Kelley Blue Book's Big Move

Kelley Blue Book is launching a bold initiative, hoping to revolutionize the way online leads are bought and sold.

In the process, it's turning its back on a rather successful revenue generator while speeding into a business dominated by AutoTrader.com and Cars.com.

In July, Kelley announced it was launching an online classified listings service for new and used vehicles and will charge dealers on a per lead basis. It's calling the venture KBB's Trusted Marketplace.

For years, AutoTrader.com and Cars.com have employed a subscription-type model, in which dealers pay a flat rate each month to list their inventory on the two automotive sites. The price is determined by the level of service a dealer chooses.

At times, dealers have grumbled about the seemingly high prices AutoTrader charges, and say the cost does not always match the level of performance.

Justin Yaros, Kelley's executive vice president-product design and development, who helped develop the new strategy says the initiative will provide dealers greater control over their lead generating costs, while improving the performance of leads by better matching customers with the right vehicles.

Dealers will pay Kelley $20 for every lead their inventory listed on KBB.com generates.

Although, other firms such as, Dealix, AutoUSA, AOL, Overstock.com and Autobytel Inc. started implementing pay-per-lead strategies with their dealers within the last year, the model has been slow to take off. Kelley's brand cache and consumer traffic should lend weight to the concept, executives say.

“KBB.com adds legitimacy to the pay-per-lead model,” says Anna Zornosa, Dealix's executive vice president and general manager, a proponent of the concept.

AutoTrader's CEO and President Chip Perry declined to comment for this story, but has dismissed the pay-per-lead model at industry conferences and in previous conversations with Ward's.

He can afford to. AutoTrader is the clear leader in the space, generating more than $1 billion a year in revenue. Why kill the golden goose?

“KBB is a strong brand when it comes to used-car valuations,” says Mitch Golub, Cars.com's president. “However, pay-per-lead classified listings are a completely different business. They clearly have their work cut out, especially if they pursue a model that aggregates listings from a wide array of providers. That model has yet to work.”

Although the concept of pay-per-performance is attractive, whether Kelley can move the market sufficiently to create a groundswell among dealers to make a switch to its model, remains to be seen.

Kelley has several challenges. One, it's new to the listings game — a game Cars.com and AutoTrader play very well.

Another challenge for Kelley is inventory. It gets the consumer traffic, but has depended on either Cars.com or AutoTrader.com in the past for inventory listings.

Cars.com or AutoTrader (depending on which firm Kelley was partnering with at the time) paid Kelley millions of dollars to list their inventory on its site.

KBB.com, because of its high consumer traffic, would drive more leads back to AutoTrader's or Cars.com's dealers. Or at least, that was how the concept was to work.

Privately, executives from both firms claim the number of leads received didn't warrant the high listing prices Kelley commanded.

Kelley executives say listing inventory for other firms is an advertising play. While the money is good, the companies listing the inventory controlled the consumer experience, something Kelley thinks it can improve significantly.

Whatever the reason, AutoTrader and Kelley ended their partnership in July, six months before the contract was scheduled to end.

Kelley then turned to Vast Inc., a technology firm that has been championing the pay-per-performance model the last couple of years.

Vast's goal is to create a network of automotive online sites that together will create enough pressure on AutoTrader.com Cars.com to force them into the pay-per-performance model.

“The subscription players underestimate the innovation that comes with the pay-per-lead model and what that does to the quality of the lead,” Zornosa says.

Vast aggregates inventory from numerous industry partners, such as Kelley, Dealix, Autobytel, AutoUSA, AOL, Dealer Specialties and Overstock.com.

Vast then optimizes the inventory and pushes it back out to its partner sites. The value is that each firm's inventory shows up on each of Vast's partner sites, extending their reach and visibility.

Kelley's move is big because the enterprise brings in the most consumer traffic as one of the most visited automotive sites online.

Vast says its value goes beyond just extending the reach of a firm's inventory listings. It's created search algorithms that will match consumers with the right vehicle, which in theory, should lead to more valuable leads.

Each of Vast's partners can customize how they want the search algorithms to work, letting them control the consumer experience on their site.

Like Google, Vast combines its search technology with a bid process to determine where each vehicle appears in the listings. This lets a third party company provide better leads to its dealers by bidding more to push the inventory closer to the top of the listings.

The dealer pays a certain amount per lead. This can include phone leads and online leads. Whom and what they pay depends on which site lead came from. Firms such as Dealix or AutoUSA may charge more or less that Kelley at $20 per lead.

Whichever firm pushed the lead to the dealer pays Vast a percentage of what the lead costs the dealer. Everybody potentially wins: the consumer, the dealer, the third-party companies and Vast.

The end result, says Vast's Ben Cohen, is that, unlike the subscription model, dealers aren't paying for leads they don't necessarily want.

“Dealers have an alternative now,” Cohen says. “But they have to vote with their wallets.”