Online car coups bring Cobalt notice

by Dori Stubbs
Seattle Times business reporter

If he were lecturing an MBA class, John Holt, co-founder of Seattle's Cobalt Group, would advise entrepreneurs to start a business in an industry where there are few key players with a lot of money to spend.

That's what he did when he and Geof Barker, Cobalt's other co-founder, started their company, which provides Internet services to automakers and dealers.

With Cobalt's management tools, auto dealers can put advertising on their Web sites; update prices, photos and inventory to a searchable database of new and used cars; and track Web traffic, noting customer color, price and location choices. All in about five minutes with just a few clicks.

South Tacoma Jeep signed up to have Cobalt manage its Web site 18 months ago.

"We do a lot of business over the Internet, and Cobalt has developed for us a kind of color brochure that's updated and online 24 hours a day," said Ed Mulnik, vice president. Last month 1,400 visitors checked out the site, which set a record, he reported.

Because there are only 20 manufacturers producing 41 different brands sold by 22,000 new-car dealerships, Cobalt can know the industry movers and shakers on a first-name basis, Holt said.

"Yet it's a $1.3 trillion industry that spends $5.2 billion a year on marketing," he said. "It's an opportunity to help them reach digital buyers."

Considering Cobalt's stock rose three-fold last week, investors believe it's a hot idea. Internet business-to-business companies are performing well in the market, and Cobalt leads the group.

But when it went public in August, investors weren't as enthusiastic. Its initial stock offering was priced at $11 a share, well below the $13 to $15 target, and Cobalt was one of the few Internet companies that saw its stock slide during its 1999 $11 million debut.

The second day, the stock price dipped even further.

But last week the rocket finally launched. After an announcement that it would start, a Web site to link auto dealers with service and parts vendors, its stock soared Thursday, climbing from $10.50 to $34 before closing the day at $24.125.

After another announcement yesterday that it has teamed up with the National Automobile Dealers Association (NADA) to create an Internet consumer site, its stock rose 7.4 percent, ending the day at $22.563.

Analyst Richard Alexander of Wit Capital in New York wasn't surprised.

"As Cobalt is able to further scale its platform, the company continues to address specific needs not only of consumers, but also businesses as they relate to automobile parts and automobiles.," Alexander said.

Its relationships with its 12,000 dealers propel its e-commerce agenda, he added.

It's a stage that's growing bigger, according to Holt.

"We're talking to more dealers every day," Holt said. "They're coming to us. We"ve got the community trained to come here and have the data and tools to take care of them."

Five years ago, before the Internet explosion, Holt and Barker had to take their online ideas to car manufacturers and persuade them to catch the Web wave of the future.

Due to downsizing, the two were laid off from their Web management positions with a publishing company. Like true entrepreneurs, they considered themselves unemployable by anyone else, which left them staring at each other.

In a prior experiment in which they tried to sell CD-ROMS online, they found visitors downloaded sound bites but went to a brick-and-mortar business to buy.

It didn't take Holt, a Yale management school graduate, long to add two and two. Instead of trying to sell directly to the consumer, he and Barker set out to provide Web tools that link buyers and sellers. They formed their company in March 1995.

Living off their severance pay, the two spent a year testing concepts and finally focused on three areas: homes, yachts, and autos. They raised money through local "private angels" and operated for two years on $600,000 before raising venture funds in 1998.

They sold their home classified business, but kept the other two. While the yachting business is profitable, Holt said, the main focus of Cobalt is automotive.

They knew they could design programs that, with one keystroke, could form unique Web pages for a similar group of companies.

They knew the technology was available to create searchable databases.

They took their knowledge to Lexus in Torrence, Calif.

"We told them we had technology that if they brought people into, we could overnight create 180 Lexus dealer unique Web sites," Holt said. "We could pass people from to a dealer and have the whole thing seamless and continue the brand promise."

Lexus bit. In March 1996, Cobalt provided Web page templates for Lexus dealers and showed them how to customize their Web pages.

The benefit of having Cobalt was that it ensured Lexus standards and guidelines would be maintained on dealer Web sites, said Robin Pisz, spokesperson for Lexus.

"They've been innovative in providing new tools for the dealers, specifically some retail tools to promote pre-owned inventory and Internet specials," Pisz said.

Twelve other big-name contracts followed, including Toyota, Mitsubishi, Accura, Nissan, Infinity, Mercedes and Saab.

Cobalt would love to win Ford or General Motors as a client, and won't give up courting them, Holt said. American car manufacturers move slower in the technology arena, he said.

The company began serious talks with NADA the week before Thanksgiving, suggesting that with 19,500 member dealers, it take an active stand on e-commerce issues.

"As board members became more clued in on how critical the Net is becoming, they realized there was a leadership role for NADA to play," Holt said. "We persuaded them we're the guys."

Future big deals are in the works, he said.

Now that it's built up its network of dealers, there are many piggy-back relationships to form, he said. Financial companies want to reach dealers. Insurance companies want to reach dealers. Cobalt can manage these diverse relationships, Holt said.

Besides its Seattle headquarters, the company has corporate offices in Portland and Austin, Texas, and employs 400 people, with 285 in Seattle.

The company reported sales for the third quarter ended Sept. 30 of $7 million, with a loss of $5.5 million.

Copyright 2000 The Seattle Times Company