Whether or not the dot-com crash was well underway before that day in April 2000 when the Dow Jones and NASDAQ logged their largest single-day losses, the result was a new reality for many start-ups.
After the burst of the Internet bubble, the conventional wisdom was that things would never be the same. Analysts and investors became cynical about all dot-coms, and traditional companies were leery of e-commerce providers.
This would have been enough to dissuade most entrepreneurs from starting a new economy business, but less than eight months after the April crash, a local start-up decided to merge two industries — e-commerce and automotive — deeply affected by the economic downturn.
“Although OEConnection was in some ways like a dot-com, we began much more conservatively than a lot of those start-ups did, in that we planned to do very specific things with the Internet vs. trying to radically change the world via the Web,” says Mike Reilly, director of products and marketing for OEConnection, a Richfield-based e-commerce automotive parts supplier. “Our mission was to be an online venture with parts cataloging, and to develop new technologies and products for CD-ROM and the Internet.”
The big difference between OEConnection and some previous new economy companies was its financial partners — DaimlerChrysler, Ford Motor Co., General Motors and ProQuest Co. With backers like that, it wasn’t difficult to shift into gear, says Reilly.
Known as the Big Three, Chrysler, Ford and GM have been involved with the company since the beginning. That made finding other clients much easier.
“In talking to prospective customers, I liked to say, ‘You might have heard of some of our partners,'” Reilly says. “That certainly brought a lot of credibility to what we do.”
OEConnection played off the synergy with those partners. For example, as a technology partner, ProQuest, formerly Bell & Howell, provided electronic publishing services to support the supplier software.
To bolster the business, housed in ProQuest’s Richfield facility, all the founding partners equally help guide OEConnection’s strategy and operations through a board of directors.
Its automaker partners agreed to provide liaisons and help the start-up coordinate sales and marketing with the network of automotive dealerships and field operation groups.
In exchange, each of the automotive partners has a 25 percent interest in the company, which is run by a team of six executives that includes Chuck Rotuno as president and CEO.
Another glaring difference between OEConnection and other online start-ups is the experience of its main players.
“These are professionals who left ‘real jobs’ to come do this, so we’re not a team who got a great idea one day to do some neat whiz-bang thing in a garage,” says Rotuno. “It’s a team that can run this business for today and beyond, and that’s vital as we go forward.”
Under the hood
OEConnection has been so successful due in part to the supply and demand of the automotive parts market. Auto dealers are the only authorized distributors of original equipment (OE) parts, and each year, body and collision shops purchase approximately $8 billion worth of those wholesale parts from dealerships.
In the beginning, OEConnection focused setting up operations and developing its first product to take to market. It used extensive customer surveys, focus groups and field-testing to develop technology to meet specific needs and work within the existing environments of the target market.
OEConnection has succeeded in capturing a healthy portion of that market, and Reilly says the growth has been exhilarating.
“The first year, our growth was slow and steady,” he says, “but after that, it really took off, almost like a rocket ship.”
Dealers also buy between $8 billion to $10 billion worth of original equipment parts from other dealerships, to meet repair needs and serve other wholesale customers.
“With that in mind, we have designed products to address two of the larger purchasing segments from the dealership standpoint,” says Rotuno.
The first OEConnection product, CollisionLink, was released in May 2001. The software is designed to be used by collision shops to facilitate ordering parts online.
To date, about 1,300 CollisionLink users (380 dealers and 920 collision shops) have signed on. While there is no charge to collision shops to use the service, dealers pay a $495 activation fee and a $299 monthly fee.
“In terms of CollisionLink, there really isn’t anyone out there trying to do exactly what we’re doing, in that we’re purely focused on streamlining the OE parts-ordering process for both our customers,” Rotuno says. “That focus, and the backing of our partners, is clearly our differentiator.”
In February of this year, OEConnection released its second product, D2DLink, an online parts-sourcing management tool. The technology lets dealerships rapidly locate parts at other dealerships,and more effectively manage the dealer-to-dealer sales transaction.
After Ford introduced D2DLink to its dealers across the country, OEConnection went from 500 to 4,500 customers in just 60 days. According to Rotuno, the primary advantage of the software is a daily updated inventory database that dealers use to find and order parts online from other dealers nationwide.
GM followed suit, rolling out D2DLink to its dealer population.
“We expect that, by the end of this year, that will bring about 4,000 GM dealers on board, in addition to Ford’s dealers,” Reilly says.
Other automakers are also participating — among them, Dodge, Jeep, Lincoln, Mercury, Pontiac, Cadillac, Buick, Chevrolet, Oldsmobile, Hyundai, Infinite, Lexus, Mazda, Nissan, Saturn, Toyota and Volvo.
That, says Rotuno, will put OEConnection in the black by year’s end. Not bad for an Internet firm competing in “the new, new economy.”
Hotwired for success
Unlike others who failed in the dot-com industry, Rotuno realized the new economy wasn’t just about new technology — it was about everything that supported the technology.
“A couple of years ago, e-commerce was all the buzz, and there were so many products and supposed solutions being thrown at the dealership community,” Rotuno says. “We came in just about the right time and said, ‘Here’s a solution that’s totally focused on you and your supply chain,’ and they liked it.”
The challenge is to fight against the perception that everything Internet is all smoke and mirrors.
“Whereas two years ago it might have been easier, we’re working against a negative market perception about e-commerce,” Rotuno says.
Because of that perception, the challenge is to persuade shop owners and dealers to use the Internet for important transactions, and Rotuno admits that it is taking more time and effort than expected.
“Many have been unsure of how the Internet can really assist them in doing their business,” says Michael Farnum, GM’s liaison manager. “It represents a tremendous behavioral change for many of my customers who are dealers.”
In response, OEConnection embarked on some innovative marketing campaigns. One involved a dollar-for-dollar gift certificate, redeemable at one of five top national retailers. And in a promotion this year, it gave away three pickup trucks, donated by Chrysler, Ford and GM, to customers.
Rotuno won’t reveal revenue, but says the company’s goal is $100 million a year by 2005. If the increasing payroll roster is any indication, that is within reach. In 2000, there were two employees; today, 70 fill the 15,000-square-foot office space in Richfield.
“Since we’ve gone from 50 to 75 associates in the last 12 months, I expect we’ll grow from 75 to maybe 100 next year,” Rotuno says.
But even if that happens, it won’t necessitate relocating to a larger space — yet.
“We outsource the hosting of our site to a third party, which eliminates some of the space needs required for hardware,” he says, “so we’re fairly comfortable where we are right now.
“We’ve been very focused on being a successful start-up that doesn’t end up in the trash can like so many before us. What we must do now is continue finding products that are easily understood and implemented, so that when users experience the product, they know instantaneously that it’s a better mousetrap.” How to reach: OEConnection (888) 776-5792 or www.oeconnection.com
