When Visa tried to acquire Plaid in January 2020 for $5.3bn, it brought attention to one segment of the Fintech market that sits behind the scenes - data aggregation.
If you are not familiar with Plaid, they provide data aggregation for bank account information across North America and Europe and is part of the 'infrastructure' of financial services companies, and fintech in particular.
However, the Visa deal fell apart due to anti- competitive concerns and in its' latest funding round the company was valued at $13.4bn, almost 2.5 times the Visa valuation, within a short 18 month time frame. It seems there is value in the unsexy parts of Fintech.
Data aggregation is a niche but growing trend and when you narrow the lense to look at Agri-Fintech, the landscape is small.
However, there are some familiar names, where I see Bushel as the prime example, who aggregate data from grain ERP (Enterprise Resource Planning) systems across the United States and Canada.
This 'digitise and data-ise' strategy is an antidote to the marketplace philosophy I have spoken about in my recent Issues. - see here for example discussing marketplaces. By this, I mean a marketplace model is not always viable, but simply digitising workflows can give any business a huge data advantage.
Thankfully, Mark Johnson captured this perfectly in an eloquent write up this week called "The Day the Grain Marketplace Died" which I have jotted below.
But there are other companies operating in that sector and in this issue I want to take an in-depth look at Tractor Zoom and their product for the Agricultural equipment market in the United States. This is a prime example of a data product done extremely well in the Agriculture sector.
Below I give context on:
1️⃣ The issue Tractor Zoom set out to solve;
2️⃣ Core Products;
3️⃣ Digital Agriculture and Machinery;
4️⃣ Again with the Data 😁 - Insights from their Product;
5️⃣ What next?
Agriculture is the biggest industry that Silicon Valley has failed to disrupt. Despite billions of dollars going into high-flying AgTech software startups like Farmer’s Business Network (FBN) and…
Problem solving in an opaque market
Tractor Zoom was set up by Kyle McMahon in 2017 following an early career with a Farmland Private Equity Fund. That feels like quite a leap, but when Kyle describes the fact that almost 50% of farm assets are in equipment and the other half in land the opportunity starts to make sense.
The data driven investment approach of land investors had not transferred to equipment, as there was, well... no data. Now it makes complete sense.
During this time, numerous data services were set up targeting the land segment, including Acre Value founded in 2013 and sold to Granular in 2015, before being acquired by Ag-Analytics last month in September 2021. Other innovative startups in this area, such as Acre Trader and Farmland finder also built offerings around Farmland as an asset, but the equipment sector continued to lag.
Similarly, data aggregators were compiling statistics on the used vehicles markets, with Manheim and their market reliant Manheim Index, being a notable example for the used car sector, across the US.
There was a clear opportunity in the market, which McMahon seized by obtaining a pre-seed investment of $850k in early 2018 (Crunchbase) and hiring 3 staff to start integrating data into the TractorZoom platform from physical auctions.
And so the journey begins.
Today, it is easy to passively follow Tractor Zoom on Twitter or LinkedIn (like I do!) and think it is about nostalgia for old model tractors. They break up my AgTwitter feed nicely.
But.... those posts are actually curated by a well oiled machine in itself. 👇
Tractor Zoom's business aggregates data from equipment auctions and dealers in real time.
This data collection feeds their Iron Comps valuation product, which is used by buyers and sellers, auctioneers, dealers and also the financial services companies which are adjacent to equipment trade including Banks and Farm Credit.
They don't buy or sell equipment - that's important.
This aggregation model allows it to have coverage of 75% of the market in the United States after just 4 years in operation. Think about that. 🤩
This, for me, demonstrates one pillar of strength of the data aggregation model - by accessing the right information using the right technology, data aggregators scale fast. Well as fast as you can scrubbing lots of data sets.
The team at Tractor Zoom put the success down to 3 specific things in a recent webinar, which I have linked below. These are:
1️⃣ Their ability to provide real time market intelligence to market participants; which
2️⃣ Increases Speed to Decision via price transparency; and
3️⃣ Relentless focus on their user needs.
In particular, the last component has led them to redesign their digital offering and focus on mobile usage for the Tractor Zoom product (i.e. the listings), which has seen lead conversion to their advertisers explode by 350%.
If that seems like a huge increase, it is, but understanding some of the dynamics make it even more interesting, especially the overlap with Digital retail in agriculture.
Digital Agriculture and Equipment
McMahon cites this McKinsey article on Agri e-commerce as being consistent with the engagement and growth they have seen over the past 4 years, albeit for inputs and not equipment.
This graph shows a clear preference for farmers to engage digitally with sellers of agriculture inputs. However, when it comes to buying this actually falls in 2020 (which is another story in itself as buyer's felt let down by online buying experiences between 2018 and 2020).
But what does this mean for Farm Equipment, which was not covered as part of the study? Tractor Zoom set out to answer this and discovered the following in a separate survey.
The fact 91% of Farmers started their purchasing decisions online is broadly consistent with the auto industry and prompted the continued investment in the Tractor Zoom listing product, especially the mobile channel. One month after going mobile, there were 1m equipment views.
"Investing in mobile opportunities to farmers is very much well worth it" according to McMahon, in a recent interview with Farm Equipment Magazine, where he discusses this - see link below.
This is quite an understatement.
Again with the Data 🙄
(The above ⤴️ is now a standard section heading for my Newsletter 😉 - i'll try and use it in all my write ups - so keep an eye out!)
Let's have a look at some of the insights that the Iron Comps data product yields for users. I don't want to write too much about the trend data, which overall shows huge increases year-on-year, but rather highlight some of the value the data demonstrates to the users.
Across the entire data set, Iron Comps can break down the premiums each market category achieved year on year.
For example, in 2021, Dealers were able to obtain a 31% premium on 2020 prices for 300HP + Tractors. For retirement sales, this annual growth was limited to just 12%, but further constrained to 7% for consignment sales.
✅ This discrepancy quantifies the premium attached to dealer reliability for any particular segment. 🤑
For Combines, as a further example Iron Comps is able to quantify the price increase in 2021 buyers are willing to pay by Seller category and separator hours at 27% for 500 hours, versus a premium of 19% for 1500 hours.
✅ Information availability such as this at user finger tips is core to the vision of the company, especially the 'data driven decision making' it set out to achieve initially.
Actual depreciation curves
Depreciation can be a 'wonkish' topic for Accountants and non Accountants alike. Something, something straight line over 10 years 😴 (or over 5 years of you drive it like you stole it).
✅ The fascinating thing about the Iron Comps data is that gives an actual depreciation curve. That is actual, as in actual mark-to-market data.
If you have enjoyed 'geeking out' on these past few snippets, and want to see the trends 📈, I would highly recommend checking out the Tractor Zoom blog for more information and of course the Farm Equipment Webinar below.
Word count for "data" in the above section = 7 🤭 (I barely even mentioned it!)
At this point, the obvious question for me is what is next for the Team? I got the impression when speaking to them, 75% market coverage was still not enough and believe they want to drive home an excellent product across the entire market.
It is clear they still see gaps in the market in other countries and we may see expansion in the near term to similarly structured markets. Canada 🇨🇦 may be a straightforward option as some of their client footprint already extends north.
When I probed about additional categories, I also felt reassured by the laser focus they had on the agriculture equipment markets. Kyle was keen to delve into some other assets that they still had limited visibility on such as excavators or trailers. Adding listings such as these to Tractor Zoom would round out their offering and intelligence. But any direction they do take is likely to maintain the drive towards 'data-driven decision making for agricultural equipment'.
For me, this is what makes companies like Tractor Zoom so compelling - they are an excellent example of a data aggregation business in Agriculture, which is adjacent and providing value to their financial services clients.
If ever in doubt, just digitise and data-ise. (Or is it digitize and data-ize?) Your call.
A big thanks to the Tractor Zoom team for their time with this piece. 🙏