Pakwheels.com—A Period of Transition!

Abstract

Pakwheels.com was a vertical automotive portal, founded in 2003 and acquired by entrepreneurs Raza Saeed and Suneel Munj in 2008. Over the last 12 years of its operations, Pakwheels.com had helped millions of Pakistanis buy and sell cars and bikes, read reviews and news about automobiles, check prices, and find solutions to their automotive needs. PakWheels had managed to increase its market share despite facing competition from competing classifieds websites introduced by giants like OLX and other international internet firms like carmudi.com. This was possible due to the cult-like following of PakWheels’ very loyal user base. Going forward, Raza and Suneel would have to decide the best way to scale up their business by utilizing the investor money in an efficient manner. But before that might happen, they knew they needed to lay out a clear and compelling strategy which would create the most value for the business and its stakeholders by asking some tough questions.

Teaching Note

Synopsis

Pakwheels.com was a vertical automotive portal, founded in 2003 and acquired by entrepreneurs Raza Saeed and Suneel Munj in 2008. Over the last 12 years of its operations, Pakwheels.com had helped millions of Pakistanis buy and sell cars and bikes, read automotive reviews and news, check automotive prices, and find solutions to their automotive needs. Despite the introduction of competing classifieds websites by giants like OLX and other international internet firms like carmudi.com, PakWheels had managed to grow its market share. It happened largely because of its cult-like following of a very loyal user base.

In Dec 2014, PakWheels had closed one of the largest venture capital investment deals into a Pakistan technology startup. Frontier Digital Ventures, a Malaysia-based venture capital fund focused on online classifieds businesses in the emerging markets, had invested $3.5 million into their web portal. However, when they were ready to develop an aggressive growth strategy, their legal counsel informed them about the possibility of a discriminating cyber-crime prevention bill called PECA, which was in the approval process by the national assembly of Pakistan. Moreover, there was a speculation about OLX, mega media campaign to introduce its used car section. It was expected that their main competitor OLX would be launching a huge and expensive media campaign of about $0.5 million to introduce its used car section in the local market. Going forward, Raza and Suneel would have to decide the best way to scale up their business by utilizing the investor money in an efficient manner. But before that might happen, they knew they needed to lay out a clear and compelling strategy which would create the most value for the business and its stakeholders by asking some tough questions. What should PakWheels team do to retain community engagement culture if PECA 2015 gets implemented in the country? Should they match OLX media budgets and respond with their own ATL campaign? Or maybe just wait and strengthen their basic product and technology and see how the market changes in the future. PakWheels was aiming for exponential growth in the coming year, and the founders were looking beyond, to when the company’s revenues and valuation would allow them to raise a large amount of growth capital and reach critical mass.

As Raza Saeed stated, “Pakistan’s internet user base is expected to grow to 100 million users by 2019 and we want to be the go-to place for anything and everything to do with wheels for this online population. This round of funding will help us strengthen our leadership position, improve existing services and build new offerings. Think Wheels, Think PakWheels.”

Teaching Objectives

This case study can be taught in a “Channel Development” module of Marketing Strategy course designed for MBA and EMBA programs. It can also be taught in “Entrepreneurial Marketing” and “Disruptive Innovation” Courses. The following key objectives can be achieved through case discussion:

• To illustrate the development of an entrepreneurial start-up and how a small company disrupts the existing channel and create value for its customers and itself.

• To explore the different ways by which value can be created and appropriated in the digital setting.

• To investigate the challenges associated with managing multiple sets of customers and stakeholders across multiple channels.

• To illustrate how channel and promotional activities have merged in the digital setting.

• To highlight the issues involved in managing a business that is experiencing a changing competitive environment and how the management adapt to the changing environment.

Assignment Questions

• 1. How does Pakwheels.com create value for its customers? How is it different from existing/traditional car dealer models?

• 2. How do you assess the company’s business model? What are the strengths and weaknesses?

• 3. Which of the two options should the company choose in order to scale up, using the investor funding going forward?

Q1: How does Pakwheels.com create value for its customers? How is it different from existing/traditional car dealer models?

Before online car portals in Pakistan, buyers and sellers used to rely on used car dealers, classified Ads in the local newspapers and weekly used car markets to trade their cars. According to APMDA, in Jan 2015, there were 4000 car dealers in Pakistan who dealt in both new and used cars. These car dealers mostly worked on three business models:

• Broker Model: The seller contacts one of these car dealers and lists his/her car at the dealer’s showroom. The dealer then finds a buyer for the seller’s car and connects both the buyer and the seller and charge a commission on that sale.

• Investor Model: The dealer buys off the car from seller at a lower price than market and sells it at a profit to one of the buyers and makes money on the transaction.

• Importer Model: The dealer imports used cars from different countries and sell these cars on a profit to buyers and makes money on the transaction. This model is very similar to the investor model. The only difference here is that the dealer imports the car instead of buying it locally.

Conventional car trade options came with its own set of problems, it had an inefficient value chain with a surplus of information in the used car industry—it’s a large market with significant fragmentation multiple independent buyers and sellers who operate independently and with almost no transparency. Some of the most pertinent issues are explained below:

For buyers:

• Sunday car markets were inconvenient, time consuming and involved a lot of hassle in searching the right car.

• Paying an extra or premium above the price of the market price as dealer commission.

• Multiple negotiation and visits required to dealer showrooms for finding the right car.

• Newspapers classifieds did not contain enough information and required making multiple queries to shortlist cars and there was a high rate of disappointment when the physical inspection of the car was made.

• In general, trust issues existed as the car specifications were mostly claims by the dealer or seller, there was no authentic proof or original paperwork to justify their claims, e.g. about the accurate meter reading. Here, based on their experience students might include some other real life such as paint job, accident history and maintenance and mechanical status of the car.

For sellers:

• Inconvenient, time consuming and hassle involved in taking the car to each individual dealer at weekly markets.

• The seller had to leave the car with the dealer for extended periods of time to get a good offer for it.

• Through newspaper classifieds, sellers usually faced a lot of clutter and their Ads did not get enough attention or value for their money. (Each classified costs Rs. 500 per 20 words and additional Rs. 25 for every extra word, and the life of the ad was only 1 day.)

• When the car was sold through the dealer, they kept their commission which was usually 1% of the price of the car, so it reduced the profit margins, if any for the seller.

In case there was an urgent need to sell the car, the seller had to take a price cut and sell it to the dealer for less than the market price (Investor model). In order to solve the problems faced by consumers in the current used car industry, PakWheels provided substantial value through multiple technology based innovations.

PakWheels provided a unique point of contact/platform where higher efficiencies are created by reducing asymmetry of information between sellers and buyers, increasing speed of information exchange and instilling trust in the process by making it more transparent. It brought buyers and sellers together by providing content in the form of information, knowledge and experience related to automotive industry of Pakistan. PakWheels eliminated the need to access dealers, newspaper classifieds or weekly markets for selling or buying used cars. It provided direct online access to find a suitable match for both buyers and sellers with the hassle of an intermediary. Thus making the process much more efficient, convenient, hassle free and more price effective. As the Ad placement on the website is free and both sellers and buyers get a fair market price quoted which results in a better business deal for them. PakWheels attempted to remove the trust issues of individual consumers by introducing “CarSure” verification program, where PakWheels experts (Industry analysts/mechanical engineers/paint crew) bring considerable know-how and experience to the car selling/buying process by providing the following facilities to both buyers and sellers:

• Identifying and grading cars

• Price comparisons

• Paint check

• Engine performance

• Meter reading authenticity

• Registration and other paperwork authenticity

PakWheels had become synonymous with a gateway for automobile enthusiasts—a major focal point for users where they get to stay connected with news, innovation and views of other likeminded individuals and businesses. Their community engagement forums and tools had created an un-precedented value in the form of customer loyalty. It focused on numerous partnerships (for example: Shell, Mobilink etc.) on maintaining extensive content and promoting the site and its services to potential car buyers and sellers.

Because of its innovative business model, PakWheels was the fastest growing facilitator of automobile industry specific content for B2B and C2C commerce on the net and bringing buyers and sellers together. With services like latest news, online directories, personalized advertisements, targeted email newsletters of products and services and a facility to create an individual company website within the main portal makes it a major commerce facilitator for the car dealers nationwide. PakWheels presence in the local online market has brought efficiency to the industry. In addition Pakwheels.com encourages healthy competition, increases options for buyers and brings down undue costs. Here students might highlight the other advantages, especially with respect to dealers e.g. they don’t need to maintain physical inventories thus reducing their costs.

Q2: How do you assess the company’s business model ? What are the strengths and weaknesses?

As claimed in the case by PakWheels management, revenue is not the major priority for them yet, as they are still in their start up stage. PakWheels has not yet reached their maximum potential and they claim to be building the business for the longer run. Revenues to support the company are mostly derived through business partnerships and advertising while maintaining the free business model and user convenience of the site. PakWheels made almost no money off the C2C interactions that occurred on the classifieds of the website. Majority of their revenue was derived from portion of the website targeted at related businesses like the local car dealerships, corporate advertisement from clients like Total, Shell, Zic and General Tires etc. So, essentially, PakWheels never focused on profits but rather on value creation and delivery of the services and product to ensure C2C interaction being kept meaningful and engaging to keep them coming back for more. PakWheels is continuously improving its website, customer product experience and fine tuning various tools and options available to its customers.

The strategy is simple; PakWheels will have to continue to offer the best user experience on its website. PakWheels has to ensure maximum traffic placing ads on its site and also expand their geographic spread to all the large cities. And as the advent of 3G and 4G has just begun in Pakistan they must offer the right mobile experience also for its business growth.

Thus PakWheels introduced an innovative business model to monetize its offerings. The instructor can start putting up the ideas on the board related to different business models for online sites. And then he/she can introduce these labels (Which are not given in the case). Following are the salient features of its business model:

• Advertising model: (on-site advertising) they make money off paid advertisements. At the same time they are careful that ads are as desirable and unobtrusive as possible. They don’t cover the core content, play music automatically or otherwise disrupts their end user experience.

• Freemium model: (featured ads) A pricing model in which the initial service is free but upgrades, advanced features and/or virtual goods cost a small fee. In order to make this model successful PakWheels has to make sure that the premium offering is worth the money paid for it. Their featured ads offer the facility of taking the seller/buyer ad at the top of the search listings if purchased for a marginal fee.

• Lead Generation model: A model that collected user information and then markets that information to other companies that would be interested in selling or talking directly to them. In return PakWheels offers quality experience and consumer engagement through its community forums, video blogs and testimonials to lend credibility to their site. And because it’s an asymmetrical business model (it is not asking the main user base for money) it is easy to get a large user base fast.

• Community model: (Content marketing through blogs and offline advertising through auto shows) the viability of his model is based on user loyalty. Users have a high investment in both time and emotion. Revenue is based on the sale of additional products and services or voluntary contributions; or revenue is tied to contextual advertising and subscriptions for premium services. Internet is inherently suited to community business models and in recent times this is one of the more fertile areas of development, as seen in the rise of social networking. PakWheels provides individuals with the ability to connect to other individuals along a defined common interest: i.e. cars!

Some of the strengths and weaknesses of its current business model are explained below:

Strengths:

• 1. Since the business is in the infancy stage, “free for all” is a very attractive product offering in the local industry. It attracts maximum users and Ad placements. It also ensures that it highlights the user convenience in the process.

• 2. This model does not alienate its loyal PakWheels enthusiast community which has been with PakWheels since its inception and it is not willing to pay for advertising on the website.

• 3. This free C2C business model allows the PakWheels team and the users to focus on creating fun and meaningful engagement through the PakWheels community forums and off line events like auto shows, vintage car events and other spontaneous events. The inclination of logging in and spending time on Pakwheels.com is totally organic and intrinsic right now, not driven by any paid sponsorship or any other ulterior agenda.

• 4. The current business model is not only helping Pakwheels.com to engage customers and earn revenue it is also developing the online automotive industry in Pakistan.

Weaknesses:

• 1. The biggest negative with this model is that it is going to take considerable time to mature and start becoming profitable, and till then the PakWheels team has to secure outside investment if they want to grow the business and strengthen their basic product.

• 2. This model also depends a lot on size of its user base in order to attract relevant and large sponsors for Ads.

• 3. The current business model mainly depends heavily upon consumer engagement with Pakwheels.com especially through PakWheels forums. Therefore, if anything happens to the forums such as censorships from the government, the main stream of earning or pakwheels, which is heavily dependent upon, consumer traffic would be threatened.

The sustainability and scalability of the business in the long term depends on lead generation. For businesses, they would be providing different packages, tools and services to dealers, new car manufacturers, importer and anybody we are generating leads for. For this, PakWheels first need to get that critical mass where they are clearly a leader in the entire user space. While it is true that setting up an online business is not capital intensive, scaling requires significant amount of capital. For example heavy investment would be required for a more consumer responsive website and more tools to improve consumer search experience and capability.

Q3: Which of the two options should the company choose in order to scale up , using the investor funding going forward?

Option 1: Delay responding to the cybercrime bill but OLX entering into the used car market with their $0.5 million advertising campaign should be considered as serious threat to PakWheels future and thus should be reciprocated with an aggressive marketing campaign.

Proponents of option 1 might make the following points in the class discussion:

As the case suggests that there were speculations about the new law, some industry analysts said it might get delayed for a few years and even if it did get executed soon they did not foresee very strict implementation knowing the country’s current status of e-commerce related laws. So one option that the PakWheels management could consider was just to wait and see how early and how seriously this law might be implemented.

Also the argument is very valid that separating the PakWheels website in two separate sites might result up in losing their loyal founding members and customers. This would alienate their fan following and might end up confusing and disappointing them with the way new websites would be run.

Rationale behind responding to OLX is very clear, PakWheels needed to gain critical mass and soon. Their BTL/social media campaigns had only been effective to a certain point. Over time the returns/traffic would plateau and they will slowly start losing valuable traffic to OLX or any other new market entrant with deep pockets and the right products. And with OLX gaining popularity and aggressively marketing their brand, this competition could be detrimental for PakWheels future. To move onto the next level and strengthen the brand, PakWheels team plans to invest in advertising and traditional ATL methods as there is a significant portion of population that cannot be targeted with just online advertising since they don’t believe in online buying and selling.

With the investor funding, this would be the right time to make the heavy investment in setting up a marketing department, hiring creative and media agencies and making a competitive TVC to respond to OLX. Rough budget calculation by the PakWheels team had revealed a staggering figure of $1.5 million for creating and rolling out a responsive campaign against OLX in the major cities. Because while it is true that setting up an online business is not capital intensive, scaling up requires significant amount of capital.

Option 2: PakWheels should not attempt to respond to OLX as a threat and just focus on their own vertical product development and community engagement strength. And the cybercrime bill should be taken as a serious threat to the business and responded to in an intelligent way.

Proponent for option 2 might present the following points in the class discussion:

OLX is a horizontal portal with international standing, experience and deeper pockets than PakWheels. It doesn’t make sense to compete head to head with OLX because OLX is operating on a different business model and targeting a wide range of diversified consumers, whereas PakWheels has a very sharp focus on only automotive related news, activities, and consumers. This should be considered its strength and PakWheels should not get involved in a media race.

PakWheels stream of funding might not be uniform in nature and to sustain such heavy campaigns focusing on only communication would be a very risky maneuver. Creating TVC and buying media in Pakistan industry is an expensive task and with so many new initiatives by PakWheels in its infancy stage, would not be wise to shift all resources and attention towards an un-necessary media involvement.

Till date PakWheels team has not spent large marketing dollars, which portrays its entrepreneurial and tech savvy mindset. Their annual marketing budget for 2014 was a total of $0.7 million ($0.3 Digital marketing and $0.4 BTL) compared to OLX campaign which was ready to spend $0.5 on a 3 week long launch campaign only. More importantly, taking into account the fact that PakWheels team has no experience with creating and conducting ATL marketing campaigns in the past, an aggressive media plan might backfire.

Instead of marketing PakWheels should focus more on improvement from product teams by shifting focus from just traffic, to liquidity/traction, better categorization, better hyper localization and content quality.

People need richness of experience for specific categories where a large sum of money or trust is at stake. And that is why despite the horizontal classifieds platforms (such as OLX) investing huge amount of money on TV will pose absolutely minimum threat to vertical sites (such as PakWheels). The instructor can perform a simple exercise to make an emphasis that creating awareness of online websites might not result into actual transactions on those sites. The instructor can ask the students how many have heard of any online classifieds and then ask if they have ever sold or bought anything from that website. So this exercise will highlight the fact that TOM might not have a very strong connection with actual consumer transaction on online portal as compared to retail channels.

The new cybercrime should definitely be considered a threat and the PakWheels team should work towards avoiding it in a smart way. The fate of YouTube and some other technology based businesses that were closed down over night have not been forgotten by many in Pakistan.

As the case explains, for its mobile site access, PakWheels was maintaining two parallel channels with slightly separate logos, a marketplace for buying and selling exclusively and the other one catering to the chat forums and communities only (refer to Exhibit 3 in the case). The same could be done for the parent website. This would minimize the risk of losing out on their main business leg in case the cybercrime law did post threats to the website.