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Offering price analysis for used cars, CarGurus finds its way to profitability

Posted by Scott Kirsner  February 23, 2011 08:30 AM

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lsteinert.jpgThe term "pivot" is quickly becoming a burnt-out buzzword in the tech world. Don't most start-ups, after all, have to make fairly dramatic changes to their original plans to survive and succeed?

As CarGurus CEO Langley Steinert puts it, "What you start out doing is not always what you end up doing."

As an early investor in TripAdvisor, and later an executive at the company, Steinert was close to the action as the start-up nearly ran out of money trying to license the travel content it had accumulated to various Internet portals. Eventually, TripAdvisor decided to develop its own destination site, which has since grown into the biggest online travel community in the world, with more than 50 million monthly visitors.

He left TripAdvisor after it was sold, and in 2006 started CarGurus. "Initially, we said, `let's take the learnings from TripAdvisor around user reviews and community,'" Steinert says, with the goal of building a site where consumers would review and discuss cars and car-related services.

That didn't exactly take CarGurus from 0 to 60 at the speed of a McLaren. The community features, Steinert says, weren't "a complete failure, but we haven't exactly buried Edmunds.com."

So, Steinert says, "two years ago, we were thinking, `Wouldn't it be cool to develop a price comparison engine for used cars, kind of like Kayak does for airfare or Zillow does for real estate?' So we had a couple engineers who started skunk-working it." The project became "DealFinder," now the most prominent feature on CarGurus' home page. It collects and analyzes information about two million used vehicles every day, looking at things like option packages and mileage, and comparing the way similar vehicles are priced. (DealFinder looks not just at cars on the market today, but those listed over the past three months.) It then supplies an opinion about whether a used car's price is "great," "good," "fair," "poor," or blatantly "overpriced." (A 1986 Porsche 911 with 91,000 miles is overpriced at $29,995, but a 1991 Porsche 911 convertible with just 77,000 miles, not surprisingly, is a great deal at $23,995.)

While having their inventory branded as a bad deal can anger some used car dealers (notoriously an honorable and upright bunch), Steinert says that many are happy with the site. When they're selling a vehicle at a good price, CarGurus sends them a steady stream of prospects, Steinert says, and in return, it earns about $10 for every lead. CarGuru's analysis, he says, means that "the consumer is already pre-disposed to think that they are getting a good deal."

CarGurus also provides information about how many days a given vehicle has been on the market, which gives savvy buyers a little more negotiating leverage.

Steinert tells me that CarGurus was profitable for all of 2010, with 230 percent revenue growth (and 739 percent traffic growth) over the prior year.

The company, headquartered in Harvard Square, hasn't raised any venture capital financing. (Steinert says he raised "a small amount of capital" from his friends, family, and "the TripAdvisor mafia.") CarGurus has 17 employees. On its board are TripAdvisor CEO Stephen Kaufer and Simon Rothman, formerly general manager of eBay Motors.

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Scott Kirsner was part of the team that launched Boston.com in 1995, and has been writing a column for the Globe since 2000. His work has also appeared in Wired, Fast Company, The New York Times, BusinessWeek, Newsweek, and Variety. Scott is also the author of the books "Fans, Friends & Followers" and "Inventing the Movies," was the editor of "The Convergence Guide: Life Sciences in New England," and was a contributor to "The Good City: Writers Explore 21st Century Boston." Scott also helps organize several local events on entrepreneurship, including the Nantucket Conference and Future Forward. Here's some background on how Scott decides what to cover, and how to pitch him a story idea.

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