Double shot interview: Trade Me CEO Jon Macdonald explains why he thinks NZ's dominant online company is not mature and how it aims to keep ahead of nimble rivals

Double shot interview: Trade Me CEO Jon Macdonald explains why he thinks NZ's dominant online company is not mature and how it aims to keep ahead of nimble rivals

By Bernard Hickey

Just before Christmas I spoke to Trade Me Chief Executive Jon Macdonald at Trade Me's offices in the NZX building in Wellington about its stock market float and its outlook for growth.

Macdonald talked about the initial public offering (IPO) by Trade Me's majority owner Fairfax Media and how many of its staff and sellers had participated. Trade Me's shares rose to NZ$2.94 by Christmas Eve from its NZ$2.70 IPO price. See more here.

He acknowledged Trade Me was not a start-up anymore, but said it had plenty of opportunties to grow the sale of new items, with more than 40% of items sold on Trade Me now being new.

He also saw growth in the travel and group buying areas. Trade Me launched Treat Me in March and also owns travel listings sites Travel Bug and Holiday Houses.

The group buying industry had grown very quickly and was now consolidating, Macdonald said.

"At its kernel there is a really good model with good deals for consumers, provided the deals are of sufficient quality, and there's a good proposition for merchants, where group buying offer a very measureable and affordable alternative to traditional marketing," he said.

"At that level it's got good prospects, but there's been a lot of noise quite frankly and that industry needs to mature."

Another Amazon?

Trade Me remained reluctant to get involved in its own right as an online retailer that bought goods and sold them online, similar to the way Amazon is itself a retailer, rather than just an online marketplace.

"(We have) no plans for us to be a retailer in our own right," he said. Trade Me didn't want to take the financial risks involved with holding working capital in the form of inventory.

Trade Me also understood it was not a retailing expert and didn't want to compete with its sellers, he said.

"In the far distant future though, never say never when we look to where we might expand our operations."

Macdonald talked about the "many false starts and broken promises" offered by mobile platforms in recent years, but that Trade Me was now operating a couple of teams developing for mobile users.

Mobile helped Trade Me users who wanted to participate in the crucial moments before the 'hard' end of an auction when they were out and about, he said. Mobile also helped comparison shoppers when they were out looking at goods in-store.

'Not fragmented enough'

Trade Me had looked at selling media such as music and movies in its own right, but saw media more as an opportunity to partner, given Trade Me had the audience and was able to run a good website, while any potential partner had the content or supplier relationships or intellectual property.

"(However) it's a less fragmented model than we normally go into. Trade Me's real mojo is when we bring together big fragmented sets of supply and demand, so that's lots of buyers and lots of sellers, or its local merchants and people looking for a good deal in the case of group of buying, or accommodation providers and travelers in the case of our travel businesses," he said.

"Whereas usually those content provision businesses like movies, TV and music, there's a smaller set of participants on the supply side, which is a little bit of a different model, but overall it's still interesting to us."

'Hire the right people'

I asked Macdonald how Trade Me tries to stay nimble and innovative as it gets bigger, particularly as it has to compete against smaller and potentially more entrepreneurial startups, as well as extremely large and well resourced online companies overseas such as Google and Facebook..

He said Trade Me needed to hire the right people, "who were innately energetic and creative and optimistic, and discontent with the status quo."

Trade Me also needed to give them the structure and space to come up with new ideas. Macdonald pointed to a programme Trade Me had where staff could spend a certain amount of free work time coming up with new ideas that they then presented to others in the business.

Companies such as 3M and Google also use such 'free time' to encourage staff to spend time away from their main job dreaming up new ideas.

Trade Me also tried to run certain parts of its business as 'start ups' in their own right with their own developers and content teams, rather than relying on using the main group of developers for Trade Me. Trade Me's Travel and Treat Me businesses were examples of these internal startups, he said, noting Trade Me had also taken its Findsomeone dating business out of the main business to give it more focus.

'Guys in garages'

Trade Me may not know when new business models threatening its business were cooking up ideas in garages, but it also needed to watch what large and well resourced Interent companies were doing overseas, including the likes of Google and Linked In, Macdonald said.

Trade Me needed to ensure it was doing its main business well and kept its 'head up' looking around at potential rivals and opportunities.

Economic indicators?

Macdonald said consumers doing business on Trade Me continued to be hesitant with flat real estate activity. "There's a glimmer there, but not enough to hang our hat on," he said.

Employment activity was stronger, while farming was also doing well, he said.

See all our coverage of Trade Me's float here and its prospectus here.

Disclosure: Interest.co.nz has a business relationship with Trade Me. Advertising on Interest.co.nz is sold through Trade Me's advertising sales team, which receives a commission. Also, Bernard Hickey was a member of Trade Me's advisory board in 2007 when employed as Fairfax Media's Head of Digital for NZ. None of Interest.co.nz staff own shares in Trade Me. (Updated with disclosure on share non-ownership)

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Bernard... Can we please have a full Trademe share disclosure for interest.co.nz  editorial staff please ?

Cheers. Good point. No one at Interest.co.nz owns shares in Trade Me. I've updated the disclosure with that.

cheers

Bernard

Thanks Bernard

One of the more relevant posts I have seen in while. It should also apply to advertorials by the Morgan Clan that pop up here from time to time, especially given the existing commercial relationship with Trademe and Fairfax.

The only " moat " that TradeMe can count on is it's online auction format , its cannibalising of the weekend Buy-Sell-Exchange magizines .....

..... the recent additions , the " Treat Me " , and the travel corner , are novelties , little snacks , not the bread & butter full course meal .

Others , smaller , nimbler start-ups can kill you there ..... as can industry experts , such as Flight Centre .

.. talk the talk Mr MacDonald , 'cos that is your job .... but for investors , treat TradeMe as a mature business , with slow growth , and with good dividends . Anything beyond that is a bonus . but at a current PE of 17 , you're being priced in to deliver some bonuses ... ho  ho ho !

Sensible advice there Gummy. I personally think that Trademe operations are less than satisfactory and as the customers become more 'mature' they will look for cheaper alternatives such as sella.co.nz. Sella is free versus Tradme clipping 7% of the auction price, so although they have considerably more volume their greed will eventually be their undoing. Fair business practice I suppose to push your profit margins to what the market will bear, but it is a two edged sword. It is all very easy when you are top dog with no contenders, it will be interesting to see if they can hold that monopoly position.

Sella is a threat, but I see facebook or similar as a bigger one, due to how many people that use it. Create a free online trading app for facebook, and trademe is in real trouble. Sam did a good job of selling it when he did. Fairfax have done a good job of getting a lot of that money back that money, and still getting to keep most of the company.

Tradems profits have increased, but that has been largely from increased commissions, and charging extra for things like adding photo ads. I doubt their actual user base has gone up by all that much recently.  But there will be a level when people will say that the commissions are just too high, and look at alternatives. 

I think they may need to look at becoming another amazon to remain relevent. But a big risk if they did, as many have come and gone. eg flyingpig, ferrit etc.