Deal Radar 2009: Dealer.com

Dealer.com is an automotive web solutions provider with over ten years of experience in the web space. They have created thousands of websites for over 8,500 automobile dealers and now also offer CRM and inventory management tools, regional website portals, search engine marketing lead management, video, mobile, metrics and web analytics to almost 45% of the US automotive retail market. 

In 1994, Mark Bonfigli, founder and CEO of Dealer.com, opened Earthcars, a small used car dealership in Burlington, Vermont that emphasized fuel-efficient vehicles. He learned how to market his business online, and used custom-designed software to locate hybrid and fuel-efficient vehicles for customers. Through this he recognized the enormous potential of the Internet, and the huge impact it would soon have on the automotive industry. 

In 1996, Michael Lane, co-founder and COO, visited Earthcars to purchase a Jetta and met his future business partner, Mark Bonfigli. Over a period of several months, and with further research and development, Bonfigli and Lane launched Earthcars.com. Lane recruited college buddies Rick Gibbs, chief technology officer; Ryan Dunn, creative director; and Jamie LaScolea, interface design engineer, to join the new venture as partners. In 1997, the partners launched Dealer.com in Burlington. The company has now grown to 220 employees, and Bonfigli has made it a priority to instill his high standards of health, fitness and the environment in the culture of the company. 

Dealer.com was initially launched with angel funding. For the first two years, the company often survived using credit cards, with little incoming cash. In January 2009, Yellow Pages Business Fund/Trader Corporation became its first major investor, providing $35 million in funding and taking a 20% equity share in the company. Dealer.com is a profitable and growing company with no current plans for raising money.

When Dealer.com was founded, only 50% of the nation’s new car dealerships had websites, while 40% intended to launch one in the next six months. Most sites were static, online brochures providing general dealership and contact information. One leading automotive consulting firm noted it took dealers six months to build and launch a site.

According to the National Automobile Dealers Association (NADA), these web sites were averaging five new and three used vehicle leads per month from the Internet. Dealers realized the importance of a web presence and marketing the site to attract visitors. 

Cobalt, a national B2B automotive marketing technology company, was the primary provider of dealer web sites, with 3,000 dealer clients. Cobalt’s approach to Internet sales was based on the belief that car shoppers would go to a manufacturer’s web site to get information, then look up the nearest dealer on that site. Companies like Microsoft’s CarPoint and Auto-By-Tel were their main competition. Dealer.com entered the market as a specialist in automotive Internet marketing that offered a performance-driven online marketing solution and gave dealers control over their paid search investments.

According to the NADA, in 2007 franchised car dealers sold 16.1 million new vehicles, with average sales per dealership in excess of $30 million annually. New car dealers spent more than $7.86 billion on advertising, averaging $378,346 in advertising expenses per dealership. Internet marketing accounted for 16.6% of the average dealership’s total ad budget.

It’s no secret that the US auto industry is in crisis. Last year, sales fell by 18% and a record 881 dealerships closed. Analysts predict that vehicle sales will continue to fall in 2009 and more dealerships will shut their doors over the next few years. 

Approximately 80% of car buyers go online to shop for a car. Over the past several years, dealers have been shifting their marketing dollars from traditional advertising to the Internet to connect with in-market consumers. Simultaneously, OEMs have been losing money on national ad campaigns and are now revamping their marketing to focus on the Internet.

Dealer.com aims to provides targeted strategies to proactively drive consumer traffic to a dealer’s site. Their solutions are performance-based with an emphasis on conversion rates and detailed metrics that allow dealerships to track spending and determine which online marketing activities lead to the highest ROI. According to Dealer.com their clients report lead close rates of 20% or higher, compared to the estimated industry average of 10%.

Dealer.com offers a variety of products and services. The TotalControl DOMINATORTM search engine marketing tool allows dealers to precisely target their search advertising budgets to maximize the impact of every dollar spent. Clients report an average cost savings of $8 per lead using TCD. According to the company, Dynamic SEOTM, which optimizes dealer web site content and coding to achieve top results on leading search engines such as Google and MSN, is proven to increase average visitor traffic to a dealer website by 3%, online form submission by 52% and conversion rates by 23%. SmartSitesTM web sites aim to convert browsers into buyers for every dealer profit center, including parts, service and sales. LeadMachineTM tracks dealer leads from every source at every step of the lead process. 

There are approximately 19,000 new car automotive dealerships nationwide. In 2007, average new vehicle ad spending rose 3.4% from 2006. Newspaper advertising dropped 25%, while Internet advertising increased 16.6%, averaging $62,805 a year per dealership.

Dealers currently spend more than $500 per new vehicle sale with traditional media, while Internet advertising has averaged about half of that. Sales from search engine marketing can sometimes average less than $100 per sale, making Internet marketing more cost-effective than any other form of retail automotive advertising.

Dealer.com uses a recurring-revenue model, which has allowed them to build a highly profitable business. Income is derived from CRM and inventory management tools, regional automotive web site portals and new vehicle data systems.

Bonfigli is confident of being able to replace Cobalt as the leading provider of retail automotive Internet marketing services over the next few months, with an anticipated 12,000 total dealer clients in the US and Canada by end of Q2 2009.

Dealer.com reported net income of $27,155,000 in 2008, up 63.9% from 2007 revenues. Over the past five years its revenue has increased 1,225%. The company is in the expansion stage, moving into new distribution channels and markets. Despite the current scenario in the automobile industry, Dealer.com reported significant growth in 2008, and remains on target for aggressive growth goals for 2009. It is currently valued at $175 million.

Of the 8,500 US dealer clients, approximately 4,000 are serviced through strategic partnerships with OEMs, including Chrysler, Subaru and Acura, while the remaining are direct clients. In the months ahead, the company will be adding an additional 3,500 dealerships in Canada.

Dealer.com been recognized through several awards since inception. In 2007 and 2008, Bonfigli was an Ernst & Young Entrepreneur of the Year Award finalist, and he was recently named Vermont’s Small Business Person of the Year. The company is also ranked #236 in Deloitte’s Technology Fast 500 list of the fastest-growing companies in America. With no specific plans for exit, Dealer.com intends to continue building relationships and strategic partnerships with OEMs and build their client base.

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This segment is a part in the series : Deal Radar 2009