1. © 2005 UMFK. 1-1 CarPoint internet business models text and cases Kristin Belanger

2. © 2005 UMFK. 1-2 Auto Industry and Online Brokers

3. © 2005 UMFK. 1-3 Overview Introduction History Strategies Stakeholders Get Big Fast! 20-20 Hindsight

4. © 2005 UMFK. 1-4 Introduction In 1999 more than 22,400 car dealers Dealers were intermediaries –Earned 12.6% on ever sale Online Referral Service Built to order was expected 2.7% of new car sales in 1999 –Saved customer average of $379

5. © 2005 UMFK. 1-5 Introduction cont. Most visited online marketplace (www.itsa.org)www.itsa.org More than 6 million consumer visits per month More than 10,000 models and more than 100,000 used vehicles CarPoint generates more than $8 billion for each of it’s 5,000 affiliated dealers nation wide (per year)

6. © 2005 UMFK. 1-6 Problems Online was less profitable –Online didn’t rely on mass media advertising About $400 per new vehicle sold (average spending) –Compensation payments to dealers were lower than offline transactions $150- 200 commission paid to dealers About half that with online sales.

7. © 2005 UMFK. 1-7 Strategy’s Began w/ Autobytel (with just info) 1997 changed strategic plan –Went for the referral business Contract with Reynolds and Reynolds –Info on 90% of all auto dealers Reynolds & Reynolds inventory management

8. © 2005 UMFK. 1-8 Strategy’s Cont. Features –Independent referral services –Kelly Blue Book, car reviews, crash test ratings –Personal Auto Page –Offered financing and insurance services Referred services –Up to date listings on used cars 360 degree views on some used cars

9. © 2005 UMFK. 1-9 Strategy’s cont. Business Model –Revenue from subscription fees Paid from affiliated dealers (average of 1,000 per month) –Earned more revenue from referring users to other insurances and financing services –Advertising was about $250 per new vehicle sold

10. © 2005 UMFK. 1-10 Strategy’s cont. Marketing –Microsoft was a partner –MSN portal –Majority of the advertising was done on portals –And other automotive sites –With more than 30 million unique visitors per month in Oct. 1999

11. © 2005 UMFK. 1-11 Strategy cont. Dealer Relationships –Dealerpoint –Market more specifically with fine tune ads –Had over 300 reps for Carpoint Business –Consumers respond when their responses are < 24h.

12. © 2005 UMFK. 1-12 Direct Competitors Autobytel –200,000 referrals a month for more than 3,000 registered dealers –Spend $15 million on advertising in 1999 –Did not expect to get a profit in 2000 Autoweb/ Autovantage –Same strategy as CarPoint –Became more of a content provider

13. © 2005 UMFK. 1-13 Competitors cont. StoneAge.com –Focused on customer satisfaction –Could list person vehicles for $20 –Relied on word of mouth OpenAuto.com –Customer seeking popular vehicles –Willing to compromise total control over buying process

14. © 2005 UMFK. 1-14 Competing Car Buying Models Newspaper Traditional dealers Manufactures Cars.com, Yahoo!’s automobile section –Free auto classifieds –Troubleshooting and repair advice Autotrader.com –Had automated inventory with it’s 5,000 dealerships –Moved towards a yellow pages model

15. © 2005 UMFK. 1-15 Priceline Model – Name your own price Buyers paid $25 Dealers paid $75 If customer failed to respond to dealers offers –Priceline deducted $200 from credit cards Priceline kept consumers names anonymous Launched IPO in April 99 –Market valuation of $12.9 billion –Teamed up with Ford

16. © 2005 UMFK. 1-16 Dealers Dealers could legally compete with referral services and did… 1999 74% of Dealers had own website Tried to cut out the middleman

17. © 2005 UMFK. 1-17 Manufacturers GM made effords to reduce third-party services –Such as Carpoint and Autobytel –Created e-GM which consolidated all of the e- commerce sites Ford –Attempted to consolidate into networks

18. © 2005 UMFK. 1-18 Direct Sales CarsDirect.com –Founded by Scott Painter and Bill Gross (backed by Michael Dell) –Had referal system however dealers were not stick to original quote –Buyed cars and then resell them Expensive Lost money on car sales

19. © 2005 UMFK. 1-19 Partnership w/ Ford Ford would persue relationships with other Internet partners Microsoft and Ford understanding –No perferential placement or other special treatment on the CarPoint site Made changes in CarPoint’s business strategy

20. © 2005 UMFK. 1-20 Problems? Making this alliance can disrupt relationship with other manufacturers Manufacturers could end up as an Internet company The relationship with a Microsoft can become very complex –Could turn CarPoint to an IPO

21. © 2005 UMFK. 1-21 Partnership with Ford CarPoint as an IPO –Could raise money to be a top of the line IPO –Could prevent the team from focusing when the competition is fierce

22. © 2005 UMFK. 1-22 Winner takes All? Network Effects –Moderate to Strong Created community online Scale of Economies –Moderate to Strong Generate leads for dealers not so much worried about the transactions Customer Retention –Moderate let customer know about availability of cars even when the customer isn’t shopping –Saves the customer money

23. © 2005 UMFK. 1-23 Winner takes All? Value Customer Proposition –1,441 / 200 = 7.205

24. © 2005 UMFK. 1-24 Update! Carpoint.com –No longer exists –Now part of MSN.com and has been renamed –Same look as old CarPoint.com

25. © 2005 UMFK. 1-25 Questions??