More than a decade ago, chatter that Microsoft could enter the dealership management system space sparked interest from dealers around the country. Many hoped that a new product might shake up a market long dominated by Reynolds and Reynolds Co. and ADP Dealer Services, which later spun off into CDK Global.
Though pilot testing occurred at dealerships, and Microsoft unveiled the product at the National Automobile Dealers Association convention in 2009, the "Dealer Management System for Microsoft Dynamics AX" never hit the market.
"Here's the thing that Microsoft didn't know: The workflows are really complex and require data that's not easily accessible," said Phillip Battista, CEO of Darwin Automotive, a vendor of predictive F&I menu-selling tools. "Parts information, labor time guides, vehicle ordering status — all of these data touch points are needed to make the workflow work."
Microsoft, which was unavailable to comment, abandoned the market after spending several hundred million dollars, Battista added. "They were well-organized, well-funded and still could not break into this market."
Today, Microsoft's role in the market is to provide cloud-based software for dealership vendors, such as Dominion Dealer Solutions, a DMS provider.
In more recent years, tech startups have stampeded toward the auto retail space as it becomes more digital, but companies lacking automotive chops and the respect for the complexities of its retail operations tend to stall out, experts say.
The industry is sampling techniques and technology of other sectors with solutions they say will streamline the car-buying process and put customer needs in the driver's seat. For dealership fintech companies to be successful in a space where many entrepreneurs have failed, they must have the right mix of the new world and the old. A Silicon Valley mindset combined with traditional auto retail expertise could be a winning combination, experts say.
Tech companies that make their mark on the auto retail market have three key facets: an innovative product, a business plan that accounts for the complexities of dealership software workflow and widespread market penetration, said Battista, who worked in dealerships from the time he was 13 years old, washing cars. He eventually joined ADP, now CDK Global.
Having an innovative product is an important slice of the pie, but regardless of the capital at their disposal, Silicon Valley companies are more likely to fail at the second point — understanding dealership operations.
"I don't have anything against Silicon Valley guys. They brought solutions to the world that we use every day," Battista said. "But if you're truly going to innovate, you have to continue to innovate."