The Story Behind the $1 Billion Boom and Buyout of Dealer.com
When the complete story of Dealer.com is told, it will have a beginning you've heard before. In 1998, the five founders met for beer, burgers, and a high-level conversation about how the Internet could enhance marketing in the auto industry.
It will also have the requisite happy ending: Having blossomed into $230 million in sales and 830 employees (at its Manhattan Beach, California, offices and its Burlington, Vermont, headquarters), Dealer.com got acquired for roughly $1 billion by a comparably mission-driven organization.
And all five founders were happy. The end.
But what about all that juicy stuff in between? How did a marketing platform for auto dealers founded in the heyday of the dot-com boom manage steady, year-over-year growth (let alone demand a $1 billion price tag)? Was the progress linear, or were there certain pivotal or transitional moments -- gates that divided one phase of growth from another?
The lessons of Dealer.com's story are sure to be illustrative if you're a business owner looking to create a similarly enduring, scalable company.
Ahead of Its Time
Dealer.com CEO and co-founder Rick Gibbs believes the turning point came in 2007, when the company had 217 employees. That was the year Dealer.com finally started preaching to the converted. The mainstream of the auto industry had finally caught on -- and caught up -- to the marketing tools and techniques that Dealer.com had championed for years: search-engine optimization (SEO), Google AdWords, and blogging.
Prior to that, Gibbs says, "we built a lot of amazing, industry-leading products. But the industry wasn't ready for them."
The main trends Dealer.com was ahead of the pack on were digital advertising and marketing. Years before so-called inbound marketing became Communications 101, the company was educating auto dealers about SEO and AdWords. Years before do-it-yourself blogs and websites were commonplace, Dealer.com was evangelizing their value.
Being ahead of its time allowed Dealer.com to position itself as a leader and first mover in the space of turnkey Web-based marketing software. Today, businesses and consumers take for granted the fact that software will be Web-based. The notion of using software to generate marketing leads and automate their path to a company website was also novel.
The downside was that Dealer.com had to do a lot of teaching before it did any selling. The upside was that the company had the time to learn through trial and error. It could continually tweak its software to create a more friendly user experience for auto dealers not used to such high-level technology.
"A lot of it--when you're first building and you have no customers--comes down to being religious about building what's relevant, not necessarily what's sexy," says Gibbs. "If a product isn't relevant, they're not going to use it in the long term. And all you'll have is a buzz technology that quickly comes and goes."
Above all else, the five founders trusted that auto dealers would (eventually) want Web-based software tools that facilitate online marketing and provide detailed analytics of the results.
Essential to this belief was that one of the founders, Mark Bonfigli, was an auto dealer himself. He had firsthand knowledge of not only dealers' pain points but also their complex place in the vertical market that is the auto industry. He knew that auto dealers have two large entities to answer to: their customers, to be certain, but also the automakers, who are their primary suppliers.
Gibbs and the other founders all have engineering backgrounds, which served to complement Bonfigli's auto knowledge. The seed of Dealer.com was planted when Mike Lane, now Dealer.com's COO, entered Bonfigli's dealership. He was looking for a Jetta he had seen on the dealership's site. They struck up a conversation about how to make a dealership site that was far more than just an electronic billboard.
Bonfigli, who served as CEO until Gibbs took over in late 2012, knew that many dealers would need their hands held if they were going to dip their toes into the then-untested waters of Internet marketing. In addition to traditional tech support, Dealer.com created a team of what it calls digital advisers, who proactively check on customers and provide their continuing education.
How important have the digital advisers become? Today, of Dealer.com’s 830 employees, 250 of them are digital advisers.
Though Dealer.com was ahead of the online marketing curve, there was plenty of evidence, even in the early years, that it was onto something big. In those days, Bonfigli and a few salespeople drove around the country selling the vision. "A lot of early dealers appreciated our approach," recalls Gibbs. Those one-on-one meetings also helped Dealer.com widen its territory--growing organically from one dealer to another.
Hitting the Mark
In time, the hard sell was no longer necessary. Once customers caught up to Dealer.com--SEO optimization, AdWords, and blogging became common practices--the site began to receive unsolicited sales inquiries.
Then, in 2007, automakers boarded the bandwagon and began using Dealer.com's software. That further sparked the company's growth. "The [automakers] figured out that there were insights they could get into their dealer base by being on a common platform," says Gibbs.
In other words, the automakers realized they could learn a lot about their dealers--and their dealers' customers--if they were tapped into the same Dealer.com software that their dealers were using.
Dealer.com's new-client acquisition increased markedly, as did the size of the dealerships. "In the past, it was a lot of small dealership groups of two or three locations. [In 2007], we started landing mega-groups like Sonic Automotive and Chrysler Canada," he says.
Its client list would go on to balloon. Of the U.S.'s 18,000 franchised dealers for new cars, roughly 7,000 use Dealer.com's suite of products.
Not bad, considering it all began with a guy who wanted a Jetta.
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