What do you think about when you hear the phrase “online advertising” or “big data”? How about “social network”? Do visions of hoodie-wearing young entrepreneurs dance through your head? Each of these are massive parts of the startup tech sector. In 2012, online display advertising was $12 billion; big data has become the new hot sector for venture capital with over $5 billion of investments over the last five years; and Facebook has now passed 1 billion active monthly users.
Now, what do you think about when you hear “automotive”? You probably aren’t imaging the same visuals as the previous phrases. But consider this: Online Advertising. $11 billion. This is how much the 18,000 auto dealerships in the United States spend online in marketing to sell cars. This doesn’t even include what the manufactures like Ford, BMW, or Toyota spend.
Here are some more words to think about: Big Data. Ninety years. That is how long ago that RL Polk published its first report on passenger vehicles, and the automotive industry became a major user of Big Data for marketing and manufacturing. The auto industry continues to use Big Data in more complex and advanced ways than most other industries.
Social media has 250 million users in the U.S., 1 Billion globally, and will have 1.7 billion users in 20 years. That is the number of passenger cars on the road, and in a decade nearly every single one of those will be an independent smart device on the Internet.
To most, automotive may seem like a monolithic, rust belt industry. It is, however, one of the most significant industries in the tech sector. So it is no wonder that our venture capital firm, RPM Ventures, loves investing in technology startups in the automotive sector and has been doing so for over a decade. These stats just begin to touch on the immense opportunity in the space. We’ve spent time in almost every part of car dealerships, exchanged ideas with thought leaders from the automotive manufacturers, and have looked at thousands of startups in the sector. This has given us the knowledge to set a high bar in picking extraordinary automotive sector startups in which to invest and advise.
It isn’t enough, however, to just know that the opportunity for startups in the automotive space exists. The automotive industry has more twists, turns, and obscurity than a Formula One road course. To successfully start a company or invest in a company in the sector, you must understand those turns, and the interconnected nature of them.
RPM uses a framework to view the industry, and we built it doing what all good entrepreneurs should do: We follow the money. The easiest place to anchor the framework is in the auto dealership, where we can divide their operations down into the three main buckets of how they make money: selling new cars, selling used cars, and servicing cars
Selling New Cars – We all think a dealer sells a new car and makes their money by
