From the standpoint of “lessons learned,” one of the most interesting data companies out there is TrueCar.
Founded in 2005 as Zag.com, TrueCar provides consumers with data on what other consumers actually paid for specific vehicles in their local area. You can imagine the value to consumers if they could walk into dealerships with printouts of the lowest price recently paid for any given vehicle.
The original TrueCar business model is awe-inspiring. It convinced thousands of car dealers to give it detailed sales data, including the final price paid for every car they sold. TrueCar aggregated the data and gave it to consumers for free. In exchange, the dealers got sales leads, for which they paid a fee on every sale.
Did it work? Indeed it did. TrueCar was an industry disruptor well before the term had even been coined. As a matter of fact, TrueCar worked so well that dealers started an organized revolt in 2012 that cost TrueCar over one-third of its dealer customers.
The problem was with the TrueCar model. TrueCar collected sales data from dealers then essentially weaponized it, allowing consumers to purchase cars with little or no dealer profit. Moreover, after TrueCar allowed consumers to purchase cars on the cheap, it then charged dealers a fee for every sale! Eventually, dealers realized they were paying a third-party to destroy their margins, and decided not to play any more.
TrueCar was left with a stark choice: close up shop or find a new business model. TrueCar elected the latter, pivoting to a more dealer-friendly model that provided price data in ways that allowed dealers to better preserve their margins. It worked. TrueCar re-built its business, and successfully went public in 2014.
A happy ending? Not entirely. TrueCar, which had spent tens of millions to build its brand and site traffic by offering data on the cheapest prices for cars, quietly shifted to offering what it calls “fair prices” for cars without telling this to the consumers who visited its website. Lawsuits followed.
There are four important lessons here. First, you can succeed in disrupting an industry and still fail f you are dependent on that industry to support what you are doing. Second, when it comes to B2C data businesses, you really need to pick a side. Third, if you change your revenue model in a way that impacts any of your customers, best to be clear and up-front about it. In fact, if you feel compelled to be sneaky about it, that’s a clue your new business model is flawed. Fourth, and I’ve said it before, market disruption is a strategy, not a business requirement.