CarGurus Leaving AutoTrader and Others In Its Dust

The Value of Online Car Marketplaces

We’ve all seen the many AutoTrader commercials (e.g. https://ispot.tv/a/om6) and their logo plastered across sidelines.  TrueCar, Cars.com, CarGurus do the same thing.  Given these companies don’t even actually sell cars, what value could they possibly be providing to spend as much as they do on advertising and generate billions of dollars in annual revenues?  As most people know, the car industry is gigantic, but sales are distributed across tens of thousands of dealers within the U.S, selling both new and used cars.  These dealers are relatively small and very localized, and their websites / individual advertisements often can’t compete for attention to attract buyers.  Historically, consumers would have found dealers using the Yellowpages or watching local TV ads, but as the online world has flourished, online marketplace consolidators such as AutoTrader, Cars.com, and CarGurus have become the greatest way for dealers to attract new customers, as well as for those customers to find a place to purchase a vehicle (just like you can look for an apartment on StreetEasy or house on Zillow, but can’t actually rent or purchase).  By consolidating listings, these sites provide consumers with additional information and the ability to comparison shop before even walking into a dealership, while providing dealers with more concentrated consumers than any other option. In doing so, these online marketplaces provide huge value to both the dealers who pay them monthly subscriptions (by driving more leads to those dealers) and to consumers who use the platforms to search (by providing vehicle options, comparison, and information).  And because the car industry is so enormous, there is intense competition to win the spot as the premier marketplace for these dealers.  Just as Ford or GM compete to sell more cars, AutoTrader, Cars.com, TrueCar, CarGurus, and others compete through their marketplaces to serve the most possible dealers, attract the most possible consumers, and drive the most possible vehicle transactions.

If There Are So Many, How Can You Crown a Winner?

You might think that based off of the brand name and your familiarity with their advertising, AutoTrader is the clear winner as the preferred online marketplace for cars.  However, although there is a winner in this “winner take most” type market (in which dealers want to be where there are the most consumers, consumers want to be where there is the most inventory, and dealers aren’t always willing to pay for multiple subscriptions to be on all of the sites), the real winner is CarGurus.  If you look at most measures of engagement at this point in time, you may or may not be surprised that CarGurus now has taken a measurable lead within the space – 2.8x more monthly visitors than AutoTrader, 1.6x the monthly unique visitors, ranked higher within its category and more broadly against other online websites [1, 2].  And these metrics make a big difference – with more traffic, CarGurus can attract more dealers and more of their advertising spend, accelerating their positive network effects and continuing to own the market with improved usability, increased features and upsells, and new product offerings.

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How Did CarGurus Come To Win the Market?

How in the past 10 years did a new upstart overtake the behemoth of the industry (AutoTrader) and become a winner, growing visitors at a 70% CAGR, reaching over 30k paying dealers, and growing revenue at a 43% CAGR [1]?  CarGurus saw the trends in the way people were researching for car purchases and using the internet and made changes that other marketplaces ignored until it was too late and were left scrambling to follow CarGurus lead.

CarGurus won because of its strategy in three main areas that the others missed. 1) Car marketplaces had historically been focused on the dealer – these were their customers and given the lack of transparency in the car buying process, marketplaces did not cater to the consumers.  CarGurus upended this by focusing more on the consumer using its Instant Market Value (“IMV”) algorithm to show consumers the “best deals”, even though dealers might not like their offers being categorized as “great”, “good”, “fair”, “high priced”, or “overpriced” (especially the last few of those categorizations…). The others eventually realized this and introduced their own consumer transparency metrics, but too little too late.  2) CarGurus also understood the shift in consumer device usage and took on a mobile first focus – CargGurus introduced a mobile-optimized website back in 2011 and now has ~80%+ of its traffic through mobile [1].  CarGurus even designed its searches so that they could use mobile GPS to include location as a criteria even if users did not specify their location.  3) CarGurus realized that SEO had become more commoditized and unless they were strong with local search (rather than just being strong on broad SEO metrics), they couldn’t win the market.  While CarGurus might lose to competitors on broad keywords, their advantage on the local keywords and searches made users (who understandably search to buy a car locally), more likely to end up with CarGurus [3].

With these strategies in place, CarGurus has rapidly overtaken its competitors and attracted more traffic and more dealers, providing increasing value to both sides of this two-sided marketplace and making these commercials – https://ispot.tv/a/dADz – the ones to really pay attention to.

Sources:

1. “Cargurus Investor Day”. 2019. Investors.Cargurus.Com. https://investors.cargurus.com/static-files/2dc3fefc-8cf3-4791-aca4-8a728112dae8.
2. “Similarweb.Com – Digital World Market Intelligence Platform”. 2020. Similarweb.Com. http://similarweb.com/.
3. Poster, Guest. 2010. “Look-Out Autotrader And Cars.Com, There’S A New Guru In Town – Dealerrefresh”. Dealerrefresh Automotive Dealer Forums. https://www.dealerrefresh.com/look-out-autotrader-and-cars-com-theres-a-new-guru-in-town/.