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Startups aim to disrupt the auto club

Rick Newman
Senior Columnist

Your father may have lectured you about the importance of joining AAA. Now you can let him know about some trendier alternatives.

A Boston startup called Openbay is launching roadside assistance, with users paying only for services they use. A tow, for instance, starts at around $80. The service is available through a free smartphone app for Apple's iOS devices, with a corresponding Android app on the way. The new service is an affront to the venerable American Automobile Association, which charges members an annual fee ranging from $48 to $96, then provides jump starts, short-range towing and other services free, when needed.

Openbay launched in 2012 as a sort of eBay for car repair, matching car owners needing work done with local shops that bid on the job, allowing consumers to get several estimates before ever taking their car to a shop. It now operates nationwide and claims to have more than 20,000 service shops signed up. Offering roadside assistance “broadens the value proposition to consumers,” says Openbay CEO Rob Infantino. “Some of our customers need to get their car from home to a service station to get it repaired. It’s a natural extension to offer that service.”

It’s also a test of the competitive chops of AAA, which boasts 56 million members in North America but may strike some consumers as more of an analog brand than a digital one. AAA offers a smartphone app, as does Openbay, but it also markets services that may seem outdated to younger consumers, such as maps and pharmacy discounts. Plus, younger consumers accustomed to Uber and Zipcar may wonder why they should pay an annual fee for a service the may not need this year, or next.

Towing is a $6.1 billion market, according to IBISWorld, which is apparently big enough to draw new entrants aiming for a chunk of the business. Another startup, Honk, launched in 2014, promises to “reinvent the roadside industry,” using a smartphone app, GPS and a “multifactor algorithm” to pinpoint the location of a breakdown and get a tow truck there in the shortest time possible, for fees starting at $49.

AAA noticed. As VentureBeat reported in late 2014, Honk’s CEO accused AAA employees of placing nearly a dozen requests for Honk roadside service – then canceling the service after a tow truck had been dispatched. AAA never confirmed that it played such dirty pool, but the two organizations did exchange threatening legal correspondence.

Roadside assistance might appeal to startups because providers don’t typically operate the tow trucks themselves. Instead, they contract with networks of towing services, paying a fee for each service call. That allows Honk, Openbay and any others that might come along to follow the broad model of megastartups such as Uber and Airbnb—provide matchmaking services between buyer and seller, while relying on physical assets controlled by others.

Most drivers have heard of AAA, but another big roadside service company is barely known outside the industry: Agero, which provides the roadside service offered by automakers such as Ford (F), Toyota (TM) and Honda, as well as insurers USAA and Progressive (PGR). Agero will provide Openbay’s service, which will help the startup offer competitive rates, quick response times and a broad coverage area. Honk contracts directly with service providers, similar to the way Uber deals directly with drivers.

AAA has adapted to fresh competition by offering “on demand” roadside help of its own that doesn’t require a membership, along with immediate registration for somebody's who's stranded and decides to sign up on the spot. AAA's app also helps drivers find the cheapest gas and locate hotels that offer a AAA discount. Plus, some drivers may decide AAA’s annual membership is actually a good deal, since it can pay for itself with one call for roadside help per year and a travel discount or two--and you know you have coverage.

But AAA will have to do more than offer deals, guidance and peace of mind if it wants to keep up. Infantino envisions Openbay becoming a one-stop shop for car care that might eventually alert car owners to recalls or technical alerts involving their vehicles, store all service records, and even diagnose problems on the road by tapping into the car’s sophisticated sensors. When the mysterious “check engine” light comes on, for instance, the app might be able to tell you whether it’s a serious problem requiring urgent attention or one you can worry about next week. The auto club may one day become the best travel buddy you have.

Rick Newman’s latest book is Liberty for All: A Manifesto for Reclaiming Financial and Political Freedom. Follow him on Twitter: @rickjnewman.