Month: October 2015

Taxonomy of Online Car Shopping Sites

I have been writing an ad hoc series about online car shopping. It started with a technical point about how software vendors should migrate into this space, and then along the way I started characterizing the sites themselves. In this article, I present a classification scheme which may be of interest to technology strategists.

One way to look at car shopping sites is in terms of functionality. In my last article, I presented six key functions:

  • Specify vehicle and trim
  • Price vehicle
  • Price protection products
  • Value trade
  • Structure deal
  • Obtain financing

For each function, there are grades of support. Does the site sell protection products, for example, and are they customized for the chosen vehicle? This would be a way to rank the sites, like Consumer Reports. I have strong opinions here, but they’ll have to wait for a later article. For strategy purposes, the sites are better characterized by three business decisions:

Control of inventory – Traditional car shopping sites are platforms for common inventory search across multiple dealerships. Because they do not control the inventory, there are limits on the functions these sites can provide. Looking at inventory (and delivery) is a way to characterize the site’s relationship with the dealer.

Disclosing the price – Most of the downstream functions are blocked until the price is settled. This is what separates shopping sites from buying sites. Unfortunately, price transparency is a problem for many dealers. In addition to no haggle pricing, we now have innovative solutions from TrueCar and Make My Deal.

Different makes – A site that specializes in a single make can also specialize in financing and protection products. In addition, some information systems may be standardized. On the other hand, most car buyers begin by comparing similar models of different makes, like the Touareg versus the 4Runner.

My approach groups the sites into eight categories, and gives us a way to describe the differences. For example, when the customer moves from a platform site to an individual dealer, the make (and the lot) is specified. Now the dealer can offer customized financing and products.

The difference between a platform site and, say, Carvana, is that Carvana owns the inventory and can quote a price. In fairness to new car dealers, price transparency is less of a problem with used cars. Carvana, Vroom, and CarMax have the inside track. Otherwise, AutoNation Express would be in this category.

You could slice it thinner, but I think eight categories is enough. I leave it to the reader to evaluate all twelve single-feature comparisons.

 

Taxonomy2

One thing I learned studying syntax as an undergrad, is that you construct a paradigm to fit the data you have, and then you prove the paradigm by using it to find new data. Here, I drew a blank for case #2, and then I realized it would be the web site for an OEM company store, as in Europe. Sure enough, Tesla fills this slot.

There is one more feature I would have liked to include, but I felt it was too much, and that is systems integration. AutoNation Express has the distinct advantage that whatever payment calculator, menu presentation, or other gadget they may add to the site, it is guaranteed to work seamlessly with an AutoNation dealer.

Another way to prove out my taxonomy is to explain and predict trends in the industry. Speaking of AutoNation, one of these trends is toward increasing consolidation by the big, public dealer groups. They are represented online by cases #1 and 3.

To defend themselves online, private dealers will migrate into the most capable of the platform sites, and there will be a shakeout. The winning platforms will not be mere lead providers. They will have to offer advanced shopping features, as I have described previously, and they will have to solve the problem of systems integration with a diverse dealer base.

Eventually, as both camps wrestle with the pricing issue, there will be a breakthrough. Like the first prehistoric fish to draw breath on shore, the platform sites will struggle into case #5.

The one strategic curveball would be if a consolidator decided to open up their site to outside dealers, blurring the line between cases #1 and 5, or a platform site started acquiring new car franchises. We’ll leave this chimera for another story.