Category Archives: DMi

The Outsourcing Dilemma

When should an online publisher use a third party service? It’s a question that comes up a lot in our space. I’ve been on both sides of the fence so I’ll have a go.

When I co-started a web services company the business model was relatively simple – partner with large online media players and their sales force sells your service for a recurring monthly fee. As they grow, you grow with them, achieving economies of scale along the way and carving out a nice business.

“There was one notable exception from that list – carsales. We just couldn’t get business with carsales…”

Before too long, my company supplied web based services to the majority of the big players in the Australian market in all forms of classifieds – Pacific Access/Sensis (Cars), News Digital Media (Carsguide, Careerone, Homesite, Gofish), Ninemsn/Trader (Carpoint), Fairfax (Mycareer), Seek, REA – all of which gave access to thousands of SME’s.

There was one notable exception from that list – carsales. DMi just couldn’t get business with carsales in the 10 years I was there as carsales has always been different to all other publishers in the use of third party providers in that they didn’t use them; they have always had the technology (or built it) in-house be it to aggregate inventory, manage inventory, manage leads, inventory search engines, web sites, etc, all the usual third party offerings used by their competitors.
Pros and Cons
Before I share a Case Study where carsales made the decision to outsource to a third party service provider, I want to share my Pros and Cons.

The Pros for outsourcing to a third party service provider:

  1. These services are usually not a publishers core business so it makes sense to have your people concentrating on getting your core as best it can be.
  2. Time to market should be quicker

The Cons against outsourcing to a third party service provider:

  1. Recurring cost that increases as your services increase.
  2. Not being in control of the whole ecosystem around your core service.

Case Study
A few years ago a new feature to accompany listing vehicle inventory online took off in the US and made it’s way into Australia. carsales‘ competitors were starting to use this new feature so there was an opportunity for carsales to also add the feature to the website as well as provide it to dealers for their own websites. The question was to build or license a third party service.

“carsales sought to lock in a monthly fee for the service”

carsales had always been one to build but had reached a stage where there was so much happening in technology that it made sense to license a third party service to leave the tech teams to do more important developments and to get time to market efficiencies (the two Pros).

In order to offset the first argument against using third party service providers, carsales sought to lock in a monthly fee for the service to use it across the business. The downside to this is that if carsales fail to sell the service to its dealers, carsales loses as it still has to pay the monthly fee. The upside is that the more dealers carsales adds to the service, the cost of the third party service doesn’t just keep rising, it is capped. The challenge was to find a flat fee that suits carsales and the third party provider.
Once a third party service provider was found and terms were agreed to, carsales very quickly was able to start selling the new service, giving the website a new feature and forming a new revenue line. Using a third party service provider had worked.

“In the end this has ended up being a positive move for carsales”

The service was working well until the third party service provider informed carsales that the terms of the agreement would change after the initial term. This wasn’t acceptable to carsales so it did what it had to; put together a tech team to build the technology to seamlessly replace the third party service when the term was up.

In the end this has ended up being a positive move for carsales. The service and its features remained pretty much the same yet the cost of supplying the service was reduced by over 50% (which includes amortising the development effort over a number of years) and hence, the two Cons were adequately covered off.

My View
I think there is a time when it makes sense to outsource to a third party service provider and a time when not to. The two Pros stand up; as do the Cons. It all comes down to a business decision at the time that fits the business in the best way.

The most important thing though is to not be afraid of changing that decision. It’s ok to change your mind to get the right outcome.

2 Reasons For Completing A Degree

I’ve always been a believer in “attitude and aptitude” when employing but I also recognize that those two attributes can’t be measured when culling from opening letters and resumes. Sometimes having a degree and even a post graduate degree can be the difference.

It was with this that I undertook a Masters post graduate degree as a mature age student at Monash University whilst being CEO of Digital Motorworks during a growth period.

Yes it was hard work.

No it hasn’t made a material difference to what I’m doing (that I’m aware of).

Yes it was worthwhile.

There were two main reasons I completed a Masters degree as a mature age student:

1. Insurance. What if I was in a competitive process for a job that I wanted/needed and I didn’t get past the resume cull because I had no tertiary qualifications? We all get told that loading up on super, life insurance, income protection and an up to date will is a prudent personal financial strategy. I believe you should add education to that list to help with “job insurance” if you are a white collar worker.

2. You don’t know what you don’t know. What if you actually learn something that could help you? I am tipping there is some value or there are a lot of very silly people in high paying professions. It was certainly good for me to get an academic spin on the practical stuff I had learnt and was putting into practice.
Now before you point out all the successful people who don’t have degrees remember the first point above – insurance. Very very few of us are college drop outs and go on to found a Microsoft, Facebook, Oracle or Dell and become billionaires (yes they were all drop outs).

Those guys don’t need life insurance or income protection either.

Great Lesson For A Startup – Realising The Real Value & Finding Your Core

Sometimes a company’s real value is not what their core offering is. Here is the story of such company that I was involved with and was fortunate to find their niche.

In the mid 90’s there was a bit of a fad in the US automotive industry around touch screen kiosks to showcase new models and to show new and used cars they have for sale. This was particularly good for dealers with multiple sites and to place these kiosks at shopping Centres, etc. The downside with this was that they were cumbersome to update meaning as soon as they were updated they were out of date.

“it’s all about the data”

Two guys out of Austin, Texas built on the concept and made their kiosk offering Internet connected, dialing into the car dealer’s computer system to retrieve the inventory details so that no matter where the kiosks were located they were automatically updated daily. On top of this, it simultaneously gave the car dealer a seamless and integrated Internet strategy for their web site. This was cutting edge stuff in 1995 and Digital Motorworks Inc (DMI) was born.
Their business model revolved around selling the Internet kiosk package to dealers, particularly targeting the big dealer groups who would pay monthly fees on a per kiosk and/or website basis. Not a bad model in theory especially considering there were over 20,000 car dealers in the US. By 1997 they were finding it difficult to get cut through at a dealer level “knocking on doors” and this was slowing growth (and affecting cash flow). They were doing it tough after such a promising start.

…the kiosk software was not their most valuable asset; it was in fact the software process and infrastructure they had created to automatically extract…

Through 1998 I was busy implementing the same business model for Reynolds in Australia and caught up with the DMI guys at the National Automobiles Dealers Association (NADA) conference early on in 1999. The change in their attitude from the last time I had met them was immediately noticeable and I quickly learnt why – “it’s all about the data”.

What they had discovered over the previous 18 months was that the kiosk software was not their most valuable asset; it was in fact the software process and infrastructure they had created to automatically extract the vehicle information from the dealer’s computer systems. So much so that they were no longer a touch screen kiosk provider and were now a data aggregation company! And it totally transformed the business.
They signed a deal with to provide them with the vehicle data from all of their thousands of dealers on a nightly basis. They went from having to knock on dealer’s doors to make a ~$500 per month kiosk sale to having dealer orders emailed to them at recurring ~$100 per month – an immediate 5,000 dealers at $100 per month is a lot of touch screen kiosk sales in one hit!

Fast forward 20 years and DMI today extracts, normalises and aggregates vehicle, sales, customer, parts & service data from over 25,000 dealerships across North America for a range of different clients as a fully owned subsidiary of CDK Global (formally ADP Dealer Services).

Without realising their real value and making it their core offering, they certainly wouldn’t be around today selling touch screen kiosks.

An Exit Strategy Isn’t Bad For A Start-Up


Mark Cuban’s “12 Rules for Startups” has number 1 as “Don’t start a company unless it’s an obsession” and number 2 as “If you have an exit strategy, it’s not an obsession“.

I get his point but I think it is directly related to “cashing in” as opposed to protecting your interests, especially when you have partners involved.

I believe that when you start a company it invariably means at some point there will be an end; if it’s not the end of the company it may be the end of your involvement with the company which can take on a number of different possibilities and all necessitate an exit strategy to be considered from the start.

“We were building a technology company and had a choice to build (and own) the IP/technology ourselves with 100% of the business or license the technology…..”

In 1999 I was involved in my first start-up and quickly learnt about the importance of thinking ahead to all possibilities around an exit strategy. It was with a colleague from Reynolds at this time when we went to work on a plan to fill a niche not being filled in the market.

Being from a technical background I was all set to develop the required technology to get us going when a call out of the blue changed our direction and with time to market being defined as an important factor for us, we pivoted and went into partnership with a US company licensing their technology.

Herein started the lesson I learnt. We were building a technology company and had a choice to build (and own) the IP/technology ourselves with 100% of the business or license the technology along with giving up half the company. With a very large, multi million dollar deal at our fingertips, we chose the option that assured us the immediate contract by cutting our time to market and providing a comfort blanket to our prospective client.

“Fast forward two years and the business was traveling very well, growing, very profitable and serving some of Australia’s biggest media players…..”

Fast forward two years and the business was traveling very well, growing, very profitable and serving some of Australia’s biggest media players. We started to become an attractive acquisition target for a few companies in the midst of the dot-com boom but had one missing ingredient – our own IP driving the core of the business and this severely limited our options to be acquired. We did end up getting acquired at this time – by the US company who owned the IP and half of the company already.

What did we learn? You must always think of the exit strategy from the start. This includes IP, technology and a shareholders agreement. In this case it was the technology that drove the company. We had quickly built a business that was profitable and growing but was unattractive to an acquirer which limited our exit strategies. In retrospect we should have had the exit strategy defined in our agreements with the US company which would have removed all the angst about thinking we were getting done over; whether we were or weren’t was another matter.

Would we have made the same decision again? Most probably. Given the choice of time to market now with a near guaranteed contract immediately versus 6 months development before trying to secure business whilst having a second mortgage on my house and second child on the way with no money coming through the door……..