Car Search Aggregation

I was rereading Professor Rogers’ book and I had this brainstorm that somebody should develop an aggregator site to sit on top of digitally-enabled car dealers, the way Kayak does for airlines.  It could scrape all the listings into one vehicle-search page, aided perhaps by a standardized listing API. 

It turns out I am not the first one to have this idea, but the research was interesting.

First, we have to make a distinction between providing a lead and selling the car.  This is not always easy, because few customers require full digital retail, and most lead providers have some limited DR capability.  Still, this distinction is important to an aggregator:

To make said distinction, imagine the dealer in this diagram has a DR system and also uses a third-party classified site.  If you are a DR skeptic, imagine this is Carvana (or CarMax) with their own integrated car-selling site. 

I am using a thin line for leads and a thick line for deals.  This notation helps to show that the Kayak site should only connect to DR-capable dealers.  Otherwise, it’s lead provider on top of lead provider, with no added value.

Once a platform is widely established in its category, it is extremely hard to launch a direct challenger with a similar service – David Rogers

Here, I am just doing what any good futurist does – working backward from the goal state.  What the market wants is a single place to shop, like Amazon.  Rogers would call this a “platform,” and network effects says it’s a winner-take-all business.  There can be only one. 

Once you recognize this three-layer model, you can infer all sorts of fun things.  Like, suppose Carvana (or CarMax) decided to open up their DR capability to other dealers.  These would be certified and operationally compatible dealers, whose inventory Carvana could sell for a commission.  I’ll leave it to you to negotiate who earns the F&I gross:

I have been writing about digital retail for a few years now, speculating on how the goal state would be achieved.  Note that “DR aggregation” on the left side of the diagram, and “platform aggregation” on the right, correspond to the two vectors I described here.  

I have long advocated platform sites adding DR capability, as some are doing now.  This brings us to an interesting piece of history.  Airline booking sites Orbitz and Kayak were founded by the same guy, Steve Hafner, in that order:

Initially, Hafner undertook what we would call the DR piece, while Kayak opted to be simply an aggregated lead provider.  I still think it’s a good idea for listing sites to develop DR features, but history suggests the TrueCar approach – linking up with Roadster – is the correct one.

Digitally Disrupting Dealer Systems

I hesitated to use the D word here.  So much of digital is normal, healthy evolution, that saying “disruption” is like crying wolf.  So, I will digress briefly into that discussion before presenting my thesis, which is: traditional dealer-system providers are about to be whipsawed bigly by digital retail.

According to Gartner, digital disruption is “an effect that changes the fundamental expectations and behaviors … through digital capabilities.”  This idea of changing expectations is echoed by Aaron Levie, to the effect that businesses “evolve based on assumptions that eventually become outdated.”

If your UI even vaguely resembles an airline cockpit, you’re doing it wrong – John Gruber

Another common theme in studies of digital disruption is that people will come from outside the industry, bringing new attitudes and techniques that incumbents can’t match – something I like to call “advanced alien technology.”

Modal’s Aaron Krane came from online sports betting, and famously wondered why there is no “buy now” button on the Mercedes-Benz web site.  Andy Moss of Roadster came from online fashion retail.  I think I am on solid ground arguing that DR pioneers bring something fundamentally different.

In fact, I can identify the baseline assumption which is now outdated.  In olden times, the user of auto retail software was an auto retail employee.  These were experts, executing an esoteric process, and they could be trained to deal with crappy user experience and disjointed workflow.

Today’s user is, of course, the car buyer.  A few years ago, I wrote that each of the six canonical tasks in DR would need a “buddy” on the dealer side, with which to share information.  For example, the website may disclose prices for protection products, and it would be nice to pull retail markup from the menu system.

It’s hard to believe how quickly DR has evolved.  Roadster had just launched Express Storefront when I wrote that article, and already the buddy system is dead.  If a car buyer can desk her own deal, at home in her pajamas, why use a different system in the dealership?

The advantages to using the same system in store and at home include trust, transparency, cost savings, and reduced demands on the salespeople.  The new generation of in-store DR means that salespeople can be experts in customer service (and cars) instead of complicated software.

This marks the culmination of important trends in auto retail, from “one experience” at Sonic to “single point of contact” at Schomp, and it should serve as a wakeup call to old-school software vendors. Digital retail will drive a gradual shift in dealer process, but a rapid one in software.

Digital Retail Taxonomy

The tech buzz at NADA this year was Digital Retail.  Tagrail has a new partnership, with dealer site provider Fox, and Moto showcased some of their OEM projects.  Roadster has an aggregation marketplace, which I’ll get to in a minute, and Modal (Drive) was conspicuously absent.  I hope they’re okay.

All dealer site providers are now claiming the hip acronym DR, including some that are way off the mark.  This week I want to cut through the clutter and taxonomize a bit.  We’ll see how well my predictions from five years ago have held up.

Dealers will migrate onto the most capable of the platform sites, and … the winning platforms will not be mere lead providers.

I am going to skip the consolidators and the used-car sites, to focus on DR solutions for franchised new car dealers.  That was the context for the earlier article (and the pull quote).  The grid above divides the DR space into four segments: True DR, Pivoters, TPC, and Marketplaces.

True Digital Retail

A true DR solution must handle the six canonical functions, do the paperwork online, and save the deal (not a lead) for use in the dealership.  True, not many customers will do the full process online, but you have to offer the capability.  Qualifying questions here are along the lines of “can you sell a service contract and book it online with the administrator?”

I don’t want to be pilloried for omitting someone, but my short list (when asked) goes: Roadster, Moto, Modal, Tagrail, AutoFi, and CarNow.  I can find CarNow dealers pretty easily online, paired with a variety of site providers.  Here in Atlanta, Ed Voyles is an example.

Pivoters

Anybody with a foothold in the dealer’s website is using it to pivot into DR.  The first group of pivoters are what I call “finance first” sites.  AutoGravity, DriveTime, and AutoFi are sites customers use to check their buying power before going into the dealership.  Based on intel from Ricart Ford, I would say that AutoFi has successfully pivoted into the DR segment.

Gubagoo is using their foothold in chat to pivot as “conversational commerce.”  SpinCar is adding protection products to their VDP real estate, which is right where they belong.  Even popular F&I menu Darwin is moving online with Darwin Direct.

Third Party Classifieds

My model for a marketplace is Autotrader plus its DR feature, Accelerate.  However, the other incumbents have not followed suit.  In fact, Cars.com “does not sell vehicles directly and is never a party to any transaction between buyers and sellers.”  This space is inhabited only by brave new entrants like Joydrive, GoGoCar, and Deliver My Ride.

As I wrote here, this model has plenty of challenges, like finding UX and services that will appeal to all dealers – not to mention the customers.  Dealers may prefer a simple clickthrough to their own DR solution.  This is the backdrop for Roadster’s Express Marketplace.

Roadster Marketplace

Roadster’s marketplace operates just like a TPC site.  It has the familiar VSP/VDP with faceted search, but then it segues into a full digital storefront.  The reference site I looked at, Cochran group in suburban Pittsburgh, lists 3,500 new vehicles in 18 makes, from 26 rooftops – with transparent pricing!

My first reaction, I have to say, was “Holy crap, they’ve actually done it!”  They have made their own private Autotrader.  Of course, the same market area lists ten times as many new cars on Autotrader but – funny thing – they all use Accelerate.  Competition is wonderful that way.

The arrows on my grid suggest some strategic directions:

  • Single-function solutions will pivot to become storefronts. AutoFi is an example.
  • Third-party sites will add DR functionality. Accelerate is an example.
  • As storefronts grow to serve dealer groups, they will tend toward marketplaces.

I guess the only remaining frontier would be for two unaffiliated groups to cooperate on a single platform, as I wrote in Toward a Digital Auto Marketplace, maybe in contiguous nonoverlapping markets.  The eCommerce term is “coopetition.”  Or, maybe Accelerate will gain some traction.

Tier One Digital Storefront

Today, we continue our discussion of digital retail, this time from an OEM perspective.  Suppose you work for Morris Motor Finance and you want to get in on the fun.  The most straightforward way is to subsidize your dealers’ use of a storefront.  Simply negotiate a discount with one of the leading vendors and supply it to dealers who meet their penetration goals.  You may already have programs like this, encouraging dealers’ use of a credit system or a menu.

In addition, you may want to add digital retail capabilities to your tier one website.  This is a bit of a balancing act.  The customer is here to see the full range of vehicles and accessories, along with your financing options and Morris branded protection products.  Once you make the turnover to a specific dealer, the selection will be limited.

So, either you drop downfunnel straightaway, like ShopClickDrive, and the customer is only looking at one dealer’s inventory, or you run the risk of promoting something that a specific dealer doesn’t have.

Another conundrum involves the display of pricing online.  Dealers have gotten used to the idea of disclosing MSRP for vehicles, and maybe finance rates, but there is still resistance to online MSRP for products.

I don’t need to tell you how to handle the Morris Motors dealer council, but you might want to assert a division of labor.  Your site is higher in the purchase funnel, where 22% of new car buyers will start their journey, and serving a different purpose.  Now let’s consider the six canonical tasks:

Six Key Tasks for Digital Retail

  • Choose a vehicle – The customer is not choosing a specific vehicle from inventory, but a generic new vehicle by model and trim, or a build vehicle. This is also the time to upsell accessories.
  • Price the vehicle – Using MSRP simplifies the design, but it also impairs accuracy. If the price changes, the dealer may recalculate the deal with his own desking system.
  • Price protection products – Show products before structuring the deal, because they will be financed, and you don’t want the customer fixed on a payment that doesn’t include products.
  • Value the trade – In this scenario, I would recommend a simple KBB lookup with the customer choosing “good” condition from a list, assuming that it will be revised in the dealership anyway.
  • Structure the deal – The goal here is basically to choose lease or retail and promote your offerings, plus any incentives. Unlike the dealer’s desking system, you don’t need to be penny perfect.
  • Organize financing – Obviously, you want first crack at the credit apps, and then you need an interface so you can feed the result into your dealer’s credit system. Send your declines, too.

Lastly, the customer will save the deal and transmit it to their chosen dealer.  It is really more of a “lead” than a deal, at this point, and you have a “lite” version of the digital storefronts we have been discussing.  I toss out the interface thing lightly, because this is my specialty, but you will have to choose whether to work with Route One, VinSolutions, Dealer Socket, etc.  Back to the dealer council…