{"id":2205,"date":"2015-11-18T15:20:34","date_gmt":"2015-11-18T20:20:34","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-digit\/submission\/truecar-solving-the-lemons-issue-through-data\/"},"modified":"2015-11-18T15:20:34","modified_gmt":"2015-11-18T20:20:34","slug":"truecar-solving-the-lemons-issue-through-data","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-digit\/submission\/truecar-solving-the-lemons-issue-through-data\/","title":{"rendered":"TrueCar – solving the “lemons” issue through data??"},"content":{"rendered":"

The car dealer market has quite a bad reputation. The 1970 nobel prize winning paper<\/a>\u00a0from George Akerlof on the \u201cMarket for Lemons\u201d shows how \u201cmessed up\u201d this market is and how customers get frustrated even when they think about buying a car. The paper showed how information asymmetry can in the end lead to a lower quality of goods in the market overall.<\/p>\n

TrueCar is a company that tries to solve this market friction, by helping customer to get more transparency on the car pricing. TrueCar is basically and automotive pricing and information website that collects data on automotive sales on a daily basis and presents this data to customers in a transparent way. So, if you are at a car dealer and see the price tag for a car you would like to buy, you can quickly enter the car details in your smartphone and check the distribution of what other customers paid for the same car (in addition you get some more statistics, such as average, etc.). TrueCar is cooperating with car dealers to collect their data and supports them in the selling process as a sort of independent agent, validating their price. Currently, TrueCar is cooperating with approximately 10,000 certified dealers across the country. More the 2 million cars have been sould via the TrueCar process with the certified car dealers. Since its founding in 2005, TrueCar has raised of over $200 million in financing.<\/p>\n

TrueCar is offering the service for free to its customers. Value is captured instead by charging the car dealers a transaction fee<\/a>\u00a0for each car sold through the process. Currently the fee is approximately $300 per transaction. The other revenue source is data and consulting services. Here, TrueCar directly monetizes the vast amount of data and the insights in the car market. In 2013, TrueCar made total revenue of $118.7 million ouf which approximately 90% came from transaction fee and 10% from data and consulting services.<\/p>\n

Overall, data and the use of data is the core and foundation of TrueCar\u00b4s business model. From my perspective, the competitive advantage they have is not really the data analytics piece (TrueCar is using the software Hadoop<\/a>\u00a0for that), but much rather the actual access to the data. The data analytics is not really complicated, since all they do is putting the data in a database, where they have some car features (brand, Horsepower, other specifications), the price paid and the ZIP code (since there are some regional differences). Then, they take the data and make it accessible in a nice format on their webpage and an app. This could be copied probably in less than a week by a competitor. The access to this data however is the source of the competitive advantage and actually quite sustainable, since the car dealers seem to benefit from the system by getting much more trust from the customer by being \u201cvetted\u201d through TrueCar.<\/p>\n

Going forward, my concern is whether customers over the long-term really view the data as getting them a fair car value. In my opinion, the company is doing a great job in telling customers that they solve the friction in the car dealer market, but I actually do not really buy into that. The mere data, what others paid for a similar car does not really proof, whether the price is actually fair. Going back to the lemon theory, this would actually on the contrary reinforce the lemon issue. Since at some point, only lemons are offered in the market, the data shows the prices for \u201clemon\u201d cars. In comparing the car I want to buy with the \u201clemon\u201d car prices, TrueCar just reinforces the prices for \u201clemons\u201d in the market. For me, the only way to really identify \u201clemons\u201d in the market is to have a certified car experts actually estimating the value of a car and thereby getting the real \u201cTrue Value\u201d of a car. If a competitor or car dealers would offer this service (having every car analyzed by an independent expert), this would disrupt TrueCar\u00b4s business completely.<\/p>\n","protected":false},"excerpt":{"rendered":"

TrueCar is aiming to solve the “lemon” issue in the car dealer market, by providing customers with a huge amount of pricing data for all types of cars, thus helping them to not overpay for their car. 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