How TrueCar's Yahoo! deal failed
Portal opens for dealers and others
In the burgeoning world of automotive lead generators, Scott Painter was going to break out from the pack. The serial entrepreneur placed a huge bet late last year when he agreed to pay $50 million a year to Internet portal Yahoo! for his TrueCar.com to become the exclusive automotive partner of Yahoo! Autos.
The deal was supposed to channel 10 million unique visitors per month to TrueCar.com from the pages of Yahoo! Autos. But that exclusive deal was scrapped last week by both parties, and Yahoo! is opening up to multiple partners.
Since the deal began Jan. 1, TrueCar's traffic actually plunged as the company ran into trouble with dealer associations and some state regulators and cut its own consumer advertising. Privately, both sides said the arrangement was disappointing.
Now Yahoo! says it is opening Yahoo! Autos to "multiple dealers and third parties," including a button to TrueCar.
On the surface, TrueCar-Yahoo! is a tale of a bad bet by Painter, an Internet entrepreneur, who aggressively tried to accelerate into auto retailing through a mass-market Internet portal. And Yahoo! is massive. With 167 million unique visitors in May, Yahoo! was No. 2 in U.S. Web traffic behind Google, according to Comscore, which measures Web traffic.
But it's difficult to disrupt established players in auto marketing and retailing -- even though online shopping itself is roiling the business.
TrueCar is among more than 100 online shopping sites that send millions of leads to dealers, who are struggling to sort out hot prospects from casual tire kickers. Internet heavyweight Google has begun dipping its toe in online lead generation.
Dealers and the factories, meanwhile, are beefing up their own Web sites to reduce their reliance on third-party lead generators. Car shoppers swiftly migrated to the Web, but the battle over which kind of Web site is far from over.
TrueCar started as an outside disrupter in auto retailing. The site promised big discounts to shoppers. And to dealers, Painter said pay us only when our lead turns into a sale.
But TrueCar butted heads with various entrenched players.
Painter, 43, armed with outside investors, ramped up TrueCar's profile late last year by spending millions of dollars a month for national TV spots pitching great deals to consumers on TrueCar.com.
As a result, Web traffic on TrueCar.com -- and dealer interest -- soared. Painter said he was aiming to sign dealerships with a total of 10,000 franchises.
He gained an even higher profile on Jan. 1, when TrueCar became Yahoo! Autos' exclusive partner, replacing Cars.com, which had been with Yahoo! for four years. Shoppers who went to Yahoo! Autos were referred only to TrueCar and its participating dealerships. At its peak, TrueCar said it had signed dealerships with 5,500 franchises.
But then the troubles started. Regulators and dealer associations in at least eight states had said TrueCar's business practices were in possible violation of laws designed to protect consumers and dealers. For instance, the TrueCar site mentioned "invoice pricing," which many states ban in advertising.
And many dealers were griping that TrueCar's emphasis on huge discounts was driving down transaction prices.
The bad press and the legal problems caused many dealers to drop TrueCar. They typically paid $299 for each lead that turned into a sale.
And around Feb. 1, TrueCar stopped its national TV spots. Figures from Compete Inc., which measures Web traffic, show in part the toll taken by the loss of TV advertising and by TrueCar's troubles with state regulators and dealer associations.
TrueCar's monthly unique visitors peaked last December at 1.8 million, according to Compete.
But even after the deal with Yahoo! became active, January traffic declined to 1.15 million. Traffic plummeted to about 600,000 in February and 311,000 in May, the most recent month measured by Compete.
Realizing he needed dealers' support, Painter vowed to rethink TrueCar's approach. He established a dealer advisory board, hired an executive -- Pat Watson, former CEO of the South Carolina Automobile Dealers Association -- to work with dealer associations and reworked his Web site to comply with state laws.
TrueCar said the dealer-friendly changes are working. After falling from 5,500 participating franchises early this year to 3,500 at its low, the company has rebuilt the number to 4,300, the company says.
Under the revised Yahoo! deal, TrueCar's payments will be triggered when TrueCar receives a minimum number of leads and a minimum number of high-quality leads from Yahoo! Autos. TrueCar has a similar arrangement with its other partners, such as USAA.
Google jumps in
Google, by jumping into the lead-generation business last month, underlined the importance of high-quality leads for dealerships.
In a test in San Francisco, Google is using data-mining techniques that purport to identify auto shoppers ready to buy -- not tire kickers.
If Google identifies a shopper ready to buy, inventory of participating dealers pops up on the shopper's Google search pages. Google declined to say whether the test would go national.
Asked about Google's interest in auto shopping, both Cars.com and Edmunds.com said they concentrate on building a rich site for consumers, with reviews, vehicle specs and other content. That's the best way to attract and keep shoppers ready to buy, they say.
Brian Pasch, CEO of dealer marketing consultancy PCG Digital Marketing, said Internet-savvy dealers are building the content of their own Web sites to attract shoppers. They are also using paid search to find prospects. That's when dealers bid, typically on the dominant Google, to own key search words to steer shoppers to them.
Thus dealers are becoming less reliant on third-party leads, and that puts more pressure on lead generators such as TrueCar to deliver high-quality leads.
So TrueCar failed to break out from the pack of Internet lead providers. It's now trying to rebuild its business as a partner -- not a disrupter -- of dealers.
Ryan Beene contributed to this report
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