A month ago I wrote that online “middlemen” such as Autoweb.com and
Autobytel.com would not be able to compete with car manufacturers, “all
of whom one day will sell cars directly through the Internet at factory
That day got closer Monday when Ford Motor Co. (F) and Microsoft Corp. (MSFT) announced a
joint venture that would enable customers to custom-order cars from the
automaker through Microsoft’s CarPoint Web site.
The announcement comes six weeks after General Motors Corp. (GM) unveiled an
Internet business unit that will coordinate the auto giant’s e-business
efforts, including its BuyPower Web site, which allows customers to
research and buy GM vehicles online.
These moves leave both Autoweb.com (AWEB) and Autobytel.com (ATBL) with only two
choices: Find their own major car manufacturers to ally with,
dramatically alter their business strategies, or slowly perish. As
standalone Web auto sites, I don’t believe they have a chance.
And not because the market isn’t growing. Indeed, more and more car
buyers are turning to the Internet to research and shop for vehicles. A
recent J.D. Power survey reveals that 40 percent of new car buyers are
actively using the Web in their search.
This inevitable trend that has given rise to the popularity – if not the
profitability – of Autoweb.com and Autobytel.com, both of which went
public earlier this year. But the same technology that provided a market
for these information providers and facilitators in the auto transaction
process will squeeze them out of the equation as the manufacturers
streamline their e-commerce efforts.
Investors seem to recognize this. Since their IPOs last spring, both
companies’ stock prices have fallen drastically. Autobytel.com was trading Tuesday afternoon at $15.13, down 62% from its March
26 closing price of $40.25 and 34% below the $23 per share offer amount.
AutoWeb.com has fared even worse. Shares of AWEB were trading at $9.06
Tuesday afternoon, a whopping 77% below the March 23 first-day close of
$40 and 35% below the $14 offer price.
Autoweb.com, for its part, is trying to adapt. This month the company
began testing a new direct-to-consumer auto buying service in several
states, with plans to roll it out over the next few months. The company
also is considering an auction model for car sales. Autobytel.com has
yet to announce similar plans.
But unless a Web site can offer lower prices (especially) or better
service than the manufacturer’s site, it provides no added value to the
customer. Investors should be able to figure out the rest of the equation.
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