In Madrid, we met the founder and CEO of Coches.com – Iñaki Arrola. Coches.com is the leading platform for new cars in Spain and trying to achieve higher goals at the used car market.
Iñaki told us in the interview about the business model of Coches.com, about developments of the new and used car markets in Spain, as well as he shared his advices with first time entrepreneurs.
Interviewer: Hi. Today we’re in Madrid with Coches. Inaki, who are you and what do you do?
Inaki: I always present myself first as a happy husband of my wife and a proud father of three. But now we are speaking about our businesses, but now because we came here to speak about business, I am the founder of Coches.com, and also I am the founder of a small VC in Spain, which is called Vitamin K or Vitamina K in Spanish.
Interviewer: What did you do before your started Coches?
Inaki: Different things. I used to work in the finance business. I was a trader in European stocks.
Interviewer: Let’s talk about the business model of Coches. It is a marketplace where you can sell and buy cars. Is there something unique in this business model?
Inaki: The differential part is in the new car business. Coches.com has a new car and a used part. The new car one is the one that has the most differential part, because what we do is we make the dealers fight for the user, they have a reverse auction but they know that their prices only appear if they are the best ones. With that the user always gets the best price. It is supposedly not that good for dealers, but dealers get more people interested in their cars. And the used cars is the place where you and me can sell our cars, but especially the dealers pay us subscription fee to advertise their cars, like monthly fee revenue.
Interviewer: Can you briefly walk us through how you started and built up the liquidity in this market, and then how you expanded in terms of regions or products?
Inaki: It was like a joke, because my father was a going to buy a car and friend of mine was going to buy the same car. And my father is the kind of guy that fights with everybody in the street, and he has always been a seller, he used to speak with lots of dealers and he tried to get the best price. And my friend was the opposite, there was a big difference between the price that my father was getting for the same car than my friend. What we said was we could do this as an auction, and that’s the way we started only in the new car business. And this was with a small domain, it’s like autodiscount.com, and after that we could buy Coches.com and we could also do that in the used car business.
Interviewer: In terms of regions, how do you expand and where are you currently active?
Inaki: We’re only based in Spain. We are the leaders in the new cars and we are not the leaders in the used car part. We started with nothing, with no money. What we did at the beginning was only form a business and we got like a strange webpage. And we would start from the beginning, and what we did was every time we earned money we invested in people, especially in people that are at our office, and after that trying to acquire users through the webpage.
Interviewer: How hard was to acquire the first 50 dealers?
Inaki: We made a party when we got the first customer, the first dealer that called us, we were super happy. It was not that hard because Spain in that moment was in a nice mood in the car business, and they didn’t like the internet but they felt we could help them. Especially we didn’t begin in a subscription model, just in a CPA model, so they were happy with that, because they sold cars, they were paid, and they didn’t have a problem with that. The problem was when we changed the model, because Spain was not in a nice economic moment, and we needed them to pay monthly fee amount, and that was the hard part. But we celebrate a lot of things at our office, not only the first 50.
Interviewer: I understand how you try to acquire the dealers, and on the other side of the model how did you acquire the first 10,000 or 100,000 individuals that were looking for cars on your platform?
Inaki: Well Coches.com is a really SEO page, because the name is Coches, which means cars in Spanish. It has a nice opportunity with that and does not have a problem to acquire users by SEO. But we did different things, we went to the street and we distributed flyers and things, but the most important part came by the SEO.
Interviewer: If today you split your traffic coming from different sources, how much is SEO or social currently?
Inaki: About 60% is SEO. Social media is 10% or something like that, and the others come from SEN and from direct traffic.
Interviewer: Your revenue model. You said you changed your revenue model and the pricing model, how does it work today, and can you briefly describe how you try to differentiate pricing between different dealers?
Inaki: Half of our income comes from the dealers who pay monthly fees, and the other half comes from the brands that want to do specific things, because we have a lot of data from the users who are going to buy a car right now or have been interested in buying in a car some years ago.
Interviewer: Do you mean advertising, or…?
Inaki: Yeah, for example if you bought a car four years ago you are a target of our brand. For example, they pay us for advertising or for calling them. Sometimes we call them by phone, because they pay us. And of course there’s always banners and those things, but most of the money comes from dealers and brands that is around 80% or something like that. And of course there is insurance money and finance money that should be around 10% of the model.
Interviewer: Is this unique that you are using this kind of transactional data and trying to predict when the next purchase will be?
Inaki: Yeah. Our competitors don’t work with this, they just have an advertising model and that is good for them.
Interviewer: Let’s talk about the corporate strategy. What do you think are the major two or three drivers for creating competitive advantage for Coches?
Inaki: I think we only have one, which is trying to think about the user, because our competitors do not think that much about the user, they think more of their client who is the dealer. What I told you before about the model, that we work out the best option, it is supposed not to be something nice for lots of dealers, and we know that that’s a problem sometimes, but we prefer not to work with those dealers, and not forgetting our user, who is the one that is paying the money, even though the service is free for him. I could tell you more things about that, but it’s always focusing on the user.
Interviewer: Is it only that you’re try to deliver the cheapest price, or is there some kind of user experience?
Inaki: Yeah, of course the user experience is something that we need and we focus a lot on that, but without the product it won’t work, and we are super-crazy with these things. We have very few advertisements on our webpage because we think that users will need to fight with you to try to acquire your product. But without, for example, the reverse auction we think the usability won’t matter.
Interviewer: Imagine another competitor from Germany or the UK who would like to enter Spain, because you’re currently only in Spain, would they have some kind of economies of scale that would generate some competitive advantage over you, or do you think it is not important to have an international or global scale in winning this market?
Inaki: You can have some knowledge of how your market works, but when you go to a different market the most difficult part is to select the street, because we tend to analyze the internet business, something that is always scaled, but the fact is that sometimes when you don’t understand that you need to go to the street to sell. For example, right now when you to a dealer, he doesn’t have money to pay to all of us, so he needs to choose. So if you don’t give him some advantage or something that is different, which is not that common in our market, they won’t buy.
Interviewer: One question regarding this revenue model. As you said, there is some kind of subscription element, what are the terms? Is it something like monthly or is it annual or what?
Inaki: They can pay annually and they have a different price, but most of them pay monthly and they are happy with that. They have an annual contract but we bill them once a month.
Interviewer: Because this strategy would be quite good for protecting your business model, because then the switching costs would be higher?
Inaki: Yeah, and they can change once a year. But we focus a lot on the user, and we help them buy cars, so we have our customers more happy with that. For example I was speaking before about that, one thing we do is speaking with the users, which is kind of strange for an internet business because you call people. Yes we do because we understand how our webpage is working, we ask them if they are buying cars, and when they do what we know is that our business is working and our dealers will pay more for our model.
Interviewer: You said that Coches is the market leader for new cars but not for used cars. How hard is it coming from new cars to conquer the market for used cars?
Inaki: A lot, especially because in Spain we had a really serious economic problems, and dealers don’t have money for all of us, and when you need to sell your product they tell you I’m only paying for one because I haven’t got money for more than that, and even if you are great, someone is greater than you and they’re not going to pay for that.
Interviewer: So basically it is that the market for used cars and new cars in Spain is very concentrated because if the dealers can only pay for one or two service providers…
Inaki: I don’t mean that all of them are in this position, but some of them are, especially in the used cars. In the used cars business in Spain it should be around 8,000 dealers or something like that, and probably 25% of them will have money for one, no more.
Interviewer: Let’s talk about the market development in Spain for the new and used cars over the last five years. How large is the market, how did it grow, how is the profitability and how do you perceive the future development?
Inaki: Something important changed with the economic change. In Spain in 2007 there were 1.5 million new cars sold a years. That has come down to 700,000, to half of it, but in the used cars it has switched. It used to be like one million and now there are like two million. Spain was one of the strangest countries in Europe because we were selling two new cars for every one used car. For example in the UK that’s five used to one new, and we have changed that a lot. And also what happened is that lots of dealers have disappeared. But there is are bigger groups of dealers right now. So we have less clients but more powerful ones.
Interviewer: How do you perceive the future for the next two to four years?
Inaki: What I would love is cars getting sold on the internet directly, and we could make the transactions for the brands. But that will depend on the economic moment, and on the relationship between dealers and brands. I cannot tell you when that is going to happen, because we have been telling everybody this is going to happen tomorrow and it hasn’t happened for a lot of years. But not only in Spain, in the rest of the world cars don’t get sold on the internet directly, except from Tesla and things like that.
Interviewer: Do you think this is mainly driven by the brands being afraid of putting their brands directly on the platform?
Inaki: Well the brands need the dealers and they need to have lots of places to sell their cars in the streets. And if they don’t, there could be other models, but right now they’ve got this relationship that is not that easy to break.
Interviewer: I think if I were a brand and if were to do this directly on the platform I would cannibalize my dealer network, and then if I annoy them maybe I will lose revenues with them.
Inaki: I guess the model in the future will be that brands could show that cars are on the webpages on Coches.com, but the financial part will be if they’re going to show them physically and how. This is probably what they could do, they could deliver cars to your house and to mine, and if we pay some money upfront they can make us a discount if we buy that car. But they need to get away all the dealers, and that for the moment is not that easy.
Interviewer: Inaki, we always try to share some insights from entrepreneurs for new first time entrepreneurs so they can become better entrepreneurs. You have a specific learning about building teams, I would like to know your advice for first time entrepreneurs on that.
Inaki: I have probably two advices. One is that you should focus on your team. The most important part is that you are not the best one of your team and you need to work with nice people. And the other one is that you don’t need to read a lot of TechCrunch, and probably you can bottstrap your company without a problem. Try to find a product, and if it’s good you’ll make your money.
Interviewer: Totally agree. I love bootstrapping as well. Thank you very much Inaki. Next time you’re in Spain and looking for a new car visit Coches.com.
Inaki: Thank you.