Why Autotrader competitors fail, my proposal for a new entrant

[C_manc 0]

Hi everyone, just to let you all know this may be a bit of a long post, but I hope you appreciate the extent I feel I should go to address this topic.

I've been lurking around a little on here the past couple of weeks after seeing Autotrader's profit margin and deciding to learn a little more how the dealer world works. From going through the forum I can see this question comes up a lot, many people here are really not a fan of Autotrader's fees, but the competitors are struggling to disrupt them. Some have given it a fair try, one 'nxtcar' even posting on here looking for feedback a while ago, but these new entrants evidently didn't get going. 

As some context I'm a software developer, coming to the end of a project for a client in the next couple of weeks. I have been looking for a while for something to work on myself after this project is completed, but would like to target a market that is a bit of a challenge, and ideally one that has an opportunity for disruption (which judging by the frustration of many dealers on here, this is one).

I'd like to lay out my assumptions as to why competitors like carguru and motors have failed to disrupt AT to a significant degree, and the way I would approach this. I would be very grateful for your advice as a community, and your personal opinions on whether this would be something you believe I should try to get running.

- The problem with competitors

The overbearing problem in competitors I see is that they are too broad. Almost all of the competitor sites that have popped up have come with the mentality 'dealers don't like how expensive AT is - I'll just make AT but cheaper'. This is the first mistake. Most of how i would build the site revolves around what is called a disruptive innovation model, I did initially include a picture but it posted far too big and detracted from the text. Almost all startups that disrupt an entrenched competitor (particularly a marketplace) follow this model. In simple terms it states a new entrant must segregate the market they intend to disrupt, focusing first on a niche, low profitability area and getting that right before expanding.The monopolist (Autotrader) naturally over time will overshoot the requirements of middle and low-end customers in chase of higher profits, failing to keep them on-side and leaving an entrance for new competitors. Autotrader have done this already, the constant price increases on dealers who are their raison d-etre has squeezed the community, and many would say there is growing disconnect between AT and dealers.

Potential competitors to AT have completely ignored this model, instead trying to combat AT as a whole on a very broad scale - a model I feel is doomed to fail. If you asked people on the street where to buy a used car, I guarantee 90% of them will say autotrader. Almost none will say carguru, motors, 'insert competitor here...' etc. The reason for this is is AT has been around for a while, and was pretty much the first mover in the online used car market. It is much easier to form a new habit in someone's mind (used cars = autotrader) than to change an existing one, especially if your site/product is effectively the same. You can spend multiple times more on ads than AT but the damage is already done, there must be something other than higher ad spend to differentiate yourself (I'm looking at you carguru)  To challenge such strong, broad network effects you *must* start niche, ask any one of the swathes of companies that have disrupted craigslist which is the same model I would follow. So it should come as no surprise the competitors don't do well.

*An added point here is some competitors have tried to offer a better consumer service by showing info such as price changes, how long a car has been listed etc. These tactics I do not believe benefit dealers and are putting the 'demand' side of the marketplace first, when it should be the other way round. A very similar market to this is property, where rightmove is the incumbent and zoopla is disrupting. Zoopla have done well without helping one side at the expense of the other by offering third party services (crime maps, mortgage calculator etc, estate agent software)

Autotrader begun by only making money when they made you guys do well, you were a team. Now however, especially with the steady rise of private sellers, believe me when I say AT would throw you all under the bus if it meant more profit. They have forgotten why they exist. AT can charge individual private sellers a higher amount for single car listings, and a move to more private sellers and less dealers benefits them.

-My approach

Not surprisingly I would start by segmenting the used car market. It appears a minority of cars are <£3000 (many people seem to also struggle with where to advertise low value cars, Facebook, Gumtree etc) and I'm sure a minority of buyers are young first time buyers. My initial target would be lower cost cars, with a site designed for first time buyers (potentially targeting a single area like london/manchester first too). Here are the reasons this would be my target:

• This price point is full of time-wasters, people haggling, no repliers etc. Introducing just a few steps such as personal emails only (no auto generated emails like carguru), prompt towards ringing dealers rather than messaging (people who aren't serious don't tend to ring as much) etc will hopefully help what is a general problem for dealers anyway, and I'm sure most here would value quality over quantity. Can also flag people to dealers who make appointments but don't show etc. Appreciate your thoughts here.
• Channels for marketing are much easier and cost effective. b2b marketing is easier than b2c, and this opens up marketing through driving instructors and the like (who's clients may be looking at buying a used car soon and are obviously first time buyers) and finding first time buyers is easier than marketing to the general population. This will help restrict necessary ad spend and enable a very low cost launch, ideally free for dealers to list and I can absorb the small running cost initially.
• Allows avenues for offering a unique service. We can build a more specialised marketplace when targeting this demographic than the general population, we can make a 'first time buyers guide' forefront etc, have advice columns on what to look for when buying your first car, finding first time driver insurance etc. Again your ideas appreciated.
• Partnerships. There are plenty of insurers who specialise in first time drivers, they understand the value of stickiness. If someone uses them the first time they're highly likely to stick with them later. If we have an audience of first time buyers, I feel an enormous amount of leverage could rest on us negotiating a discount with an insurer as long as people use our site. E.g. 10% off first 6 months at adrian flux when you contact and buy a car from a dealer through us. Even if we're not the first thought for these people, that's a big value proposition, and word like that spreads fast.
• Finally, product stickiness. If people use our product they're highly likely to come back. First time buyers will never have used AT or anyone else before, which enables us to form a relationship with them first. I feel this rests almost entirely on negotiating a discount with an insurer which could make this or break it.

I would appreciate all your thoughts on all this, and if you believe in my approach. If it seems there is a positive feeling, my first port of call would be to gather emails/signatures from dealers proving intent to use this product if it was built. I would then make contact with insurers specialising in young peoples insurance to negotiate a discount which I feel would be such a vital part of this, and they will take it more seriously if there are a few hundred dealers already in support. I am also more than happy to have phone calls with individuals to share your thoughts/discuss the market and idea which is always helpful, and far easier than typing all this out! Therefore feel free to PM me if you want to chat.

Let me know what you think!

 

 

 

Edited November 27, 2018 by C_manc

[Nick M.K. 574]

Apologies but with the number of cars waiting to be advertised I simply don't have the time to even read what you posted. 

Can you re-try in around 1500 words (the exact amount of words we have to sell a car on Autotrader)?

1500 characters rather than 1500 words :-)

[metcars 397]

Is this the IT guy that designed Manheims website?

[Nick M.K. 574]

4 minutes ago, met said:

Is this the IT guy that designed Manheims website?

No but he could be the one that built the algorithms that allocate the "random" seating on Ryanair's website

[C_manc 0]

4 minutes ago, Nick M.K. said:

Apologies but with the number of cars waiting to be advertised I simply don't have the time to even read what you posted. 

Can you re-try in around 1500 words (the exact amount of words we have to sell a car on Autotrader)?

1500 characters rather than 1500 words :-)

No problem! I'll try and cut it down a little, I just wanted to make sure I explained my thinking behind my reasoning.

As short as I can, Autotrader needs a competitor at a significantly lower price point. Current competitors have failed to disrupt because they are too broad and need to focus on a smaller niche to begin with and get that right first. This is how craigslist was disrupted. My intention if people here believe its a good idea is to create an online marketplace targeting first time younger buyers as the niche to begin with, as this demographic has certain factors making them easy to target. 

I would like to collect emails/signatures etc form dealers to show they like the idea before contacting a car insurer specialising in young people's insurance. I would like to negotiate a small discount on insurance for users of my site as this would give us a great leg up over AT in this market, but they will take it more seriously with proven intent from dealers

Hope that explains most of what I would like to do.

[Mojo121 229]

I think this is a manageable way to take a slice of the pie, before scaling to a platforms true potential. A wolf in sheep’s clothing type approach.

I suppose I would question how you would brand a business aiming at advertising cheap small which in the future would scale up? The two can’t have much synergy. My other query would be around getting the right dealers onboard. Many have a range of stock and the idea of paying to only be able to advertise certain cars maybe a bit alien to them.

[C_manc 0]

5 minutes ago, Mojo121 said:

I think this is a manageable way to take a slice of the pie, before scaling to a platforms true potential. A wolf in sheep’s clothing type approach.

I suppose I would question how you would brand a business aiming at advertising cheap small which in the future would scale up? The two can’t have much synergy. My other query would be around getting the right dealers onboard. Many have a range of stock and the idea of paying to only be able to advertise certain cars maybe a bit alien to them.

Thanks for your reply, my thought would be that the next step would be lower than average priced cars aimed toward the general market, rather than just first time buyers. The reasoning for lower price only to start with would be that I wouldn't want a site populated with cars out of young people's price range, do you think it would be better going the whole hog and allowing all cars, then having people sort by price as normal? would that be more valuable to dealers do you reckon?

[Blenheim Car Sales 111]

Anything over 2 paragraph and my mind wonders ....................... beer, women, football

[Mojo121 229]

1 hour ago, C_manc said:

Thanks for your reply, my thought would be that the next step would be lower than average priced cars aimed toward the general market, rather than just first time buyers. The reasoning for lower price only to start with would be that I wouldn't want a site populated with cars out of young people's price range, do you think it would be better going the whole hog and allowing all cars, then having people sort by price as normal? would that be more valuable to dealers do you reckon?

Honestly... I don't know. Surely by doing that you ruin your USP/ theory of disruption? I'd start small as you suggest, find a niche, build a brand and see where you go. That's the most original thinking I've heard of in car sales advertising in a while. Get known for something and get used to defending your ideas and selling the benefits. I asked you two questions and unless I mis-read your response you began to upend part of your plan.

Your question seems to be around "what is the average budget a new driver has for a car?" perhaps do some questionnaires on that to the buying public? As dealers we have a very limited view on this, only what we sell and see.

HTH  

[grant8064 219]

2 hours ago, C_manc said:

I would like to negotiate a small discount on insurance for users of my site as this would give us a great leg up over AT in this market

Our Saturday car wash kid would have bitten your hand off for that...it's a shame he doesn't put as much effort into leathering off our stock as he does finding ways to get cheap(er) insurance for his death trap.

Given most car makers now have an entry model to try and hook young drivers early on and build some brand loyalty the idea of drawing first time buyers to a particular platform and hoping they revisit in a few years when they upgrade has some merit IMO...not sure it would ever work but it's more reasoned than some of the people that try and scalp AT.

Maybe some tie ins with some of the big franchise driving school companies would be another way to get footfall?

All said and done as an advertiser all I want is views and sales...the reason everyone that has tried to join the party has failed is because they either don't get the views and/or don't generate the sales. The random ones we still use that don't work, RAC, AA, etc, are free hence why we're there. And they're only interested in generating site traffic and data capture...not producing a AT competitor.

Best of luck.

[NOACROSS 414]

Hi and welcome.

Whilst I know your intentions are good (and I wish you the best of luck) I’m not sure I ‘get it’.

As much as I am no fan of Autoraper, many have tried.  Anyone remember Find & Fund? What happened there? Their concept was flawed, targeting TV adverts and trying to arrive with a bang- rather than just focus on building it slowly online building up the rankings and giving it free to their dealers. 

As above, all I want to happen is a punter to see my car advertised SOMEWHERE, and they come see it and buy it. 

For me, Autoraper is NOT the golden goose, and I and others manage pretty well without it.

However, the reason that not having Autoraper works for me and them I’d wager, is that we have a main road site, and advertise fairly heavily elsewhere (for loads less money than having to pay the robbers to advertise 40 odd cars.)

I did it for many, many years until I woke up and smelled the coffee.

I’ve said before that if I had say- 10 cars or so, need to turn stock quicker and didn’t have a site with all the overheads that come with it, I would probably use them in a limited capacity. Just how many more price increases I’d take though is another matter.

Furthermore, I’ve definitely adjusted my stock profile from where it was years ago. If you want to buy a two to four year old German diesel junk, or a two to three year old run of the mill car, then you’re not my target audience.  Nor are my cars cheap and the race-to-the-bottom price indicators are a joke  

We’ve obviously had this conversation a hundred times on here, but I’m always happy to put my point across that there is life without them, and I STILL get told by the punters frequently that they saw our car on Autoraper!

The internet and people’s searching/buying habits are constantly evolving and people DO NOT just go to the AT site and search for a car. Notice banners, pop ups etc on many platforms and browsers including Facebook etc. and many people will just do a google search.

This is where your business model might work for you-that and viral marketing whatever that is  -I barely know how to change the time on a car these days so what do I know!

Anyway, I too found it really hard to concentrate and read all of your initial lengthypost.  Now look at me spouting crap! ;o)

 

[Contracts 68]

Having seen used car marketing portals come and go I think you will need a large amount of capital funding to get anywhere when the likes of CarWow have reputedly had at least £40m funding and many people have still not heard of them despite pushing nearly new manufacturers approved cars as well as the new investment and changes being made to Motors.co.uk

We finance quite a few new cars for clients and it is quite common for them to find them on manufacturers own websites rather than Autotrader so these buyers are already loyal to a brand, or at least know what they want.

As for pricing, most dealers with sub 30 cars probably pay similar to private buyers but get use of an advertising portal.  Whilst on portals, providers like Spidernet etc allow dealers to upload a car across multiple portals as keeping content up to date is time consuming.

Good luck with your proposal however I am afraid I am not your target market as we only have a couple of cars under £10k

 

[Tadams 29]

You need one thing to bring the dealers and that's a big customer base ! 

With these type of "start up business's" of which there has been quite a few on here for me they have all been approached the wrong way round. You come to ask dealers advice on what they want and that's all good and well but in reality what you need at this point is to build something that customers want. 

Bring the customers and the dealers will come not the other way round ! You have to think like a customer "why would i choose to look anywhere other than AT to find a car" you work that out and your away. 

You could get every dealer to sign up from the is Forum but if you don't have any customers is completely pointless.

Do some proper paid market research for your customer base rather than tapping into forums for free and you may well find the answer.   
 

[CarSalesTamworth 0]

On 27/11/2018 at 3:58 PM, Nick M.K. said:

Apologies but with the number of cars waiting to be advertised I simply don't have the time to even read what you posted. 

Can you re-try in around 1500 words (the exact amount of words we have to sell a car on Autotrader)?

1500 characters rather than 1500 words :-)

I’ve worked with a local dealer for several years, heard the Autoraper stories, and Motors.

So I built this:

https://www.carsalestamworth.com

The principal is as described above, but the chosen niche is by area, so we can test in Tamworth and grow organically.

How is it disruptive...

1. Free for car dealers

2. Targets the local area specifically

3. Monetised by selling the traffic to third-parties, not car dealers.

 

 

 

 

 

[Mark101 536]

1 hour ago, tradex said:

What does 'monetised' mean in English, or even US?

Make money

[umesh 336]

That's a lotta lotta reading ! 

In simple terms AT are market leaders, it works for some not others , it costs an arm and leg but as long as dealers pay the the BIG AT Bill and make profit they're happy.( Happy only in the sense they sell cars from it !)  

A Lot of consumers only check AT 'the brand' is strong, others have come and never taken a slice of the cake, IMO they have not listened to dealers only done what they believe is right marketing. 

Look at motoring - Mr Murdock's baby I belive he spent more than 50 million and then binned it and moved on, if that doesn't do it then others will struggle if they try to take on AT, Car Gurus is trying but yet again they are not listening to the dealers, they have their agenda and we've already seen ( I'm not a customer of theirs even free!) they are hiking the prices and not selling loads of cars from what I'm told. 

In simple terms the cars have to be where buyers are looking, so the magin wand, if there is such a thing is 'where are buyers now searching' ?? 

Well that's my 2penchworth! 

[CCC 31]

Interesting. A few questions.

1. Who are the third party’s to whom you will sell advertising? I’m assuming (?) this is via google ad services or ad servers or will you be selling your own advertising, if so to who?

2. Has the existing stock been signed up for or scraped? 

3. What level of traffic (views) does it need to become worthwhile?

4. What’s your budget to promote it and how will you be doing this?

5. What’s the number of daily google searches on the term “car sales Tamworth” (as exact, phrase and broad matches)?

i get the concept and in the right locality (large urban centres) it might work if you do enough advertising to get it known. If it’s just full of spam advertising that will put people off and also there is a risk that people just think it’s a single dealer called “Car Sales Tamworth”.

In this day and age the the Autotrader postcode and distance search is a more customer friendly location tool.

Ive been working on a related idea so would be interested in what you’d charge for doing a similar site?

[EPV 631]

“Targeting the local area” is not a USP. It’s a hinderance. 

The internet made the world smaller and AT can target both local and national buyers. People will travel for the right car. So suggesting you’re going to rival or attempt to rival AT by targeting locally is fantasy. 

“Free for dealers” never works imo.  

“Targeting the local area” is not a USP. It’s a hinderance. 

The internet made the world smaller and AT can target both local and national buyers. People will travel for the right car. So suggesting you’re going to rival or attempt to rival AT by targeting locally is fantasy. 

“Free for dealers” never works imo.  

[CarSalesTamworth 0]

Hi,

The third parties are local relevant businesses. I have built a list of 1355 different companies all connected to the used car industry in one way or another.

The existing stock has been signed up. I’ve no plans to scrape anything.

I’m not sure it needs any traffic to be worthwhile from our point of view, but I get the question. 500 visits a day would do to start.

Soft launched in December, we’re going to get to 20 dealers before we do any selling advertising space. Facebook, Google (SEO and a little PPC) and a weekly email.

As revenue increases we will spend what is needed to ensure a return.

Search volume for CST, small, but we don’t care about that. The site will be first locally for “used cars” <make> shortly.

I understand that it’s easier to sell a car locally than 200 miles away, especially if it goes wrong, hence the local site.

 

 

 

 

 

[Area 51 33]

Last two sold had buyers 145miles apart! One was around 80miles from me the other over 70miles!... So a "local area" would not have sold these two... I guess it can depend on the car/spec/colour.. as billies will travel for their choice of motor ... "local area" deals may suit billies looking for something / anything for grand or two..

just my opinion though

 

[CarSalesTamworth 0]

6 minutes ago, EPV said:

“Targeting the local area” is not a USP. It’s a hinderance. 

Thank you, but I have to assume that isn’t the same for everyone as the dealer I’ve worked with for the past 6/7 years definitely likes to sell closer to home. Faults and finance are the reasons.

It also means that site only needs return a small profit to be worthwhile and stay a going concern.

The problem with targeting nationally is the enormous marketing budget we would need.

This is manageable, and scalable.

 

Well I agree, but just because the buyer is 70 miles away doesn’t mean they wouldn’t find you if you’d advertised on a similar platform local to you.

maybe the chance would be lower, but Google is smart when it comes to long-tail searches.

Either you have the car they want, spec, colour, engine size, or you don’t.

[EPV 631]

31 minutes ago, CarSalesTamworth said:

Thank you, but I have to assume that isn’t the same for everyone as the dealer I’ve worked with for the past 6/7 years definitely likes to sell closer to home. Faults and finance are the reasons.

It also means that site only needs return a small profit to be worthwhile and stay a going concern.

The problem with targeting nationally is the enormous marketing budget we would need.

This is manageable, and scalable.

 

Well I agree, but just because the buyer is 70 miles away doesn’t mean they wouldn’t find you if you’d advertised on a similar platform local to you.

maybe the chance would be lower, but Google is smart when it comes to long-tail searches.

Either you have the car they want, spec, colour, engine size, or you don’t.

I’m not saying people don’t buy locally nor am I saying some dealers prefer to sell locally. I’m saying local targeting isn’t unique as AT allow buyers to search by proximity and I am told most people search up to 50 miles. 

You want to disrupt AT and good luck to you but one of your USPs isn’t U at all. 

If you want to knock AT off their perch or at least sit on the same perch as them you’ll need a shit load more than “its free” because from where i’m sat that’s the only thing you do differently. And many other platforms are free and none of them are remotely a threat to AT. 

[NOACROSS 414]

I hate Autoraper with a passion and do absolutely blooming fine without them, but EPV is correct. I wouldn’t even bother considering mentioning them or targeting them as you won’t get near their penetration.

However, you are right about Google being clever and stepping on long tails/bringing your ads up. More and more people I sell to are simply searching in the google bar.

Good luck to you though. We sell a fair proportion to the local community, but that is more due to us building the brand I think over many years, although used cars in my area’ is a big search hit. 

Umesh is right also, in that these companies do not listen to us as we are not their cumstomers or the target customer. That is the punter. 

Find and Fund were /are a prime example of what not to do. 

Car Gurus works OK for me also, but I know this isn’t true for many others. 

[CarSalesTamworth 0]

15 minutes ago, EPV said:

You want to disrupt AT and good luck to you but one of your USPs isn’t U at all. 

I disagree, and the difference is clear.

Even with just 9 dealers on-board for many local searches we have more vehicles than Autotrader, Motors, Ebay or any other main platform. 

EVs are a case in point.

This is because not all dealers are on Autotrader, Motors, Gumtree etc. But they are all on our site. (Or they will be)

I agree that might not help so much with buyers who are 75 miles away, but for buyers who live within the Tamworth area it should work really well.

We should be the most relevant site for most used car searches on Google.

[EPV 631]

13 minutes ago, CarSalesTamworth said:

I disagree, and the difference is clear.

Even with just 9 dealers on-board for many local searches we have more vehicles than Autotrader, Motors, Ebay or any other main platform. 

EVs are a case in point.

This is because not all dealers are on Autotrader, Motors, Gumtree etc. But they are all on our site. (Or they will be)

I agree that might not help so much with buyers who are 75 miles away, but for buyers who live within the Tamworth area it should work really well.

We should be the most relevant site for most used car searches on Google.

Good luck to you mate.