New Zealand’s biggest social network isn’t Facebook. The biggest database of New Zealanders and their behaviour isn’t held by the Seventh Day Adventists, or even the GCSB. And our most successful online company isn’t burning money – it’s making it, and has been since very early on. Trade Me turns 15 this year, making it the teenaged granddaddy of New Zealand online companies. To mark its anniversary we sent Idealog’s resident flying goat farmer Vaughn Davis to Wellington to see what makes New Zealand’s answer to eBay – and Amazon, if it has its way – tick.
It’s an ordinary workday at New Zealand’s most successful internet company. An old but cool Massive Attack track is playing on the old but not so cool stereo, interrupted now and then by the happy screech of the coffee grinder. A couple of goldfish check out their brand new tank for the thousandth time this week, while scattered about the floor a few teams of developers are bunched around whiteboards, holding the informal weekly stand-up meetings that have been a part of the culture since the company began in 1999. Outside, Wellington Harbour is turning on a pearler, the summer sun dancing on the water and the Tararuas seem almost close enough to touch.
Like they do a hundred times a day, the sliding doors to the third-floor lobby swoosh open and like they do a hundred times a day, no-one looks up to see who’s just walked in. This suits today’s visitor perfectly and before anyone really knows what’s happened he’s killed half the developers in the room with one of the two imaginary shotguns he’s been carrying under his coat.
Mike O’Donnell. PHOTO: Mike Heydon
“And the thing is,” says Trade Me chief operating officer Mike O’Donnell, continuing with one of his favourite and thankfully allegorical stories, “it would be a fortnight before any one of our users noticed anything was wrong with the site.”
?Petrolhead, motorbike enthusiast and (oh yes) gun lover O’Donnell has been the company’s COO since late 2013 but part of its story since 2003, when he’d finish his day job at AMP then spend nights with the tiny Trade Me team designing and developing his first major contribution to the site, Trade Me Motors.
He signed on officially in 2004 and apart from a one-year break working with Gareth Morgan he’s been here ever since.
Unsurprisingly for someone so at home with engines, he sees the site as one too, and one of the company’s most important jobs as keeping it running smoothly.
From David to Goliath
Constantly updated screens at the developers’ end of Trade Me’s main office floor let anyone who cares to look know just sweetly the site is humming along. And it does hum. More than 3.2 million New Zealanders have Trade Me accounts, leaving second-place-getter Facebook a long way in the dust and giving Trade Me, possibly, the biggest customer list of any organisation in New Zealand. Of those, 700,000 or so visit every week and stay there for an average of 10 minutes a time. More than 1.8 million auctions are listed every week, 250,000 of which sell. All that leads to more than $750 million of sales each year, earning the company a profit of $78.6 million on revenue of $161.4 million.
Read more: The weird and wonderful world of Trade Me
For all that success, though, Trade Me the business doesn’t receive nearly as much attention as Trade Me the marketplace. While stories about time-traveling washing machines, demonic computer printers and toast that looks like Jesus regularly make the news, coverage of the company’s relentless profitability and enormous customer base (admit it: did you know that 3.2 million figure before today?) is less common. And while CEOs of companies that make less money than the average corner dairy regularly make the headlines, most New Zealanders will never have heard of Trade Me’s five-year CEO and 10-year employee Jon Macdonald.
Jon Macdonald. PHOTO: Mike Heydon
It’s not entirely accidental, of course. While the company employs 350 people and has offices in Wellington, Auckland and Christchurch, you won’t find a sign on any of its buildings (possibly to avoid O’Donnell’s shotgun-toting gunman scenario). And until late last year, Trade Me never advertised. But talking to Macdonald, I get the idea he’s comfortable enough operating largely incognito.
As Apple’s Tim Cook and Microsoft’s Steve Ballmer know, following in the footsteps of a charismatic founder can be hard. While Cook at least has the advantage of knowing Steve Jobs is unlikely to pop up on Skype and critique his latest call, Trade Me founder Sam Morgan remains on the board and casts a long shadow over the company’s culture.
When a senior developer tells me that some of the code Morgan wrote still lives on in the inner workings of Trade Me, there’s almost a hint of reverence in his voice, and while he assures me he’d replace it in a heartbeat the moment it didn’t do the job, I suspect the deletion of Morgan’s last ones and zeroes won’t go unmarked.
Making connections
When Macdonald joined Morgan at Trade Me in 2003, the company numbered just 15. Like O’Donnell, he’s occasionally nostalgic for the days when you could realistically know everyone’s name, and values and policies didn’t need to be written down for everyone to know them. As an engineering grad and former head of tech, he’s happiest “when real stuff happens” and when I first met him he was buzzed at the progress a team was making in redesigning the apparel section to make it better fit the way people shop for clothes.
At its heart, Macdonald says Trade Me is in the business of connecting people – whether it’s to buy and sell stuff, communicate in the site’s forums or even find a partner.
Over the years, Trade Me has grown to include not just the original marketplace, but a family of websites covering motors, property, jobs, dating, travel, holiday homes, life insurance and even a site for reconnecting old school friends (with over 1.5 million members).
All this is run by around 350 staff with an executive team of eight (and another 30 in the senior management team), so prioritising is a constant challenge. While there’s no shortage of ideas about how to make the business better, deciding which ones to tackle first can be tough.
Another challenge all parts of the business face is the war for talent. Despite Wellington’s many upsides (Macdonald is a big champion of the city and O’Donnell chairs Wellington Tourism) there just aren’t as many skilled people there and Trade Me faces a lot of competition from government departments and companies such as Kiwibank. Free coffee and a view of the sea only go so far; one of the reasons the company opened its Auckland office was to accommodate people who wanted to join (or stay at) Trade Me but for all sorts of reasons couldn’t live in Wellington.
Read more: Fight the brain drain with immigration (duh!)
The not-so-secret weapon in the talent war, though, comes back to those 3.2 million customers. Trade Me today is a part of New Zealanders’ lives in a way no other tech company is. So while for the first few years working there O’Donnell would tell people he worked at “online auction company Trade Me” these days everyone a staffer might meet at a bar or barbecue knows exactly what the company is about, and that recognition and pride, says Macdonald, give it the edge in hiring and retention.
While that respect from New Zealanders might be Trade Me’s biggest asset, the problem with intangibles is that they can disappear overnight. One of the company’s most important relationships is with the New Zealand Police; its Trust and Safety team (some of them ex-police) have an annual list of successful prosecutions that beats even NCIS for length if not body count, and a fraud rate any credit card company would kill for. Of the 250,000 sales each week only around 40 are reported for non-delivery, with four or five a week being handed to police – resulting in 74 successful prosecutions in 2013.
In 2008, though, that relationship almost turned into a PR disaster when the company’s cooperation with a police data request led to 3,000 Trade Me users’ full account details and trading histories being given to inmates in Mt Eden Prison. The prisoners were defendants in the ‘Urewera 16’ trials, and the police had requested the records as part of its prosecution. Under disclosure rules these were also passed to the defence – and next thing they were in the hands of the accused.
For Macdonald, the “very shitty Sunday” when he woke to the headline Police Deliver Trade Me Names to Prisoners, led to some serious thought about how the company handled requests for information and forced them to re-examine the balance between its relationship with government and its duty to its members. These days, he says, a request would be far more likely to lead to a high-level discussion with the government agency about what information was really required (rather than a drift net) and early disclosure to members that their data had been handed over.
Simon Young, head of development. PHOTO: Mike Heydon
What next?
So almost 15 years on, what does Trade Me do next? Alexander the Great wept, supposedly, when he realised that there were no more worlds left to conquer. But when you’re a listed company the board hands you a tissue (if you’re lucky) and asks where growth is going to come from. It’s a question that’s very much on Macdonald’s mind and was a big driver behind moving O’Donnell into the COO role last year.
Now that he’s directly responsible for the main marketplace business, Mike’s focus will be to improve a customer experience that in Trade Me’s own words has become a bit tired over the years. While the marketplace (the part of the site where you and I sell each other stuff) remains the business’s biggest earner, its growth is flat and the kind of e-commerce functionality we’ve come to expect from other sites (shopping carts, combined shipping, smart suggestions based on what we’re into as individuals) is missing.
O’Donnell’s job is to fix that, and turn Trade Me into a place buyers (especially) love to use, rather than just somewhere they go because it’s the default.
The plans don’t end with connecting existing sellers and buyers. Trade Me is also looking to create marketplaces around what O’Donnell calls unrequited buyers.
“We have a lot of data around what people are searching for on the site but not finding. So, for example, when we saw that people are looking for new branded shoes at a good price, we found professional sellers on overseas auction sites and invited them to do the same here.”
The resulting Trade Me Stores are already operational and O’Donnell has a $90 pair of Nike basketball boots to show for it.
While O’Donnell is getting the house in order, another focus, Macdonald says, will be on partnerships.
“Any business that has the potential to connect with its customers online is an opportunity for us.”
Last year’s acquisition of life insurance aggregator LifeDirect is an example of that, and given Trade Me’s knowledge of just what each of us is up to (getting a job, moving house, buying baby stuff, selling that unwanted engagement ring and much, much more) it’s reasonable to expect we’ll soon be seeing the site target offers in that same uncanny and slightly creepy way Facebook specialises in.
Long term – although both O’Donnell and Macdonald are reluctant to look too far ahead – Macdonald sees plenty of opportunities in helping people transact and relate.
“That’s not necessarily buying and selling things,” he says. “It could be in health, it could be in education, it could be in peer-to-peer lending. All those areas will continue to change and move online, and if we do a good job we could be a part of them.”
Strategic vision aside, I get the feeling that neither Macdonald nor O’Donnell wants to lose touch with the magic that’s kept them both there for the best part of a decade.
Read more: How growing companies – like Trade Me – keep that small feeling
As O’Donnell says: “We don’t want to lose that sense of discovery. We still want people to come to the site looking for a Toyota Corolla and end up with a Temuka Motorcamp souvenir tea towel.”
Lance Wiggs on Trade Me
Commentator, consultant and entrepreneur Lance Wiggs was an off-and-on advisor to Trade Me from 2004-2006, and advised on its 2006 sale to Fairfax Media (the Australian media company sold its shareholding in 2012). Not surprisingly, he has some strong views on what the company is doing right (and wrong) and reckons that Trade Me has a lot of work to do to maintain growth.
On the marketplace.
“It’s shocking that Trade Me’s home page experience is essentially unchanged, while eBay’s formerly woeful homepage is transformed into a personalised shopping list version of Pinterest. That’s sad as Trade Me always led eBay in usability, simplicity and user delight, and also in core metrics per population. It took too long for Trade Me to discover mobile – and it shows.”
On the business.
“Trade Me has long had essentially everyone in New Zealand as a member, so the opportunities for growth are through more activity per member, or new businesses in different markets. They should do both.”
On the site advertising itself.
“Trade Me’s focus on user experience meant that word of mouth and delight provided growth, so seeing advertisements is a very bad sign. Ebay spends 29 percent of its gross profit on marketing and that comes straight off the bottom line. Trade Me shouldn’t have to do that.”
On Trade Me Jobs.
“Recruitment has moved on from job boards, and while Trade Me Jobs is well ahead of Seek.co.nz, its real competition these days is LinkedIn and social media. Their challenge is to help people find jobs, even if they are not looking.”
On the management team.
“Trade Me’s team has always been great, and I’d like to see them unleashed by the board and giving a mandate and much bigger M&A chequebook to grow, rather than just sit on the nest egg. There’s a real risk in being too conservative.”
On the future.
“The first job is to bring the marketplace and verticals into the modern era of responsive design, big pictures and mobile, as well as adopting some user-centric tricks from eBay. At the same time I’d like to see them extend beyond the core verticals in New Zealand, as they did recently with insurance. The third job is to take Trade Me outside New Zealand, either through acquiring and turning around other auctions and marketplace sites, or through investing in and assisting several of the wave of great New Zealand start-ups that are aggressively expanding internationally.”
