Self-Described ‘Serial Entrepreneur’ Pitches New Idea

Despite a behind-the-scenes presence, Zag wants to usher in an entirely new online car-selling business process for dealers and the auto industry.

Steve Finlay, Senior Editor

August 8, 2007

4 Min Read
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Scott Painter calls himself a “serial entrepreneur.”

It means he comes up with ideas and then comes up with the money to put notions into action. It can be a risky business.

“An entrepreneur has to be willing to risk everything and lose everything every time and bet on themselves every time,” he says. “If I have one dollar I am going to put it on one of my ideas.”

He’s got a lot of those, particularly on how to use the Internet to buy and sell vehicles.

“My love affair with cars keeps me coming back to automotive,” he says.

His first job as a teenager in Sacramento, CA, was running a car-detailing service out of his parents’ garage.

Now 37 years old, he is CEO of Zag Inc., an Internet firm that facilitates the connecting of car buyers to participating dealers, currently more than 1,000 in 21 states.

A lot of companies do that by selling Internet leads to dealers – and Painter was the CEO and founder of one of the earliest and most successful of those firms,

But Zag, founded in 2005 and bankrolled by $32 million in venture capital, is different from others for a couple of reasons.

Scott Painter

Instead of being directly involved in the action, Zag provides online car-buying technology and services to “affinity groups” or partners with big customer bases. Those companies then offer their own “private label” car-buying websites.

Zag’s main partners are USAA, a 5.6 million-member organization that provides insurance and financial services to military personnel and their families; Capital One, the nation’s largest credit-card issuer and largest direct lender; and 12 AAA auto clubs serving 6 million members.

Prominently displayed on those organizations’ car-buying websites are links to pages on new cars, used cars, financing, research, trade-in values and the like.

Less prominently displayed, in the lower right corner, is a small mention that the whole thing is powered by Zag.

Despite the behind-the-scenes presence, Painter wants Zag to usher in an entirely new business process for dealers and the auto industry.

It is a model that moves from charging dealers for leads – whether or not they result in the sale of a vehicle – to charging dealers only if there is a sale.

“We’ve shifted to cost per sale,” Painter says. “We charge the dealer $300 when the car is sold. We don’t charge for the lead itself.”

Some third-party lead generators will sell the same lead to different dealers, a practice that Painter calls “dangerous.”

Others sell one lead per dealer, but that often results in relatively few deal closings. It can lead to lots of finger pointing, with dealers blaming lead providers for forwarding lousy leads, and the providers blaming dealers for failing to convert good prospects into buyers.

“When I was at CarsDirect, we had a high volume of customers but a low conversion rate, with only one or two leads per 100 turning into a sale,” Painter says. That may seem dismal, but “the infinite scalability of the web allows that.”

He reports Zag seeing a 30% to 50% conversion rate for its leads.

Zag requires two things from its participating dealers. One is access to their dealer-management system or something similar that will confirm when leads become sales.

The second requirement is that dealers price vehicles up front.

“A shopper will see the upfront price but not yet know the dealer,” Painter says. “Then they go to the ‘certificate’ page, where they are introduced to the dealer and get a map to the dealership, contact information and a photo of the car.

“Then the information is sent back to the dealer and both the dealer and customer get called. Then the customer goes to the dealer with the certificate in hand.”

Painter has sought to create a process that is both customer friendly and dealer friendly. Some third-party Internet car-selling processes can make dealers leery, vexed, or both, he says.

“I founded Zag based on a recognition that consumers have really embraced the Internet, with more than 85% of new-car shoppers starting their process on the web,” Painter says.

“More importantly, dealers also have embraced the Internet, recognizing that it’s already the No.1 way to acquire new customers. This trend will only grow as the technology improves.”

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