eBay should buy Trade Me, but they won’t

Apparently rumours are circulating about Trade Me and eBay – not that I heard about them until just now. Mod has squashed them anyway, but oh what fun. 

The problem is that eBay traditionally purchases auction sites, then brings over the content to their own site and use their own model. They struggle to see the world any other way.

Trade Me outperforms eBay, and so this approach would destroy value. Moving the site over to eBay’s version would sharply reduce listings, lower income and reduce profits  for Trade Me. Listings would drop as members are confronted with eBay’s Byzantine systems, income would drop as sales drop due to the same and gross profit would get eaten as the spend on advertising goes way up.

It gets worse. eBay doesn’t understand the motors and property markets, whereas Trade Me has succeeded, while Jobs is something that they are also nowhere near. Don’t even start me on selling advertising.

So Trade Me was, and is, more valuable to a financial or media purchaser than to eBay.

Fairfax, a media purchaser, kept Trade Me at arms length since purchase – allowing the business to continue to develop along some pretty impressive curves.

The results are obvious – today Trade Me has 1.19m listings in NZ and eBay Australia has just 1.16m items located in Australia. That’s right – there are more items for sale in NZ than Australia, and that’s a country with well over five times NZ’s population.

But wait. If eBay are smart then they would see Trade Me as an opportunity to improve their own businesses around the world. 

While the list of things that I would do if in charge of eBay has been covered before, I have to confess that buying Trade Me was not on the list – and it absolutely should be, and I’d pay a lot for it.

But after the purchase what should eBay do?

They should leave Trade Me alone, and not tell them how to do anything. Instead, I’d help the rest of the eBay organisation learn as much as they can from Trade Me’s success. 

I’d send people from eBay’s senior development team to Trade Me – to work under the direction of Trade Me staff – and to do really entry level stuff. They can learn, and spread the word to the rest of eBay.

I’d send Trade Me senior staff over to the US, to spread their message of simplicity and usability.

Then time for some fun – I’d replace eBay’s Australian site with Trade Me’s platform. This is a massive migration, but the listing numbers alone say that something is seriously sick with eBay Australia. Let’s see how that goes, and it everything goes well, then start hitting other smaller markets.

And so on.

But is eBay smart enough to pay enough for Trade Me?  I think not.

About Lance Wiggs

@lancewiggs
This entry was posted in fairfax, NZ Business, Trade Me and tagged . Bookmark the permalink.

10 Responses to eBay should buy Trade Me, but they won’t

  1. A key pointer here is the background and activity of the new CEO – John Donahoe does not officially take over from Meg until March, but listening recently to an interview with him on Time Business Podcast, of a cover article it was clear that he is shaking up ebay. He is recognising some of the core values around individual sellers rather than traders is key to the future, He has also been on the acquisition trail as ebay has for the first time in its history failed to show a growth in revenue.

    I would not be surprised to see ebay buy Trade me and to be honest your integration proposal Lance would not only be logical, but also likely.

    As for Fairfax they are answerable to shareholders and with $2bn + debt a way to clear at least half the debt looks too good to be true!

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  2. Liv says:

    If Fairfax were to sell Trade Me they’d lose their one major revenue generating business unit and their stronghold in online Kiwi eyeballs.

    It may give them a short term gain in the current economic climate but they would ultimately lose big time in the long run.

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  3. Dylan Bland says:

    The key reason eBay has fewer listings than Trade Me is because eBay charge a listing fee, and Trade Me do not. Taking the listing fee into account, plus the likely impact that fee has on the STR (reduces the amount of clutter on the site) it’s possible that eBay makes more $ per listing than Trade Me? Agree 100% that Trade Me’s usability is miles ahead of eBay – the listings that allow html are awful :/

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  4. lance says:

    Dylan – that’s right, but zero fees normally only double the number of listings and halvw the sell thru rate.
    You can see the STR on Trade Me by category, and find the STR’s on eBay easily enough. Their is a differece, but it doesn’t nearly explain the wildly different number of listings per poppulation nor sales per population.

    Liv
    I absolutely agree – but if someone offered $3 billion, and Fairfax valued it at $2 billion then perhaps they would blink. eBay are more likely to offer $1 or $1.5 billion at the most, and Fairfax should run a mile from that.

    alistair – I was not aware that he hadn’t taken the helm (sic) until March. Maybe I should ask for a job.

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  5. Okay, so why doesn’t Trademe have a crack at Ebay?

    Because it will never work. These are natural monopolies and near impossible to compete against. I will not be surprised to see a listing fee introduced at trademe because what are the customers going to do? Go to zillow?

    Ebay have exercised their market power in basically doing what they want to do. This can mean slowing investment in technology and hiking up prices. They can and they do, but they haven’t lost out on their core auction market.

    They may have overcooked it slightly but it’s nothing irretrievable. So I’m picking a comeback in the near future because consumers want value right now. Vendors will follow and Ebay will benefit.

    I’m also picking Trademe will go the same way and as ebay has in the past. seven hundred odd mill under a new CEO means it’s time to pay the shareholder some value.

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  6. Lance Wiggs says:

    Julian
    You are right – they are winner take all businesses. They only way to improve on eBay Australia is to replace eBay’s own website with another one that will generate more activity, value for members and ultimately more profit.

    Trade Me could most certainly raise prices – but would do so at their long term peril. If their prices rise too far then members will get increasingly upset and overall activity and health will fall. The best price is not the monopoly price.

    Meanwhile a listing fee is probably revenue neutral or even negative as the number of listings would fall, the amount from optional listing fees would also fall and the marketplace wouldbe less attractive for both buyers and sellers.

    Trade Me does address the problem of endless junk listings by using a high volume listing fee, which is payable only if the number of things you sell is high and the sell through rate on those items has recently been very low.

    Above all – eBay is clearly not doing things better than Trade Me – so why copy them?

    I’m just now sure that eBay is smart enough to restore the core auctions marketplace – they have been doing almost everything wrong over the last couple of years in particular.

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  7. sm3rt says:

    “He continued: “With eBay’s current state – and what they have historically paid for acquisitions of this nature – spending a few hundred million to take the strategic territory of New Zealand would make eBay’s management look like muppets.”” from http://www.nbr.co.nz/article/sam-morgan-ebay-would-be-muppets-buy-trademe-40083

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  8. scracha says:

    >Dylan – that’s right, but zero fees normally only double the
    >number of listings and halvw the sell thru rate.

    I’d say they do much more than double the number of listings. If listing something for sale costs money, then you set a realistic reserve as the intention is to sell it first time.

    Trademe user friendly? Don’t get me started. No boolean search? No payment integration? No “find an item within 25Km of my postcode”? Up-front $10 “joining fee”? $1.99+GST per minute telephone support?

    >eBay doesn’t understand the motors and property markets,
    >whereas Trade Me has succeeded, while Jobs is something that
    >they are also nowhere near.

    Ebay motors is a wonderful experience.
    Trademe jobs….I can’t even put in a salary range….woeful.
    Property….yep, Ebay leaves that alone in most countries.

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  9. Karl says:

    I doubt that eBay is that stupid, there simply isn’t the value proposition in buying trademe.

    When a a computer/network geek says there isn’t a value propsition, just drop the stock and RUN!!

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