On the Record with John Holt

Few sectors have been battered and bruised as much as e-automotive stocks.
Can The Cobalt Group somehow buck this trend?

We’ll see. Cobalt chief John Holt sure thinks so. While investors sort
through the carnage in the e-automotive space, Cobalt continues to
methodically sign dozens of new clients and aggressively ramp revenue.

Founded in 1995, The Cobalt Group today provides Web site building and
management services to over 50 of the 100 largest car dealer groups in the
U.S.

In May, Cobalt signed an agreement with DaimlerChrysler in
which the auto giant will become a minority shareholder and close strategic
partner. Cobalt is now in the process of building over 2,000 Chrysler and
Dodge dealer sites.

The deal seems to be a perfect fit with Cobalt’s long-term goals. After all,
in the words of Holt, Cobalt is the “glue at the intersection point” between
the dealer and auto manufacturers.

We recently sat down with Holt to discuss the future of the e-automotive
sector and to learn what separates his company from typical lead generators
like Autobytel.

ISR: What is The Cobalt Group really today? I guess you started out hosting
and designing Web sites for car dealers.

Holt: Yes. I think that what we’re really doing is providing two fundamental
sets of services. The first is a variety of products and services that help
dealers manage, what are in effect, their b-to-c Web sites. To do that well,
we’re providing them with Internet based products, many of which they
control. So we’re sort of acting as an ASP. We’re providing all the hosting
services and we provide all of the maintenance services. Last but not least,
we provide access to deep training because it’s our belief that the
execution of the Web site is critically important and perhaps even more
important than the Web site itself.

ISR: How big is the learning curve still for dealers to get up a site that
you’ve designed?

Holt: I don’t see it as that steep. The technology learning curve is not
steep. Fundamentally, we build a Web site in five days. That’s kind of the
typical turn around time. The dealer has to give us content. So he writes
some text and provides us with digital assets. We’ll activate those and then
the second step is that he has to learn how to use some of the products that
we’ve given him.

ISR: Okay. I’m following you.

Holt: So when you think again that we’re acting as an ASP, we give him an
inventory management tool that give him access to put new inventory up for
immediate activation on his site. He has access – depending on what he buys –
to a lead management product to track all of his leads and measure response
times and closing rates. He has access potentially to an ad creation product
called Ad Wizard Plus to create his own unique ads. So there is some
learning curve to understand those tools, but they were all built as wizards
and they are fundamentally “Step A”, “Step B”, “Step C” products. So that’s
not the biggest issue.

ISR: What is then?

Holt: I’d say the biggest issue is actually figuring out how to manage it in
the store. For example, if the goal is to answer your e-mail once an hour
seven days a week – you have to staff against that with personnel that
understand the sensitivities and attributes of the digital car shopper. You
need people that can write clear and plain English. So all of that takes
some work. The third leg of the stool, when you think about what execution
is all about, is advertising. The dealer is fundamentally responsible for
driving traffic to his Web site. So we do spend a fair amount of time
teaching them that “Smith Toyota” is a brand and that you want to invest in
that brand. So that’s sort of one half of our business, which is helping the
dealer manage a Web presence to deal with both prospects and owners.

ISR: Right. Acquire versus retain.

Holt: Those

are different animals and we differentiate those in the way that
we develop products. So one is about getting a customer in the door the
first time, and the other is really focused on CRM (customer relationship
management) products to make sure that the customer who has bought becomes a
long term satisfied repeat owner.

ISR: Let’s talk about the bigger picture for a second of overall
e-automotive stocks like your company, Autoweb.com and
Autobytel .

Holt: Well, don’t put us in the same breath.

ISR: I know you don’t want to be in that breath, but you always seem to be
tossed in there by investors.

Holt: Yes, but we never should because fundamentally our businesses could
not be more different.

ISR: What is the cloud that you really see hanging over this group, though.
All of you are trading near a 52-week low?

Holt: It’s a good question. I can answer the question as to why they are
there. I think Autoweb and Autobytel were examples of nimble innovators- and
they’re in other industries besides the automotive industry- who had a
clever idea to try and leverage technology, but fundamentally they lacked
permanent competitive advantages given the way the market operated.

ISR: What do you tell you car dealer clients today? Do you tell them to deal
with the lead generators like Autobytel or do you instead tell them to focus
on building up their own branded sites?

Holt: Well, we’ve been telling them for four years that our customers had
the power to do this themselves without the assistance from lead generators.
When you think about it, in total, dealers’ ad budgets are $5.2 billion
dollars. The total lead generator ad budget is maybe $400 million dollars a
year. So if the dealer simply had the courage to take 10% of their $5.2
billion dollar ad spend – and then you think about the fact that they are
targeting locally instead of nationally…

ISR: They have a much stronger presence locally than a national player can
ever have.

Holt: Absolutely. What’s more, Autoweb and Autobytel are just referrals. The
dealer still has to sell the car and in forty-nine states in this nation the
only entity that can sell a car is a franchised new car dealer.

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