DealerSocket wants to be the Amazon.com for the automotive sector.
“We want to help dealerships in digital retailing—to sell vehicles online—and deliver those vehicles directly to the consumer,” said Jonathan Ord, president and chief executive of the San Clemente-based software-as-a-service company. “Just like you’d buy a product on Amazon or Alibaba.”
DealerSocket’s bread-and-butter product is a technology platform that integrates data on sales, customer relationship management, service and inventory. The company expects to close the year with an estimated $200 million in revenue, a 30% organic growth rate supplemented by a string of bolt-on acquisitions that have expanded its capacity and range of services.
It’s backed by Vista Equity Partners in Austin, Texas, a private equity firm that bought a majority stake in 2013. Ord and co-founder Brad Perry own just under 50% of the company.
Among its recent acquisitions is DealerFire, a website and digital marketing company for dealers. DealerSocket also absorbed two top competitors in the dealer management system space, AutoStar Solutions and FEX DMS.
The latest deal was the $55 million buy of In-ventory+ and American Auto Exchange, carve-outs from publicly traded company DealerTrack Technologies Inc. in Lake Success, N.Y.
DealerSocket’s push toward digital retailing is not a novel idea—the capability has been around at least 15 years, and it still represents only a small fraction of the 18 million new cars sold in the United States each year, said Dean Evans, chief marketing officer at Hyundai Motor America Inc. in Fountain Valley who’s good friends with Ord.
“Cars have always been a little slower in that innovation because of the price point of the car and because there is usually something like a trade-in involved. So it’s a complex sale; it’s an expensive sale,” Evans said. “But I think we are in [version two] of buying cars online, because Amazon has really got consumers even more used to seeing something on a computer and not having to touch it and feel it and be OK with it being delivered. Millennials, for example, are born in the Amazon world, so their expectations are different. We look at shopping and how retail has changed over time, and there is a statistic that stands out for me—consumers only shop 1.4 dealers [now]. Four years ago, that was four dealers, because [consumers] actually did the shopping in the physical world. But today with the transaction process being so available, [they are] more confident about the inventory they are finding online at the dealer websites.”
Those same shoppers who did their initial research online also want to negotiate in person, said Russell Wager, vice president of marketing for Mazda North American Operations in Irvine.
“Right now on MazdaUSA.com, a customer could identify and build a car they want, right down to a specific trim level,” Wager said. “They could go and search inventory to see which dealer has it and do a credit application with Mazda Capital Services, our financial arm. They could print that out, walk into the dealer, and say, ‘I’m already approved, this is the car I want,’ and it could be a very easy, transparent transaction. But they still want to go in and say, ‘This is good, but let’s talk price right now.’ It’s a part of the process that’s ingrained in customers ever since they” purchased their first vehicle.
Deals
DealerSocket remains confident that its software can continue to be a bridge between dealers and customers.
“We’ll close another [deal] by the end of the year, and we plan to do about one acquisition each quarter next year,” Ord said. “We have some targets that could be in the billions. So we are pretty aggressive on that side. Our strategy is to act and not to be acted upon. We are trying to do everything we can as a company to make proactive decisions that open opportunities for us in the long term.”
Its proprietary technology is set up to help dealership staff streamline operations, learn more about their customers, and thus better serve them.
“We own the desktop at the dealership,” Ord said. “Every time a sales rep comes into the store, he logs into … DealerSocket and sees all prospects, phone calls, Internet leads, everything that he’s working on. In the service department, they see all appointments that are coming in that day, what are they going to have done on their car.”
The technology also keeps track of customers’ vehicle service history, which can be used to inform the sales side of the dealership.
“Some 100 million VINs go through our system on a yearly basis,” Ord said. “We know where cars are selling, where they are not selling, how people are financing vehicles, how long they keep vehicles, how many miles they drive, the wear and tear, because we know what service repair orders they do when they come in to the dealership.”
The collected data is analyzed, and prompts are created to offer deals to the right customers at the right time. If, for example, a customer brings in a vehicle to the dealership for an oil change, data on the car’s mileage or the status of its loan might prompt sales staffers to approach the owner as a likely prospect for a new vehicle.
“So we may know that you drive a Honda Accord, and that you are three years into a five-year loan, and that you have built up equity in it,” Ord said. “We may also know that this may be the perfect time for you to trade it in, because Honda Accords are really selling hot right now [in your area], and we can have you get a better price for your trade-in, get you into a new Honda Accord, or another car of your liking, for a lower payment.”
The platform’s ability to adapt to a dealership’s inner workings came as a result of Ord’s and Perry’s tenacity and willingness to listen to their prime customer: the dealership work force.
Beginnings
The duo started developing the DealerSocket software in 2000.
“We went into some of the dealers we knew and told them, ‘Wouldn’t it be great if you could do this?’ and showed them screen shots and wireframes about how we were going to disrupt the industry,” Ord said.
“And the dealers looked at us and said, ‘This is all great, but you guys aren’t car guys.’ We said, ‘What do you mean we aren’t car guys?’ And they said, ‘See that guy there holding up the side of the building, smoking a cigarette? That’s my sales rep, and that’s the guy that needs to use this technology to help service my customers better. And that guy is not gonna use this technology, because he doesn’t know how. So you got to come in and understand how that person thinks, and then develop a user interface that matches his needs so that he will use that product.’ ”
They took a year off and started working at various dealerships—Nelson Honda in El Monte and Galpin Ford in Los Angeles—to familiarize themselves with various functions, including sales and service.
“We worked for free so they wouldn’t fire us because we asked way too many questions,” he said. “We helped sell cars, service cars. We went through all manufacturer training programs just trying to get our hands on everything we could possibly get our hands on to understand the game really well.”
In the evenings they would go back to their office and help their software developers “with some more functional specifications and designs on how we want to create the technology.”
Growth
They launched the product in July 2002 with just one dealership on board, Larry H. Miller Lexus in Utah.
“We thought, ‘Man, we got the product done, and the spigots are going to open, and we are going to get all this business,’ and didn’t sell another dealer until October,” Ord said. “Then between October and the end of the year, we sold 16 dealerships, and we were profitable in January of 2003. We just completed our 14th year in a row of over 30% organic revenue growth year-over-year. And most of those years were above 50% year-over-year revenue growth.”
DealerSocket went from 600 employees to 1,200 in the past year, with 350 in Orange County and the rest spread over offices in Utah, Texas and Wisconsin.
It’s in about 10,000 dealerships, of which 8,000 are new-car dealers and some 2,000 are used-car dealers.
“Our core product is in 25-30% of the new car franchise market,” he said. “We do business with about 50% of the new car market just across the board, whether it’s a website, digital marketing, or service-side solution, we have our module in somewhere.”
Its main competitors include the Reynolds and Reynolds Co. in Dayton, Ohio, and CDK Global in Hoffman, Ill.
“We compete more with point solutions (providers) that are good, solid innovators in specific areas of the dealership, like service-side solution or Internet lead management solution, or marketing solution,” Ord said. “We like to compete with those because they help us be better, more innovative.”
