Attending back-to-back conferences (DSES and JP Power marketing summit) was a real eye opener!
I saw tremendous energy and clear thinking about the new age of automotive retailing. And it is a new age…. our customers demand a better sales and service experience. More purchase options exist than ever before. Customers have choices and they know it. Add an increasingly complex marketing environment and today’s dealerships face business challenges that would test the very best executives.
Deeper, more textured and widespread data exists in automotive today than ever before. We know our customer’s purchase habits, their equity position, what cars they are interested in, how often they view inventory – where they travel digitally. Data is important, but not the end game. The end game is what we can do with the data.
Walking the exhibitor’s hall, I saw some fresh, innovative and sometimes disruptive solutions. I saw a few others that may not make it but out of the group, many will. More encouraging, solutions providers view data as a tool to solve problems plaguing our industry. This is a change in direction from an industry that saw the data itself as a product.
All of us should be cheering this renaissance of automotive investment and new thinking. Break out the fireworks and let’s celebrate, right? The golden age is upon us!
Yes, but wait just a minute here!
Between the dealer and the vendor are the DMS providers. Though it could be different, it’s quickly becoming common knowledge that several DMS providers are putting a stranglehold on the free flow of dealer-owned data. Their mission is to monetize an asset they don’t own. With pressure from investors, DMS providers are searching for all possible methods to increase revenue and profitability. It’s an aggressive stance taken by the DMS providers who clearly, now more than ever are publicly showing they will stop at little to achieve desired margins — including their apparent willingness to disrupt their customers’ businesses to achieve their goals.
Consider an example where a vendor who manages CSI for a major OEM also authorized by dealers, routinely pulled data from a dealer’s DMS to survey customers. Just as important, the data was needed to provide incentive payments calculations to these dealerships. The problem is the vendor had not become a “Certified Data Partner.” After discovering this data export, the DMS provider, interrupted (shut down) data access and subsequently, no surveys were being conducted. Incentive payments calculations were not made to dealers forcing the OEM to guess at and reserve for payments while they worked out the Certified Data Partner issue.
The Certified Data Partner program promises to protect vendors and dealer from liability for a breach. Based on what I’ve seen, that doesn’t seem to be the case. What is also unclear is what other downstream uses of this data are and if that usage is also protected from a breach.
The DMS providers are aggressively pursuing their seemingly well-conceived plan to target this huge revenue potential.
Compel all vendors to become Certified Data Partners
In speaking with solutions partners (vendors), they tell a similar story. Solutions partners must become certified data partners to receive data. This is accomplished by the execution of broad, restrictive agreements that impose harsh penalties to those that either allow or assist others to access data from the DMS. This causes rejection of any technology that is not willing or able to pay the DMS toll.
Some of the other penalties prohibit a third-party provider from disclosing the fee they pay for becoming a certified partner. Some agreements impose six-digit penalties per instance where a third party has told his customer, the dealer, what they are paying simply to access data that the dealer owns. Unbelievable!
The Targeted approach to produce the greatest revenue.
According to those I spoke with, DMS providers first approached the largest vendors of dealership software. The more customers they had, the higher up the hit list they ended up. This was based primarily on potential revenue. As a secondary strategy, the DMS providers could create havoc if they interrupted data. This was not an idle threat, by the way, as the DMS providers have arbitrarily entered DMS systems and removed profiles that appeared suspiciously like a profile a vendor would use to get access. Again, it’s all about potential revenue and this was the low-hanging fruit.
Interestingly, smaller vendors without large customer bases that I spoke with were summarily denied partner status and told to re-apply when they had grown large enough to provide a good revenue stream from increased fees. This effectively short-circuits the smaller vendors and could kill a promising start up.
Submit to our NDA… OR ELSE!
The second part of this plan seems to be to gain broad, ongoing rights to data. Very one-sided aggressive Non-Disclosure Agreements are being sent to vendors. Those not in a position to be able to fight the apparent bullying simply sign as-is and return. Those who have the wherewithal to make a stand are apparently being subjected to intense negotiations during which time their business is impacted by the hide-and-seek user profile tactics.
Preventing Competitive Technologies
Subtler is the approach towards competing technologies. According to those I spoke with, DMS providers have a long history of spotting interesting tech solutions and buying them when it makes sense to fill a gap in their product offerings. The certified partner process is a valuable platform for the DMS providers to spot these technologies, either buying or making the data access so prohibitive that the vendor can’t compete with the captive solution. I am no attorney, but this seems a conflict of interest at the very least. This ultimately can affect our business by stifling the most promising concepts in favor of lesser products.
Where do we go from here?
This Machiavellian strategy to increase revenues at the DMS providers has proven effective…the shareholders are happy and want even more. Other recent ideas from what I’ve heard are to charge for each time a vendor hits a data base…either retrieving or posting data. Wow! Reminds me of when the DMS providers would charge by the number of sheets of paper printed by their system.
Fortunately, awareness around this issue is increasing. When talking to dealers now, most are aware of the increased charges, the increased restrictions and they are highly upset about it. A few years ago, the average dealer executive was not aware of it.
In my opinion, this will end poorly and no one will win unless the DMS providers take stock of what they are doing to their customers and act with good common sense. Too often activist shareholders drive management to make poor long-term decisions that look good on a short-term basis. That strategy often results in ruining a company. Perhaps their energies could be better directed at improving the products that dealers use every day and becoming partners of their customers instead of adversaries.