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Case Study: CarsDirect.com

Thousands of Web startups promise to eliminate the middleman in a purchase by acting as, well, middlemen. Online travel agents and stock brokers, for example, have made successful end runs on their conventional counterparts.

Thousands of Web startups promise to eliminate the middleman in a purchase by acting as, well, middlemen. Online travel agents and stock brokers, for example, have made successful end runs on their conventional counterparts. Now comes CarsDirect.com—which has out-middlemanned the middlemen.

While lots of good Web sites help you decide which car to buy and point you to a dealer, CarsDirect.com arranges a purchase and delivers the wheels. The notion is powerful, which is partly why the company's backers include billionaires Michael Dell and Bill Gross. Last November, Cars Direct.com received $280 million in its second round of financing.

No surprises there. The company has sold more than $20 million worth of cars. It expects to reach $400 million this year. Make no mistake: Detroit is scared, and so are dealers. Vice chairman and cofounder Scott Painter and CEO Bob Brisco say the process squeezes out the overhead. And because the company buys in volume, buyers typically find the lowest prices available.

But cars aren't a frequent purchase for most buyers. To build customer loyalty, Cars Direct.com provides e-mail service reminders, online repair histories, discussion groups, and announcements for car-related products.