The Cobalt Group could very well be the biggest Internet company in Seattle you've never heard of. And the 12-year-old company, which develops Web sites and online marketing services for about one third of the automobile dealers in the U.S., is poised to get even bigger in 2008.
With revenue expected to hit $170 million this year, the privately held company is planning to hire about 300 people over the next 12 months, bringing worldwide employment to 1,000. Most of the new hires will be in the Seattle area, primarily in search engine marketing and content management of dealers' Web sites.
To accommodate that growth, Cobalt Group Chief Executive John Holt has been scouring the Lynnwood/Bothell area for 45,000 to 60,000 square feet of additional office space. What's driving the hiring spree?
Holt says business is booming as automobile dealers shift resources from traditional advertising to the Internet. With dealers spending roughly 10 percent of their ad budgets online, Holt thinks there's plenty of room for The Cobalt Group to grow. In fact, he is targeting 35 to 40 percent growth for the next two years, which would give the company about $300 million in revenue by 2009.
"I have very good confidence about those numbers," said the 51-year-old. "The ramp up is very footed to business we have won and know we can produce." Part of the reason for that confidence is that the company recently strengthened a longstanding partnership with General Motors, which calls for GM dealers to run their Web sites through The Cobalt Group's network. It has similar deals with about 20 other car manufacturers, including recently inked partnerships with Mini and Saturn.
By the end of next year, Holt anticipates that his company will be operating Web sites for 10,000 of the 22,000 auto dealers in the country.
Dealers pay a monthly fee of about $500 per month for a Web site, with added services such as e-mail and search engine marketing bringing the total bill to as much as $10,000 per month for some dealers.
Headquartered in a renovated brick building in Seattle's Sodo neighborhood, The Cobalt Group's story is one of survival. The company almost died during the dot-com bust, but was rescued when investment powerhouse Warburg Pincus took the company private in a controversial $37 million buyout in November 2001. The Cobalt Group had spent 27 months as a public company, experiencing the volatile swings of many Internet firms of that era.
In 2004, Warburg Pincus and other venture capital backers invested $92 million into the company -- another lifeline that it used to rebuild the technology platform and acquire competitors and technologies.Holt admits that the path to success has been circuitous and he had "no idea" what he was getting into when he co-founded an Internet company in 1995. At the time, he recalls that only one major car manufacturer had a Web site."We were clearly way too early, but we didn't know it at the time," Holt said.
The original business plan called for the company to turn a profit during the third month. It took ten years. But now with auto dealers spending more of their ad budgets online, the company is embarking on a major hiring push. And since the company has experienced nine straight quarters of profitability, this expansion is being fueled entirely from its own cash flow.
In addition to the search engine marketing business (essentially helping dealers receive placement and advertising on Google and other search engines), the company plans to roll out a new online display advertising service later next. It is also working on a new consumer Web site, which would combine reviews, rankings and other content for those looking to buy a new or used car. That site, to be developed by the company's Dealix unit in Silicon Valley, is a longer-term project that could debut late next year or in 2009, Holt said.
The big push right now is hiring what Holt calls "dealer advocates" with each employee to handle the day-to-day relationships of about 40 to 50 dealer customers. That's the unit that will be based in the Lynnwood/Bothell area, though Holt said he did consider putting the group in another state.
The company, which also has 50 or more employees in Columbus, Ohio; Redwood City, Calif.; and Bangalore, India, decided to add the 300 employees in the Seattle area because it was easier to build a common culture."There is a lot of talent in this town," said Holt. "We are creating a new job and, for that reason, it is easier to do it in our backyard."
As a profitable Internet business with annual revenue growth of more than 35 percent, investment bankers once again are wondering if The Cobalt Group could be an IPO candidate.
Holt admits that bankers have approached him, but he quickly points out that they call in "good times and bad." And given the last wild ride on the Nasdaq, he's not sure he wants to take a plunge.
"You really have to be ready to do that," he said. "And the markets are even more difficult to work in today than they were back then."
Still, he recognizes that Warburg Pincus at some point will want a return. But for now, he said, the mantra at The Cobalt Group is to "build a great company and the value will follow."