Donnybrook's a Comin'

It's all Google's fault. And you probably should include Yahoo when pointing the finger.

That's “point the finger,” not “give the finger.” And it's not the finger of blame. Because if you're an Internet manager, you may want to thank them.

A donnybrook is coming, and dealerships stand to be the indirect winners.

The contenders are third-party companies that generate and sell Internet leads to dealers and companies that build dealership web sites. The slugfest is going to be for prominence in the lead-generation market.

For dealers, the rewards are promising — more powerful tools at their disposal and the opportunity to negotiate cheaper prices for Internet leads.

In their short 10-year existence, third-party companies, such as Autobytel Inc., AutoUSA and the Cobalt Group's Dealix Div., have dominated the marketplace.

According to data compiled in the Ward's e-Dealer 100 the last four years, dealerships get at least 50% of their leads from third-party providers, with leads from their own sites and auto maker sites making up the difference.

Lead generation has become a booming business the last several years. On average, dealers pay $18-$25 for those sales leads. And with millions of customers sending purchase requests online annually, there is money to be made.

But in the last couple of years, technology, spawned by the exploding popularity of Internet-search engines, has enabled dealership web sites to become powerful lead generators in their own right, whereas before, dealers lacked the tools to have their web sites cut through all of the cyberspace clutter.

The technology, comprised of two aspects, is called search-engine marketing or SEM.

First is search-engine optimization (SEO). Simply put, it makes a web site search-engine friendly.

The major search engines, such as Google and Yahoo, use “spiders” — also called “robots” — to crawl throughout the world of cyber space, reading web sites.

Making a web site easier for the spiders to read (using meta tags and html code among numerous other methods) means the site will garner better search results. The higher the site is on the rankings, the higher the number of visits it will receive.

The second aspect of search-engine marketing is pay-per-click (PPC) advertising in which the search engines let businesses pay to have ads appear next to the search results.

Although programs vary, listings are primarily based on how much money a company bids for certain key words or phrases it believe searchers will use when looking for a product or service they sell.

Search-engine marketing is threatening to cut into the lead generation business. It is causing some experts to question the long-term viability of the third-party business model of selling leads to dealers. The thinking is that if dealers can use their own web sites to create sales leads, why buy leads from third parties?

At least, that is the argument several web site companies are using. They may not say so on the record, but these companies already are advising their clients that relying on search-engine marketing can drive more and better-quality leads than the third-party providers can.

“I doubt you'll hear it from them, but we certainly do,” says an e-commerce manager for a Midwestern dealership on the 2005 Ward's e-Dealer 100 ranking. “Dropping third-party leads is one of their sales pitches.”

Dean Evans, vice president-sales and marketing for Dealix, says that small boutique web site companies have started selling dealers on the idea they can grab 100% of their local market using search-engine marketing only.

“It does have a certain appeal to dealers with that ‘I-can-do-it-myself’ mentality that is a hallmark of today's independent new-car dealer,” says Evans.

Some dealers already are abandoning the practice of buying leads from third-party sites and instead are relying on their web sites for leads.

Several e-Commerce directors for larger dealer groups say they are looking hard at search-engine marketing.

“We're seeing that getting rid of lead providers is an ultimate goal for many large dealer groups,” says Shaun Raines, business development manager-Reynolds Web Solutions.

Brenda Ritzman, for example, the e-commerce manager for Bob Baker Ford in San Diego, CA, says she stopped purchasing leads from third-party vendors in April and started employing a pay-per-click strategy. She says the results are 60% more leads and $2,500 a month less spending.

But Ritzman can expect her costs to increase, though as more dealers become aware of search-engine marketing, and drive up the costs of those key words.

Costs vary, but currently dealers typically will pay an average of 30 cents for each key word they buy. It is not an apples-to-apples comparison, but the perceived attraction is 30 cents vs. $18-$25 per lead.

In the competitive Dallas market, some automotive-related key words already are running as high as $5. In some industries, key phrases are into the $10-$20 range.

Third-party companies, though, are fighting back with a message of their own.

Although the alternative strategies may work for some dealers, Evans says many of Dealix's customers who stopped buying leads are now back.

“In some cases the dealership Internet sales dropped over 50% when relying only on search-engine marketing,” he says.

The major lead providers have aggressive search-engine marketing strategies and it is part of their value they sell to dealers.

Autobytel, for example, developed proprietary software that monitors up to 200,000 popular automotive search terms (like “used cars” and “Honda”) every day to measure not only how much search engine traffic they generate, but also how much revenue they create.

“It all adds up to a steady stream of high-quality car buyers for our member dealers,” says Michael Rosenberg, an Autobytel vice president.

According to Evans, large third-party vendors have the advantage of bigger budgets and the technology to capture those leads and pass them onto the dealer.

“It becomes difficult to efficiently market your one or two dealer web sites in this competitive arena,” he says.

On the other hand, dealers have to “understand their web sites are competing with the very firms they are buying from,” says Layton Judd, vice president with Izmo Cars, an online marketing firm that builds dealership web sites.

Before Internet managers get caught up in the hype, and begin calling their third-party vendors to cancel contracts, keep in mind, it's not the first the time so-called experts predicted the demise of third-party companies.

A few years ago, some industry experts said auto makers' web sites would give dealers more leads than do the third-party sites. That has not happened.

In fact, dealer satisfaction with OEM web sites is down slightly while satisfaction with third-party vendors has increased in the most recent J.D. Power and Associates study of dealer satisfaction with online buying services.