Innovation & Design

Maintaining Edmunds' Edge


How the privately held, rapidly growing company is rewriting the rules on auto "buff books"

It's 8:40 a.m., and the staff of Edmunds is already rowdy. Jeremy Anwyl, the company's chief executive officer, is calling new hires to the center of the room, a vast, loft-like space that forms the core of the company's Santa Monica (Calif.) headquarters. Each new employee, from every level and every department, is met with applause and raucous hoots from a crowd of several hundred, as well as by the digitally transmitted cheers from a satellite office in Detroit connected via video conference.

The welcoming ceremony is part of a weekly companywide meeting held at the rapidly growing automotive Web publisher. Managers also use this time to disseminate crucial and often detailed information about the state of the business. Topics include the performance of site-wide advertising campaigns, revenue and profitability margins, and traffic statistics. The straightforward, open tone of the meeting is emblematic of the group's success: As traditional media companies continue to struggle with the transition to digital, Edmunds is focused, nimble, and—with a cool corporate campus finished last year—firing on all cylinders.

Banking on the Web

Edmunds started in 1966 as a publisher of the printed booklets packed with automotive specifications intended to help car shoppers make buying decisions. But since 1995, when its Web site launched, it has become the go-to online resource for car buyers and enthusiasts.

That success led Edmunds to cut ties with print altogether last year, to focus exclusively on its stable of automotive Web sites. "It was difficult for us emotionally," says Avi Steinlauf, the company's president and chief operating officer, of the break with print. "But not financially." By then, the print publication was generating less than 1% of the company's revenue.

These days, Edmunds' online properties draw 13 million unique readers every month—or some 100 million a year. And with its layered ecosystem of automotive information, it generates revenue by selling advertising and sales leads to local car dealers. The privately held company won't break down its finances, but executives say the company is profitable and has had a compound annual growth rate in revenue of 43% over the last seven years. Its staff has ballooned to some 370 employees from just 20 in 1998. And, a profit-sharing program based on the company's margins for the year is on track to give every employee a 20% salary bonus this year, up from 9% last year.

Data-Driven Development and Advertising

The cornerstone of the company's business is the extensive, data-driven Edmunds.com, which helps shoppers compare and price new vehicles. Edmunds can command a premium for sales leads of brands or even specific vehicles that users research. Unregistered users of the site can browse the site if they input their zip codes first, allowing Edmunds to serve geographically specific advertising to local dealerships. "We've benefited a great deal from the shift to measured media," says Steinlauf of Edmunds' ability to provide detailed, contextual information to advertisers. Steinlauf says the company doesn't track more than visitors' zip codes.

The site's growth has taken advantages of a shift in car consumer shopping behavior. According to consulting firm Capgemini, 45% of car buyers now use informational auto sites such as edmunds.com (or its major competitors cars.com and Kelley Blue Book' kbb.com) before purchasing a vehicle, compared with the 25% who refer to traditional print media, the so-called buff books such as Car & Driver, Motor Trend, and Automobile, which have around a million readers every month. "Those publications are obviously still profitable," says Steinlauf of the difference between his and old media outfits, "but they have inherent conflicts about whether to publish online or save content for print. We don't."

A recent flood of automotive advertising dollars pouring into online outlets hasn't hurt the pace of growth. This year alone, marketing firm eMarketer predicts Internet advertising and marketing automotive spending will account for $2.5 billion, about 13% of the $21.4 billion total spent online. And JupiterResearch estimates Internet advertising will grow by 10% annually heading into 2010, with automotive firms making up the largest portion of that growth.

Realizing from edmunds.com traffic statistics that many users returned to the site even after they'd purchased a vehicle, the company launched Inside Line, a Web magazine aimed at car enthusiasts. Since it began in January, 2005, Inside Line's monthly readership has grown to 3.5 million, far exceeding the circulation of major automotive magazines. In other words, in two short years Edmunds has amassed a larger audience than traditional print magazines have managed in more than 50 years.

Quick-Witted Development

This ability to develop new properties nimbly and rapidly, capitalizing on trends gleaned from its existing sites, has led to a flurry of recent projects. In February, 2006, executives launched CarSpace, an auto-themed social networking site, based on the fevered activity on edmunds.com's forums. More recently, they launched several blogs to cover green technology and car industry news, written by veteran print auto journalists. Many of the projects have had exceedingly short incubation periods—a matter of weeks for the blogs.

This strategy of focusing intensively on one "vertical," or topic area, is gaining traction in media publishing circles. Earlier this month, Barry Diller announced he was breaking up his IAC/InterActiveCorp (IACI) (BusinessWeek.com, 11/6/07) into four distinct, "pure play" Web companies. The tactic contrasts with the up-and-down world of portals like Yahoo! (YHOO) and AOL (TWX), which have at times struggled to be all things to all readers. Edmunds is betting that its focus on quick, collaborative development will become a blueprint for innovation in online publishing.

Of course, the company isn't impervious to challenge. For one thing, although traditional print publications were slow off the mark, most are starting to invest more resources in their own Web sites. Those magazines have strong brands that could resonate with readers online and lure them away from Edmunds. And even as the Edmunds' coverage areas have expanded, well-trafficked automotive blogs such as Jalopnik.com and AutoBlog.com also have taken off.

But there's a real sense of can-do within the firm, which mixes Southern California casual with the highly creative, breakneck pace of a Web startup. Last year, Edmunds moved into a new 93,000-square-foot headquarters, designed by Studios Architecture (BusinessWeek.com, 10/15/07). Filled with open work areas, including the Great Room in which all employees gather weekly, the whole space is lined with vertically mounted whiteboards to accommodate the frequent "agile stand-up meetings" managers hold. These 15-minute gatherings allow groups of employees to puzzle out problems or review progress in a lively, hands-on way. "We have a whiteboard-intensive culture," says Steinlauf. "So we wanted to make the blank surface available for work in a dynamic way." That blank surface may just prove the key to rewriting the rules of innovative Web publishing.

For a look at Edmunds' new offices, check out the BusinessWeek.com slide show.


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