios. Consider the following cost model for operating a privately owned automobile within a metropolitan area:

In the above example, the majority of these costs of ownership are fixed costs, and are largely independent of the distance traveled. If the above vehicle were used for 12,000 miles per year, this usage would correlate to 75 cents per mile of usage. If utilization were increased to 24,000 miles per year, gas and maintenance would double, but the corresponding total costs per mile of usage drops to about 42 cents per mile.

However, achieving this added utilization many not be possible when only a single user makes use of a private vehicle. This is why options like carsharing are becoming increasingly popular. The idea is to make vehicles available to users for shorter periods of time than a traditional car rental agency currently does, and provide a more streamlined access to the carsharing service than other options. This is important because if you only want to use a car for two hours at a time, you probably don't want to spend another two hours driving around looking for and picking up the car, dropping it off, and filling out the forms to qualify for insurance, make payment, etc.

One such service, Zipcar, is worth examining to highlight the innovations which were required in order to make such a service economically attractive. Zipcar allows Individual members to sign up for one of two different plans: an "Occasional Driving Plan", or an "Extra Value Plan. The costs of these plans helps to assure that the underlying operational infrastructure associated with service engagements and customer qualifications are distributed across all members equally, through their annual membership fees (around $50, after an initial $25 setup fee). When someone becomes a member, they can then reserve and use any available Zipcar in any supported city, over the Web.The actual costs of usage are prorated by how much utilization has actually occurred, which is a combination of mileage and time.

Customers are given an access card (called a 'Zipcard') which contains a wireless chip that allows them to enter the vehicles. They also use mobile apps to find vehicles distributed near their location. These two items minimize the transactional costs of usage for each vehicle. Each vehicle then records the actual hours of usage and mileage, and uploads this information to a central computer via a wireless data link. Users are then billed at a defined rate per hour (typically, around $10, though this varies by location). You can also reserve the car for an entire day, though their daily rates, at around $70/day, are typically less cost effective than what would be available through rental agencies for multiple days. Gas, insurance, and the first 180 miles of utilization per day are also included in the Zipcar fees. Within a city, their value proposition also includes access to pooled parking, which is where Zipcars are parked when idle. Distribution is thus accomplished efficiently through this means, though you may not find a parking space open when you go to drop a car off. The location of individual vehicles is not recorded during usage for privacy reasons, but is accessible when necessary for security reasons, and all cars are equipped with a "kill" function. This allows the company to prevent a car from being started, in the event a vehicle is stolen. The reservation includes driver's insurance, a gas card for the vehicle, and reimbursements for typical car maintenance items like car washes and window wiper fluid refills.

If you used less a car than 75 hours per month, within a metropolitan area where Zipcar is available, this could be an appealing alternative. But this isn't 80 hours of usage; it's 80 hours of 'clock time'. If you use a car more than an average of 8 hours per day (and turned it in after that usage), the daily rate could be even more attractive. Similarly, one must be willing to use the types of vehicles offered; this is not the option to chose if you want to deliver sand and gravel to your home for weekend warrior work. Thus, this service may only appeal to a portion of potential automobile users, and though it may attract a significant share of that target market over time, it may never appeal to even the majority of users; one service delivery model may simply not works for all different usage scenarios, as this market has demonstrated, and any service delivery model compromises some usage scenarios, while favoring others. Whether the resulting value proposition actually in a particular environment will depend upon the degree to which the classic rule of operational measurement of vehicles applies: "Your mileage may vary".

Observations from this case study that may be applicable to other synergy initiatives include:

• If you cannot shape demand, you cannot manage the utilization of expensive assets. As a result, the per-use cost of those assets will either degrade to the point that individual accesses are not affordable, or will increase to the point that individual access are not worthwhile due to congestion. The leverage is thus in finding ways to expand access, shape demand, and ensuring that end users pay their fair share of what they actually consume (rather than subsidizing some types of infrastructure over others).
• There must be attention given to defining an efficient and attractive 'cost structure' for shared assets. This is important both to position your offering with respect to alternatives, and to set expectations for predictable engagements, scalable operations, and efficient management of capacity and capabilities over time.
• Business decisions and tradeoffs on the true value of products, and on how to manage demand, are critical decisions for attracting customers, promoting continuous improvement, and assuring that the underlying service delivery mechanisms are predictable, reliable, and secure. Such decisions must be built into your service offering, so that resource allocation adjustments can be traded off in real time.
• Managing demand for high-cost assets through control of customer-driven factors is a difficult strategy to implement, since utilization often depends upon many factors outside of the customers control. Customers may rate freedom of choice quite high, and low acceptance of some behavioral interventions may diminish returns that can be realized from infrastructure investements, unless usage patterns are consistent, well understood, and predictable.
• An appropriate infrastructure must be put in place which enhances protection of investments, guides the rapid (re-)deployment of assets and resources, and quickly and efficiently delivers services to a target market.