In 2007, just as automobile stocks began an 18-month slide, Trevor Traina says he made a decision his friends found shocking: He jumped into the car business.
"People thought we were crazy," says Traina, 42, who with two former business partners started DriverSide.com, a service that connects car owners to dealerships and mechanics. "Everyone said to us, 'You're doing a car website in the middle of the worst downturn in the auto industry?' "
Three years on, the San Francisco-based business is attracting investors and customers alike. DriverSide has signed up 500 dealers and repair shops that pay as much as $895 a month for the service. It has 1.9 million registered car owners, who use the site for free.
DriverSide's tools for car owners include tune-up reminders, a repair-cost calculator, and ways to diagnose problems before calling a mechanic. Dealers pay to have DriverSide's personalized virtual garages embedded on their sites to maintain contact with drivers and showcase lucrative parts and services. The target is the growing pool of money that households spend on cars for years after a purchase. "It's a large market," says Paul Taylor, chief economist at the National Automobile Dealers Assn. in McLean, Va. DriverSide is "trying to put all the decision-making in one place for the consumer and marketing that to dealers," he says.
Parts and service generated $76.2 billion in sales last year for U.S. franchise new-car dealers alone, according to the trade group. Including sales from independent repair shops, insurance, extended warranty products, and other services, DriverSide's potential market reaches the "hundreds of billions" of dollars, Traina estimates. "Vehicle ownership is a much bigger market than buying," Traina says. "We'll become the ultimate partner for anyone in the space. They'll have to come to us because we'll know all the drivers."
After selling two earlier startups to Microsoft (MSFT) and Intuit (INTU) for about $160 million combined, Traina began looking for the next big online idea. He saw a need for comprehensive Internet tools that help drivers take care of their vehicles. "I kept asking, 'Why is the biggest online category—cars—full of a bunch of medium-sized players without one dominant winner?' " he says. His reasoning: "No one's been able to build a relationship with the consumer."
$5.3 Million Investment
Persuading companies to adopt DriverSide's technology was challenging at first. The company had to overcome resistance from dealers, who had traditionally relied on newspaper and television ads and billboards to attract customers. Bob Ackerman of Allegis Capital led a $5.3 million investment in DriverSide after backing two other companies founded by Traina and his business partner Jad Dunning. The pair sold CompareNet, a comparison-shopping site, in 1999 to Microsoft. Seven years later, they sold StepUp Commerce, which helped local merchants display products online, to Intuit.
Ackerman says he earned returns of tenfold and fivefold, respectively, on those investments. He's betting the success will continue. "From an investor's point of view, it gives you a lot of confidence that these guys can outperform the competition," Ackerman says. "We're talking about creating a database of ownership targeting the largest segment of the U.S. economy. That has a tremendous amount of value."
Traina and Dunning co-founded DriverSide with Adam Jackson. The company's growth is accelerating as it signs new partnerships, Traina says. Autobytel (ABTL), which gives car dealers online consumer leads, said in August that it will include DriverSide information in its own services. Dealer.com and Advance Auto Parts (AAP) sell the DriverSide technology to dealers and repair shops. DriverSide doesn't have its own sales staff.
Traina aims to make DriverSide useful to companies such as Berkshire Hathaway's (BRK/B) Geico car insurance unit. "Companies like Geico will need to come to DriverSide because we know when millions of people's insurance will expire," says Traina. "If you're an extended warranty company, why wouldn't you have us send people an alert that they have one month before their warranty expires?"
Rival sites DealerSocket, OneCommand, and RepairPal also help dealers maintain relationships by sending drivers reminders to get their tires rotated and oil changed. The difference for DriverSide is that it goes beyond connecting drivers with dealers. It helps car owners during the entire vehicle ownership life cycle with features like "Ask a Mechanic" and tools to check local labor rates and repair estimates.
That fosters loyalty, says Jared Hamilton, chief executive officer of DrivingSales, a social-networking site and newsletter publisher for dealers. "All those other companies are about notifying a consumer when it's time to make a transaction," says Hamilton. "The gold in DriverSide is it's not just about focusing on transactions but about educating the consumer."
DriverSide now wants to push deeper into the market for auto sales. Its two dozen computer programmers are developing tools that can predict when a driver is about to buy or sell a car. Once it reaches a critical mass of 5 million users, the company will be in a position to start edging out established online vehicle sites such as AutoTrader.com, Traina says. "It won't end with serving car owners," Traina says. "Eventually all the buying and selling will come through DriverSide because we will own all the car owner information."