A Q&A with AutoWeb co-founder Jose Vargas. The Miami-based startup, which is a pay-per-click ad network for automakers and dealers, announced last week that it has raised $2.5 million from Autobytel. It was founded earlier this year.
SUB: Please describe AutoWeb and your primary innovation.
Vargas: AutoWeb is a pay-per-click advertising network for automotive manufacturers and dealers. Our clients bid for traffic just like they do in Google or Yahoo search. In our platform, they can target their ads to in-market customers looking to buy a car, and micro-target certain parameters such as make and model that the user is looking to buy, geography, income, and other demographic parameters. Our clients’ ads are only displayed after a user has indicated the intent to buy a car—usually after an interview or a quote request initiated by the user. Since our audience is so targeted, our clients are able to measure ROI and build a better relationship with in-market car buyers. We source our traffic by partnering with highly visited automotive websites that cater content to auto buyers. Our website partners benefit from our relationship because they generate incremental ad revenue from their current visitors.
SUB: Who are your target markets and users?
Vargas: Our clients are the auto manufacturers looking to build a better relationship with online buyers, and in a second phase auto dealers looking to generate high-intent leads and sales. Total advertising spend by this group in the U.S. is about $33 billion, and $10 billion is spent in online advertising and growing at 20 percent a year, according to Borrell and Associates.
SUB: Who do you consider to be your competition, and what differentiates AutoWeb from the competition?
Vargas: We compete for our clients’ branding and performance advertising budgets usually allocated to search engine marketing. Our solution is complementary to their current spend, with the difference that we focus on targeting high-intent online users looking to buy a car.
SUB: You just announced that Autobytel purchased a $2.5 million stake in the company. Can you explain the deal, and why this was the right strategic direction at this point for AutoWeb?
Vargas: AutoWeb is a new entrant in the automotive advertising space. Partnering with a long time recognized leader in the automotive industry is of tremendous value to our company, as it brings along credibility and guidance as we develop, launch our product, and build relationships with our clients. The deal with Autobytel is very strategic as it provides AutoWeb with important funding, of which $2.5 million has been deployed already, and gives us access to an addition $2.5 million option. Also, Autobytel has agreed to be our first publisher partner where our targeted ads will be displayed. Autobytel was founded in 1995 and they have very close relationships with all the important auto manufacturers as well as an important number of auto dealers. They differentiate themselves for the quality of their content and high-converting leads they generate to their clients. We have a lot to learn from Autobytel and look forward to this new partnership with the company and their team.
SUB: What was the inspiration behind the idea for AutoWeb? Was there an ‘aha’ moment, or was the idea more gradual in developing?
Vargas: The last company me and my partners built in the online ad space is called BrokersWeb, which is a targeted pay-per-click marketplace for insurance products like auto insurance, health, Medicare, life, and home. The company grew from $1 million to $55 million in revenues in three years by focusing on providing quality, high-intent ads to our clients. The company was acquired in 2011.
After the acquisition, we wanted to start a new performance advertising company, and decided on the automotive space because of its large size and number of players. Ten billion dollars spent a year in online automotive advertising is a huge market, and we thought that clients would benefit from our approach of targeting their ads only to in-market users. But the real catalyst to starting the business was Autobytel, by supporting and backing our idea from the start. It seemed to us that having the vote of confidence from a long-term player in the space was a good indicator of the validity of the AutoWeb model.
SUB: What were the first steps you took in establishing the company?
Vargas: Research, research and research. We tried to understand the market, the players, the needs of our clients, and how to develop a better technology solution that our clients would adopt and benefit from. Our goal is to build a targeted ad network that understands traffic quality and generates ROI to our advertisers.
SUB: How did you come up with the name? What is the story or meaning behind it?
Vargas: Funny story—AutoWeb.com was actually one of the first pioneers in the online automotive space, the company went public in a very successful IPO in 1999, and its market cap reached $1 billion. After the dotcom bubble burst, the company had troubles and it was acquired by Autobytel. Since then, Autobytel owned the domain ‘autoweb.com’ but it was not being used. During our meetings with Autobytel they suggested we use the name, and that is how we ended up with the AutoWeb name. Originally, the name we were going to use was ‘AdTarget.’
SUB: Do you have plans to seek additional outside funding in the near future?
Vargas: We are well-funded at the moment, but we are in talks with a few international strategic players that want to invest in the company with the vision of expanding AutoWeb to international markets in Asia and Europe.
SUB: What have the most significant challenges been so far to building the company?
Vargas: Building and customizing the technology to fit the auto industry and our clients.
SUB: How do you generate revenue or plan to generate revenue?
Vargas: Our clients set up ad campaigns in our platform and bid for traffic on a pay-per-click basis just like they do for search engine marketing. Every valid and targeted click we generate to our clients is a revenue event for us.
SUB: What are your goals for AutoWeb over the next year or so?
Vargas: We want to launch the product, have a good coverage of clients within a year, and by focusing on providing high-intent, quality traffic to our advertisers, build a growing and sustainable business. After we have validated and scaled our model in the U.S., we would like to expand to Canada and countries in Europe and Asia.
AutoWeb – www.autoweb.com