Lance Wiggs

Michael has seemingly abandoned the Trade Me success Secrets blog, which was looking to be a really promising place to discuss and see all things Trade Me.

He also seems to have left the Grey Group - where he was also writing an interesting blog. If you want to see what an untended blog looks like, check out the comments to this post.

Meanwhile Michael’s Linked-in profile is still showing the G2/Grey Group connection.

So - what gives? Where are you now Michael? If you are out there we’d love to keep hearing your views..

The housing crash is cascading around the world, and the dire predictions are coming true. Here’s the latest chart from The Economist - check out Ireland on the bottom. That’s a crash, not a “balanced slump”.

Meanwhile Trade Me just surpassed 70,000 property listings, on the back of signing up one of the last few major real estate agents holdouts.

Things to look out for in the next few months are:

Trade Me listings volumes to peak as the remaining real estate companies sign up, and then settle as the market slows

Increasing time to sell and lower average prices (duh), especially at the top end

A drop in the newspaper pages dedicated to housing advertisements and articles, lowering the income for the likes of APN and Fairfax

Real estate agents switching careers as they have less commission to share around the industry

and a fair few had luck stories from speculators that got in at the peak and/or didn’t get out in time

a general downturn in optimism & perhaps the internal economy

That sense of déjà vu is the ghost of 1987 creeping back.

Massive changes today announced for eBay’s economic model, in response, I take, to the increasing power of Amazon and Google.

• Listing fees down 25 to 50%, especially for bigger sellers

• Gallery is free

• final value fees (commissions) are up - 8.25% under $25, which is up from 5.25% and huge. Most sales are in this range, and it forms part of the commison for sales greater than $25. For the next range, $25 to $1000, commission rises from 3.25% to 3.5% - a very big increase in revenue terms for eBay. (US figures)

• Big sellers that have high buyer feedback ratios get 5 to 15% commission fee discount.

Those four changes take apart the existing economic model and put it back together. Reducing listing fees increases items listed (Trade me already has zero listing fees).

Zero Gallery cost means every item can have a photo displayed in search, and this will natualy increase sell through rate anyway.

Final value fees are where the bulk of revenue should come from - after all when you’ve just sold something you are more likely to understand the value of paying a fee. Increasing these can make eBay a fortune, and they have covered concerns of big sellers (who look hard at these fees) by offering discounts.

These changes aim, therefore, at increasing listing numbers, sell through rates and final value fees. I’d expect eBay are anticipating a decent overall lift in revenue from this.

They have also played with the feedback system:

• Sellers can’t make negative  comments about buyers

• Buyers that are suspended/kicked out have their negative comments removed

• Time to write feedback reduced to 60 days from 90

• Sellers can block certain members  from buying

• Order in search results is adjusted for buyer feedback ratio

• Feedback percentages will include repeat buyers -  currently only one from each unique buyer counts.

Overall this helps big sellers (they don’t leave negative feedback anyway) and should makes eBay a friendlier place - i.e. a higher positive/negative feedback ratio. Again, these are fundamental changes to a foundation of eBay’s success.

Overall? Send as much money as you can to the USA and buy eBay stock. It is stupidly low right now, they have a globaly diversified income stream and these changes should do it well.

AA bought into Bookabach - so what are they getting and how much is it worth?

I’m arguing they got a bargain, even though I don’t know how much they paid for what % or even how much bookabach makes. Here’s the reasoning and estimation:

The site looks great - very well laid out and simple to use.  It’s a great concept as well - matching empty baches with people looking for a place to stay. It fits with AA’s aim in life.
There are 1884 listings on bookabach right now.

Those listings attract a yearly fee of $149 each, but there is a discount structure for folk with multiple listings. There is also a free trial period. So I’m going to make the assumption that the average discount is 20% and that 10% of the listigns are freebies. That means the average listing price is probably closer to $110.

$110 x 1,884 = $207,000 odd, which is a good ballpark for annualised income from listings right now.

Given the summer season we should assume that the listing numbers are on the back of some strong recent growth, and the founders state they are seeing 100% growth per year.

There are also APN ads on the site, and they have had an advertising partnership since early September. At around 10,000 UB’s and 200,000 PI’s per week, and at a CPM rate of $35 per banner/skyscrapper that’s potential gross ad revenue to APN of  $15,000 or so per week.

Now we need to factor in a few things, like sell through rate (% of times there is a paid ad - e.g. 50%), yield (average discounted price - e.g. 80%) and net commission (what percentage Bookabach recieves of ad revenue - e.g. 80% of 80%). We also need to determine what Bookabach receives when an advertiser buys ads across the entire APN network. (e.g. bugger all)
Right now the ads are looking pretty APN-ish (e.g. for Search4jobs), so I’m going to go wild using the assumptions above and estimate Bookabach makes about $4k a week out of those ads. So that’s another $200,000 per year, but they have only been making that recently.

So overall right now Bookabach is making an annualised $400,000 a year or so, plus or minus about $100,000.

Expenses. What about expenses?  Annoyingly there is no ‘about us’ of any meaningfulness, so the site has no personalities behind its personality.

From the Scoop press release above we find there are two founders, and they are on the third iteration of the website. That means they have either been semi or full time, or they have paid folk to do it all for them. The site is slick, so either way is not cheap, and they would need at least one or two customer service staff.

They seem to have had strong word of mouth growth, and I see no Google ads from here in Australia, so ad spend seems low. That reeks of a low spend culture (similar to Trade Me) so I’m going to guess that expenses (before AA) are about $300,000 a year.

S o that’s income of about $100,000 a year. If that is growing at 30% then the company is worth about $1.5m. I’m guessing AA paid a chunk more than that as the NPV is much higher when you can cross-promote to AA members.

Actually I think the founders did themselves a real disservice if they sold for that sort of money.

The real value of Bookabach is much much higher, if they follow a tweaked version of the standard industry model and clip the ticket per sale.

TravelBug grabs 9% of sales made through the site, and Bookabach could do similarly, now they have scale. At, say, $150 rental per night on average, and an average sell through rate of, say, 25% that’s $25m worth of sales per year going on.

Now that sell through rate may be way to high, but you get the scale. If Bookabach charged a 5% fee then they stand to grab $1.2m odd. 10% and that is $2.4m. An alternative way to go is to charge a fixed fee of say $45 each time a listing is sold, or say $10 per day say.

When your site is making $1 or 2m a year then your valuations are going to be in the $15-40m range, without factoring in growth.

AA bought in as a JV partner, and the press release wording makes it sound like they got 30-40% or so. So if AA gets it, and they should, then they should have paid up to $10m or so for that 30% or so of Bookabach.

I’m guessing they paid much less than that.

One caveat - Trade Me can step into this market at any time - they just have to take over Vianet’s rather clunky interface and build their own. So temper that valuation estimate with a fair degree of risk.

Michael Carney launches a pretty decent looking blog to coincide with the re-release of his book Trade Me Success Secrets. Check it out.

The murmurs are that eBay is going to be dramatically lowering listing fees and increasing final value (success) fees accordingly. Bear Stearns was the first to come up with this, and others have said that apparently this will differ by category.

Total rumour, but if true it is about time. The fees eBay charges are a barrier for new sellers, and prevent bigger sellers listing everything they have. This decreases the number of listings on the eBay market, but, in theory, increases the quality of listings.

Trade Me has none of those insertion/listing fees, except for Motors, Property Jobs and other classifieds such as pets.  eBay charges a sliding fee based on the listing value of the item, and as a result the barrier to list something is much higher.

I’m a fan of variable fan by category, as some categories (CD’s, Books) have products of very low value, while others may need a fee to ensure quality and discourage scammers. The latest high tech goodness, such as iPhones, or Wiis attract scammers like rotten sheep to flies, an higher fees will help shut down that traffic. In the past the rule of thumb was that listing fees would halve the number of listings and double the sell through (completion) rate. It seems this my no longer be the case with the stagnant eBay market, and so it’s time to once again emulate Trade Me.

Way to go - accuse Trade Me of not following good business practise, then be forced to cringingly back down in the face of overwhelming evidence. I’m not sure how this one played out, but is sure is amusing reading the resulting article.

(Auctioneers).. Association chief executive John Ward had said Trade Me did not help its customers with complaints, that its customers had no right of dispute and that Trade Me did not follow good business practice. Now he has written to Trade Me apologising and withdrawing his remarks.

He said the association understood that such statements and allegations about online trading sites did not apply to Trade Me.

and fair enough. Trade Me has 24/7 customer service these days, and if things are dire you can at all times get someone on the phone with the 0900 number. If you are dodgy then you can expect the police will get interested pretty rapidly.

Meanwhile my limited experience with offline Auctions was very much cavaet emptor and bugger off with it.

I’d hazard that the total number of sucessful Trade Me listings in the last 7 years would  dwarf the entire number of items ever auctioned offline in New Zealand.

Michael Carney is a marketer that sends out an occasional newsletter to the community. It’s quite good (the last one even quoted my father :-).  Michael is a influential guy on the NZ scene - he even wrote an excellent book on Trade Me.

I do recommend that you subscribe t0 the newsletter if you are in the advertising game in NZ.

However for an advertising newsletter the marketing is woeful.

Firstly the newsletters are not posted online, so Michael has not ‘joined the conversation’, and we bloggers cannot link to or comment on his content.

Secondly, Michael is part of the Grey Group, who are:

“a subsidiary of WPP, a global communications organisation with 568 offices in 152 cities across 87 countries.”

GreyGroup  recently redesigned their website. Can you see the link to the newsletter?

It’s not there. In fact there are only 4 working links on that page - “more about us“, “check out our work“, and links to website creators “Cactuslab” and “Supermodel” (not a good look guys).

Thirdly - there is actually a blog - well hidden though.

Micheal already had a blog - in fact it was one of the ones I follow(ed), though posting has been on hold for a while.  That old blog is a fairly traditional WordPress number - simple but clear in design.

The new blog - well, it sucks.

Here are some faults:

The blog is hidden behind two links from the homepage and a crazy url: http://www.greygroup.co.nz/default,34,blog.sm . Greygroup.co.nz/blog would be better - and no - it does not work.

If you click in a post, you must click on the ‘blog‘ text to get back. That’s the text not the big ‘blog’ graphic on the top.

The posts are all clipped, so you have to click ‘read more’ to see the whole thing. This may initially drive pageviews, but not for long - we don’t have time to click everything.

You can comment, but there is no indication that there is a comment on a post.

The colours, design - it just feels bland, drab - uninteresting. There is no personality.

Indeed - that’s the missing link here. Where is Michael? The star writer? The driver of traffic? The respected voice of marketing in New Zealand?  Michael should be front and center, not just on the blog, but on the front page of the GreyGroup website. The stellar newsletter should be placed as a series of articles on the blog.

For now the website is saying  that GreyGroup are pretty clueless about this interweb thing. Please change it.

Want to get deep inside Trade Me’s engine to understand how it works?

Then apply for Trade Me’s Manager - Strategy and Analytics role, and you will know all. Well - you’ll be exposed to the data fire hose anyway, and you’ll use any insights you find to help grow Trade Me. This was the area I wallowed in (when I wasn’t helping with valuations and the sale) at Trade Me, and if you are the sort of person that loves business, data and a cool work environment, then go for it.

- Ongoing modeling, budgeting and financial forecasting for our business lines. You would know intimately how well the different areas of our business are performing, and have strong opinions on their potential.

- Formulating and presenting ideas about how we can make more money. This includes internal opportunities, and the evaluation of potential acquisitions, joint ventures etc. You would manage the conversations we have with these external parties.

- Oversight the day-to-day running of our operational data and analytics operations, including all the numbers we use for decision support, performance indicators, and the measurement of site changes.

- The management of a growing and dynamic team to help you accomplish the above, and, if you’re up to it, senior management input at the exec level for the company.

eBay reported a loss of a huge $936m - due to the recent huge write-down of Skype value. However otherwise theu showed some good signs, and some not so good signs.

Good - PayPal made $470m of revenue - up 35%

Not so good: Auctions (marketplaces) listings fell 5%, and GMV (the value of stuff that sells) rose only 14%. That’s a really low figure in this space.

and - signs of panic. eBay USA/Canada is reducing listing fees by 3% from now until November 5th. (50% if strt price is under $1).

This seems to go against their desire to reduce the amount of stagnant listings from huge sellers.

Buried (ok not really buried, but towards the end) in a post by Rod Drury -is a hint that perhaps Xero will be available offline next year:

Next year we’ll see the introduction of off-line functionality inside the standard browsers, so new scenarios start to open up. ….These clients will access the server based logic we are all building now.

So not Xero, but browser driven. There is also

I think we’ll see more parts of applications delivered for the mobile web or even as mobile applications.

So perhaps we will be doing our accounts on our mobile phones? At the least current technology should let us do it on our iPhones.

But, before we get too excited, it is alas, all too true that we are in early days:

I’m certainly not precious on doing everything on the web but before we go to far in introducing rich clients we need get the applications written for the server first.

Offline Xero is one of the three critical things missing to me from the Xero product - the other two being (introductory at least) cheap pricing and seamless import/export from other products like MYOB.

The low or free pricing is to drive trials, and the export - well just remember that MS Excel only really took off (as someone was telling me recently) once they bought in the “Export to Lotus 123″ feature.

Meanwhile the development team is hard at work at building up the feature set - to no doubt match then exceed MYOB and other competitors. They are also, I infer, working to keep it easier to use than bits of paper and excel spreadsheets.

But the low tech potential customers will not move n big numbers until they can use tailored Xero versions for targeted industry groups, like, say, the Trades. Other’s to add to the list could be Accountants (eat their own dog food), Trade Me sellers (import transactions), and taxi drivers.

Trae Me and eBay customers can breath easy - the Nobel prize wining trio of Hurwicz, Maskin and Myerson are fans of auctions as the most efficient way to clear a market when information is not freely available to all. (Actually - their work helps to understand which auction mechanism is best in which situation.)

The theory shows auctions are typically the most efficient way to sell private goods to a given set of potential buyers (WSJ)

We all knew that of course, which is why Trade Me is so big, but it’s nice that some folk got a Nobel for the Mechanism design that that explains it all.

here’s the more prize press release and explanation of their work:

Mechanism design theory, initiated by Leonid Hurwicz and further developed by Eric Maskin and Roger Myerson, has greatly enhanced our understanding of the properties of optimal allocation mechanisms in such situations, accounting for individuals’ incentives and private information. The theory allows us to distinguish situations in which markets work well from those in which they do not. It has helped economists identify efficient trading mechanisms, regulation schemes and voting procedures. Today, mechanism design theory plays a central role in many areas of economics and parts of political science.

and for the real background, read the, err, Scientific Background.

I missed the first time, but it seems Trade Me exceeded 1 miilion listings yesterday, October 13th, according to the TM message board.

Right now the site is running at just under 1m, but expect it to steadily grow.

Amazing.

Meanwhile eBay Australia has  just over 1m items for sale located in Australia.

Remember that eBay Australia do charge a listing fee, but really eBay Australia by rights should have 3 or 4 times the listings of Trade Me.

This is a classic symptom of why eBay is scurrying to try to refind its auction mojo these days. A lot of what they are trying to do reeks of Trade Me, and for good reason.

Want to buy an iPhone in NZ?

Well - the quickest way to get your hands on one is down on Queen street at Parallel Imports.

You can also buy them online from the Parallel Imported store - software unlocked and ready to go with Vodaphone. They cost $1299, which is a bit over double the US$399 retail price before unlocking, detachment from AT&T and GST. Probably $3-400 too pricey for me, but then again I’ll walk past a few  times today.

(Luckily the Nokia E90 is out of stock - so I can rest assurred that my current phone is still not available in NZ. It is also outrageously expensive.)

I found 5 iPhones on  SellMeFree, but all 5 are listed by people with zero feedback. Zero feedback and bleeding edge technology reeks of scam - stay clear. One person even has his email and phone number in the listing, which is a bad bad sign - showing lack of policing by SellMeFree..

eBay has plenty of phones, but you get dumped into the US site after keyword searching, and it is hard to filter out the ones that will ship here, the ones that will work here and the non scammers. So go back, hit ‘advanced search’ and show only those that accept PayPal and will ship to NZ. I got 713. The prices are in the US$400-$600 (buy now) range, with the cheaper ones being the 4GB model. That’s a much better price, and there seem to be some giant sellers in the game that will accept PayPal and ship (only to) PayPal confirmed addresses. PayPal gives fraud protection for these guys, so you are relatively safe. It is a pain (and can take time) to get a PayPal confirmed address though.

and of course Trade Me sadly doesn’t have any iphones. grrr.

So as Sophie points out, Stuff confirmed the Trade Me policy on “no iPhones” this morning.  Adam also helpfully points out that perhaps I was behind the times -  oh the horror.

But yes - Trade Me has recklessly decided to arbitrarily ban sales of the absolutely essential and patently legal to sell iPhone.  This really really annoys me, as it also did when the policy was to ban sales of PSP’s and PS3s’.

(Hope you are listening Dean and Sophie.)

(Keep listening though - it gets better…)

Although I am royally annoyed (not really - after all I am in Australia until the weekend), it is tough-love policies like these that have made Trade Me so sucessful.

When you shop at Trade Me, you are a lot more confident in the quality of the sellers than you are on eBay. You are more confident because Trade Me has much tougher standards, and those standards are backed up by a community and Customer Service staff that have an eye for finding bad sellers.

Trade Me starts by banning essentially all foreign sellers, continues by listening to the community (the community watch link at the bottom of each listing), then has strict policies on what you can and cannot sell and finally does not tolerate scammers and dodgy sellers staying on the site.

eBay is much more tolerant, preferring to take the more dodgy listings and sellers in order to boost sales. Make no mistake - what Trade Me does is hard work, and doesn’t make friends in the short term. However, eBay may sell more in the short term, but that lowers the natural growth, which they try to maintain using expensive advertising. If this sounds familiar, then you may have been reading here two days back.

So - how to console myself? Trade Me won’t sell me an iPhone, and eBay Au is too dodgy. Well - that’s easy..