Cars.com is worth $3B?! I'm not very surprised. Here are a fewnotional reasons this isn't as crazy as it sounds. Granted, it all comes down to money-in vs. money-out, but here are a few thoughts I had on the matter.
1. Qualified Leads - Many car-buying websites tout that their leads, people who contact a dealer from their website, have a higher conversion rate than any other leadsgenerated on the web. This has to be true as I've heard it more than once. Because these leads are so valuable dealers will pay out the nose forthem. I've heard retail sites get anywhere between $200-$300 per lead, even ifthe person doesn't buy a car!
This is why you've seen sites like Edmunds pushenthusiast content (Inside Line) and industry analysis to the bottom of the page. Their goal; create a site with one purpose – serve and attract people who want to buy a car, in the very near future. These people are the golden cow of profitsand you knuckleheads looking for FR-S burnouts are worth just pennies.
These sites want to serve one group: dealers/automakers. They do this by selling people, in the form of leads (name, email address, vehicle of interest), to dealers and not entertain the masses and dilute their web traffic. In other words - car-buying websites hate car enthusiasts...when we aren't buying cars or telling friends who are buying cars to go to their car-buying website.
I suspect it won't be long before car mags push their digital channels into the car-buying space. It's going to be interesting to see what Motor Trend, a strong player in the online video space, will do post-YouTube subsidies for their YT channel. Will they look for new revenue models and develop less enthusiasts (entertainment) content and more informative (car-buying?) content to attract car-buyers?
True, outlets need to produce fun (read: shareable) content in the name of branding, but at the end of the day if car-buyers are what keep the lights on that will eventually be seen in everything from your landing page to your content. Then again, maybe we'll see more native content (sponsored posts = ugh).
2. Market(ing) intelligence – Oh the data! Big data, big data!My goodness the data! Data is valuable, especially if you know what to do withit. How much is it worth to Toyota tolearn that 234 people in Iowa sent an email to a dealer about an FR-S, butended up buying a Mustang, Veloster or Focus ST? Lots. People don't research onautomaker's websites so all that analytics are with these retail sites. Theyare sitting on a gold mind of market intelligence for the automaker.
To sell this, I assume (I've never peeked behind the currentof website revenue), the website will create a market analytics service to sellautomakers and dealers conversion performance. In that report will likely betips and other strategies on how automakers/dealers could spend more money withthe website to improve their pay-per-click (PPC) strategy or other ad spendeffort. Your analytic service feeds your marketing service ensuring that acircle of profitability remains.
This is why I think Cars.com is worth $3B. Unlike otheronline properties, places like Cars.com and their counterparts have an assuredstream of revenue in the form of dealer leads, marketing services/intelligence,consumer insights, ad placement and whatever other service they come up with totake advantage of the large and almost total automotive online purchase.
Today automaker's fight for customers happens in theresearch phase which primarily takes place online and not on the dealer lot. Irecall people were now visiting 1.4 stores before making a purchase. As the webcontinues to be the go-to tool in the car buying process web sites like thiswill continue to attract car buyers and therefore will print money making themwell worth their weight in gold, or bitcoin or whatever we will use for moneyin the future.
Additional info from 2010-2012 SEC Filing on Cars.com parent company, Classified Ventures:
Primary source of revenue is listed as, "sale of online subscription advertising products for the automotive, rentals and real estate industry segments. Online advertising sales to Affiliates, auto dealers, property managers, real estate agents, brokers and private parties are recognized as the service is delivered."
Also of note CV spent the following on advertising: $86.4M, $77.3M, and $67.2M for the years 2012, 2011, and 2010, respectively.