Behind dealership DMS systems, there is a big fight taking place worth hundreds of millions of dollars that few dealers know about, despite its potential to take huge profits from the bottom line.
The fight is over dealership DMS data, but it’s not about who owns the information, or even who can access it on the dealer’s behalf; the industry has already hashed those topics out. The elephant in the room is how much money third parties must pay to access the DMS data on behalf of a dealership, and how those charges are hidden as they are passed on down to the dealers. It’s as if there is a massive “data tax” being paid by most dealerships that few know they are paying, let alone how much they are paying. Because it’s an unknown, it is currently near impossible to manage, and such a tax has large effects on dealership profits and technology innovation.
This data tax is created due to the agreements between the DMS providers and the other third-party technologies that must connect to the DMS, such as CRM systems. The possibility that such a tax can exists is thanks to the language contained in the dealerships’ agreements with their DMS providers, and it’s important to note that each DMS provider practices different policy when it comes to controlling access to their dealers’ data—and the variance is wide. Some DMS providers are very dealer-friendly in their data-sharing practices while others are playing a heavy hand that threatens to levy a big toll on our industry.
How Dealership DMS Data Sharing Works
Dealership DMS agreements spell out which party owns the data and there is generally little dispute: the data belongs to the dealer. This makes sense; after all, it’s the dealership’s customers, inventory, and transactional data that the dealership is putting into the DMS system for organization.
However, while the DMS agreements make clear who owns the data, some agreements leave the door wide open for the DMS provider to charge an open-ended amount to any third party that wants to access the information on behalf of the dealer.
When a third-party software provider, like a CRM system, determines their pricing model, they have to factor in how much they will need to pay to access their dealers’ data from the DMS system provider. The more they have to spend to access the DMS data, the higher their license fees will be to the dealers.
To access the DMS systems, the third-party companies have two main options: they can work with an Integration Partner, or go directly to the DMS provider.
DMS Connection Through Integration Partners
Integration companies are like middlemen for dealership DMS data. These companies are in the business of writing programs that pull data from the DMS systems and pass it to the third-party systems; sometimes this is referred to as DMS polling. Historically, they have been by far the cheapest option for CRM companies and others to use to get the information they need from the DMS. There are many companies who fill the Integration Partner role such as Authenticom, Superior Integrated Solutions, Inc. (SIS), Ryan Tech (who recently sold its DMS polling business to Authenticom), Digital Motor Works, Inc. (or DMI), and others.
Our sources tell us that companies, such as CRM providers, generally pay a small fee to partner with these Integration Companies. Then, as each dealer is connected, there is an upfront setup fee of a couple hundred dollars and an ongoing monthly fee that ranges from approximately $10 - $100 per connection. The monthly fee will range based how often the data needs to be shared and exactly what data is passed along between the DMS and the third party.
It’s important to note that most dealerships have many tools that connect to their DMS. When you think of all the tools that dealerships use today such as CRM, Inventory Pricing, Reputation Management, Websites, Equity Mining, Desking etc., it’s easy to see that the number of connections each dealership has widely varies, but could feasibly be three to 10 connections or more, depending on how many various tools the dealership has purchased. Each of these independent connections would usually be assessed another fee. If the Integration Partner connection fee averaged $75 per month, the cost to access the dealership’s data with 3-10 connections is relatively modest, to the tune of $225 - $750 per month.
DMS Connection Directly To The DMS Provider
The second option for a third party to connect to a DMS is to go directly through the DMS provider.
According to sources at various third-party companies, the DMS providers have a wide variety of data sharing policies; some are very low cost while others have extremely large fees. DrivingSales obtained court documents from a lawsuit between Reynolds and SISi. In those documents, SIS alleges that Reynolds charges vendors up to $50,000 upfront, plus an additional setup fee of $500 per store and another $300 - $500 in monthly fees per connection. If these allegations are true, Reynolds integration is dramatically more expensive than those through an Integration Partner.
If a dealership has three connections into their DMS data through an Integrated Partner, the estimated typical data costs would be $225 per month, but would cost $900-$1,500 through Reynolds. If the dealership had ten connections, the data-sharing fees would be about $750 with the Integration Partner but could range from as much as $3,000-$5,000 per month with Reynolds using the figures illustrated in the suit mentioned above. Because, as we are told, Reynolds requires confidentiality agreements with every vendor it has a connection agreement with, these fees would all be hidden from the dealer. The fees would typically be passed down to the store inside the cost of doing business with the third-party vendor.
In the defense of Reynolds, and any other DMS providers who may be more expensive than the Integration Partners, sources tell us Integration Partners don’t have full access to the DMS codebase so their connections sometimes have limited performance and reliability. Also, the DMS providers would suggest there are security risks in using a third party that are eliminated by going directly through the DMS provider.
Pressure On The Data Agreements Is Mounting
Sources have also indicated that in many cases, Reynolds will no longer work with third-party Integration Companies, potentially causing more third-party vendors to come directly to them and pay the higher integration costs. Also, we hear that Reynolds is negotiating to substantially raise their integration prices further as their agreements with vendors come up for renewal and that this is appearing to mount pressure on the market. Unless the DMS provider is adding substantial value so that the dealer would be willing to pay a higher price for the third-party services, it’s easy to imagine what big increases in data costs will do to innovation in the industry.
For example, imagine a vendor who charges $400 per month for a reputation management product who is now forced to integrate directly with Reynolds to get the client dealership DMS data. If the vendor has to pay $500 to access the data from Reynolds, but is in long-term agreements with their dealers, it’s possible the business would be unsustainable. The vendor would either have to sustain losses until they can raise prices, or exit the business of serving Reynolds customers. Either option is bad for a dealer; the dealer would be paying more for a product with no additional value, or they would lose a trusted partner and there is less competition in the industry, reducing innovation.
Data Sharing’s Impact On The Industry
If data integration prices continue to rise, and additional value added does increase along with the price to access the information, the industry could suffer over the long run. As the data integration prices rise, the industry as a whole has three options, and they are all bad for dealers.
As data access costs rise, third-party vendors who pay to access the DMS will either absorb the costs, which is unlikely and in some cases potentially impossible, or they will pass them along to the dealer in the form of higher retail prices. This leaves the dealer to cover the higher costs by pulling profits from their bottom line.
In the second option, the third-party vendors would cut overhead costs to absorb the increased data fees by reducing R&D, or cutting support, as examples. These cost-cutting measures would ultimately reduce the quality of the products and diminish the support that the dealers receive.
Option three would be for the vendors to realize their businesses are no longer sustainable with the higher data costs so they exit the market. This would reduce competition and thus reduce innovation potentially creating inferior products going forward and dealers would end up with fewer products and services to choose from.
Dealers need to know about the process and costs their partners go through to access their data on their behalf. By thinking that because the language in their DMS contract spells out that they own the data is enough, leaves the industry venerable to higher data costs and can have an adverse impact on innovation.
The costs to access a dealer’s data can have a huge impact on the retail automotive industry. Shedding light on the current dealer data-sharing model, however, brings up many questions left unanswered. Dealers should ask questions of their providers and seek to understand this marketplace and its impact on their stores. We intend to continue to report on this topic to help dealers understand its implications. We invite you to follow the coverage at DrivingSalesNews.com.