On CarWoo
CarWoo just launched today. It is a service that asks car dealerships for quotes on a specific car model for you (at a fee, of course). When you get the prices you will be able to play the dealers off each other or simply close a deal within the website while remaining anonymous. Basically you don’t step into the dealership until you are really buying. If my version of the business model is too simplified for you, Josh Kirschner of Techlicious wrote a great piece on it.
As soon as I got the gist if what they are doing, I realized that CarWoo is going to be huge in a couple of years, to which my friend Miles replied:
Only if a critical mass of car dealerships opt in. What’s in it for them?
…which is a valid question. Instead of actually answering the question direction, I will list what I think makes CarWoo a unique business:
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It lowers the transaction cost in the car buying process. “But wait,” you say, “It costs $20 to $50 per transaction! Doesn’t it actually increase the transaction cost?” No, because I count the stress and time during the car buying process as transaction costs, too. When you drive that Honda off the lot, you not only paid $30k for that car, but you have spent something like 4-5 hours negotiating with the sales people, another 2-3 hours of researching on top of that, countless spam in your mailbox, and a lot of mental stress from all that jazz. Now, we spend money everyday in exchange for convenience and time. If you monetize the stress and time you spend buying a car (not even considering the money CarWoo saves you), you would find that CarWoo offers a great deal at $50.
- It has an excellent user interface and experience. The website is very intuitive and easy to use. In the IT jungle, if your website takes even a little bit of brain to use, you’re out. I’m not saying that people browsing the net are dumb (I’m not), but users in general prefer looking at something aesthetically pleasing and navigate without having to look for stuff. As a side note, the good user interface also helps lower the transaction cost because it saves the user time and stress during the process. Therefore, when the service is nice to the users, people are more inclined to use it.
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It does not need to secure dealer participation. This is my answer to you, Miles. CarWoo’s business model does not require them to establish partnerships with all those dealerships out there. It does not negotiate a lower price for the customer. It does not charge the dealerships a referral fee for featuring them (although this can be a future revenue-generating scheme). What it does is it requests quotes from all the dealerships for the customer. To the dealer, he is only replying to another potential buyer. And the buyer using CarWoo would get say 5 prices from the dealers and he is in a position to play the dealers off each other or take the deal that offer him the best price (all these can be done within CarWoo). Again, for dealer, it’s business as usual; but for the buyer, the process becomes much less daunting, incentivizing new car purchases which ultimately benefits the dealer.
I hope what I just wrote makes some sense. My vision for developing such a business is after the break.
- Incorporate social networking. Letting users show off which kind of car they bought, at what price, and how much they saved off the MSRP will have a profound impact on marketing. When people buy new cars, they like showing them off. And the fact that they used an online service to save thousands of dollars make them look smart to their Facebook friends, too. The flip side of this is CarWoo can reach a larger audience by having users as advertisers.
- “Featured Dealership” function. (They might be doing this already) This should be function where CarWoo negotiate a deal with one or two dealerships to offer cars at a low price, but charge them a referral fee whenever a sales is made. On the other hand, the cost per deal for the customer may be lowered since CarWoo would be taking money from both sides, creating incentives for the customer to use the referral feature. An auction model (like Google’s) shall be used to determine which dealership is featured.
- Other value-added services. How often do you buy a new car? Exactly. In order to make sure that CarWoo does not become a one-time shop, it must figure out other ways to generate profits from customers who have bought a car (either with or without CarWoo).
So far I see only two pitfalls that CarWoo might face: First, how easy is it to copy CarWoo’s model? If I am Yahoo Auto, I think it might be fairly easy for me to start doing exactly what CarWoo is doing, at a lower price. I might be wrong on this, though. Second, CarWoo does not seem to have very aggressive marketing scheme designed to reach a large user base. For companies like this, no user means no cash, and no cash means death, no matter how sound or novel your business model is. Today is its first day, though. Maybe my friends at DraftFCB can help them.
JP Morgan and Bank of American recently announced that they will be scrutinizing foreclosures more seriously and halted foreclosures in 24 states. This is why.
An Unfortunate Example of Unintended Consequence
Foxconn used to offer a “suicide compensation” which pays out ten years worth of salary to the families of workers who commit suicide. The intention is good: in China, most households have only one child due to government policy. The meager government welfare program induces parents to a) save a lot (which should explain the high savings rate in China) and b) rely on their children (especially sons) to provide once they become old. Foxconn’s suicide compensation served as a kind of social insurance for these parents in the event that their children kill themselves.
But it turns out that this suicide compensation offered an incentive for workers to commit suicide. This is especially true if your working condition is so horrible that you think it’s better to just kill yourself rather than having to work there for 10 more years. Here is a death note from one of the fallen Foxconn employees:
…now I’m going to jump off Foxconn, really leaving now, but you don’t have to be sad, because Foxconn will pay a bit of money, this is all your son can repay you now.
Foxconn’s CEO Terry Gou has thus canceled such measure to prevent further suicides. Along with the pay increase, hopefully things will get better in Shenzhen.
However, in related news, Foxconn is relocating some of its plants to Vietnam and Taiwan. This is happening way faster than I thought. Unemployment rate in China might take a hit next quarter. I suspect CCP will probably do something about it, since an increasing number of unemployed, angry 20-something-year-olds spell nothing but trouble for the authoritative regime.
Why people study economics. (Click on the picture to enlarge)
P.S.: I just realized that you can’t spell “economics” without “comics.”
Wage hike in China...
…leads to price increase in goods in America. Here is the gist of what’s happening:
Coastal factories are increasing hourly payments to workers. Local governments are raising minimum wage standards. And if China allows its currency, the renminbi, to appreciate against the United States dollar later this year, as many economists are predicting, the relative cost of manufacturing in China will almost certainly rise.
It probably does not signal a critical transition of the Chinese economy per se; however, it is reasonable to say that with this wage increase there will be a shift from export to domestic consumption in the focus of the economy. The interesting thing is what will happened to a) the low-skilled labor force and b) the exporting firms (manufacturers especially).
I doubt unemployment will rise sharply in the short run. This wage hike seems largely like a reaction to relatively constant wage while inflation erodes the workers’ purchasing power. Therefore, I would speculate that with the higher wages now workers would be relatively more efficient i.e. the wage level is actually closer to the optimal level rather than farther away from it. At the same time, it takes time for the importing firms in other countries to relocate their plants that fast. Nikes and Dells would have to continue to order from China in the short run despite this increase in price. In the long run, however, I think the unemployment rate for low-skilled, uneducated Chinese people will go up and this will force a transition across economy as well as education reforms.
Subprime Mortgage Crisis in 11 minutes.
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