The story behind Online Republic, the NZ company that just sold for $85 million
Hidden away on the top two floors of the Generator Building in the heart of Auckland City, is a multi-million dollar Kiwi company that’s flown under the radar for the past eight years. Much like the business itself, its office is an eclectic mix of old world and new. Below the kauri timber rafters in the reception, is an arcade machine in the shape of a coffee table. All along the brick walls are posters inspired by lines of code, and every second surface is adorned with a comical Renaissance portrait of one of the company’s shareholders.
The place is humming 24/7, as support staff working on rotation take calls from customers around the world who’ve used one of the 3,500 e-commerce websites run by the business. Small groups of developers, designers and sale staff sit in open pods scattered throughout the central city office space, busily optimising one of the thousands of sites or striking deals with partner companies in Australia, the UK, USA, and China. What’s being done on these two floors employs more than 100 people in four countries, and earned the business $143 million in revenue in the last financial year.
Online Republic has never needed New Zealanders to know of its existence. Over 90 percent of the obscure e-commerce giant’s revenue comes from overseas, generated by thousands of niche hyperlocal car rental, motor home rental, and cruise deal websites. There’s very little connecting each of these sites to the global HQ in Auckland, and that’s just the way the company wanted it, says co-founder and president Mike Ballantyne.
“We wanted to stay hidden and not appear on the radar of our competitors,” says Ballantyne, who says being unnoticed helped the company spread its many small offshoots around the world without too much competitor interference.
Even if it was discovered, Ballantyne admits Online Republic wasn’t much of a story or a threat until last year, when the business went through a period of massive growth. Around half of the 500,000 car rentals, and 50,000 motor home rentals the company has processed in its eight-year history, were made in 2012 alone. Last year saw Online Republic add $50 million to its revenue, and Ballantyne says in March, the company is on track to post more than $170 million.
“We had that Kiwi attitude of just getting on with the business and not falling in love with our own success. When you start thinking you’re unbeatable you can fall,” says Ballantyne. “But it’s fair to say we’re definitely on our competitors’ radars now.”
The 43-year-old father of two from Gisborne was an ad man in a former life. Ballantyne worked at Tequila and WhybinTBWA where he was awarded a Cannes Gold Lion for his role in the Adidas ‘Stand in Black’ campaign. However, adland wasn’t where Ballantyne wanted to be.
“You get to a point where you’re either a creative director, or a guy in the corner working on the serious boring stuff,” says Ballantyne. “You’re also the expensive guy they’re having to pay $100,000 or more. You’ve got new kids coming through from ad school you have to compete with, who are hugely talented, and working for their bus fare. It’s a very uncomfortable place to be for a person in the ad industry.”
He founded Online Republic in 2004 (then called iMall Brands), with his older brother Paul, who passed away in early 2011. The travel e-commerce angle was Paul’s idea, who among other business ventures at the time, resold Yellow Pages ads and saw first hand how travel companies were shifting away from traditional advertising to online.
Services like Expedia and Priceline were already dominating the airline fares market, but the Ballantyne brothers found an opening in the car rentals sector to do something similar.
“We perceived it to be less competitive. Looking back now that was quite naive,” says Ballantyne.
Neither brother had any experience in the car rental business, or with online commerce, but that didn’t stop them from trying. Mike designed the first website, and brought onboard a web company to programme it, while Paul organised deals with local car rental companies, and with that Online Republic was born.
Function over form
The first website wasn’t much to look at. It was barely more than a series of links designed to get the best conversion rate as possible, and unlikely to ever be nominated for a Favourite Website Award. Online Republic’s websites have had makeovers since then, improving the code as new standards have been introduced, but they all maintain the same spirit of simple keyword-driven design.
“Our goal is to not get in the way of a deal,” says Ballantyne. “If you look at a lot of big e-commerce sites, they’re not pretty. Amazon and Ebay, for example. But there’s a huge amount of method behind the madness, including user testing and a bit of intuition.”
Ballantyne hasn’t always felt this way about prioritising utility over beauty, and it’s been something he’s had to learn since leaving the world of ad agencies.
“I remember working for a major educational client which shall remain unnamed, and our idea as the creatives was to sell the brand and sell the sizzle with a Flash intro. The web guys said it was very last decade, but we managed to push it through anyway,” says Ballantyne. “When we hired our first online marketing expert at Online Republic the first thing I learned from him was search engines can’t read flash.
“It was such a ridiculous notion to have these creatives at an ad agency trying to run a web campaign. It was doing what we knew but we didn’t understand the game, and just stroking egos.”
Ballantyne says much of the company’s current success is due to adopting search engine marketing (SEM) strategies early on its inception. The company has created a car rental site specific to every major airport in the world, helping it optimise traffic from searches related to user destinations.
Online Republic has spent more than $25 million on Google SEM campaigns since 2004, $6.5 million in the last year alone. And while it has also tried print and radio advertising, Ballantyne says these mediums haven’t had even a quarter of the impact the business has seen through search.
Initially the search engine work was outsourced to a company in Hamilton, but Ballantyne would often dabble in the dark arts of SEM with nothing more than a copy of Google AdWords for Dummies to guide him. It was Ballantyne who set up the company’s first SEM campaign, bringing in Online Republic’s first customer three weeks after officially launching.
As the programming and SEM components of the business grew in importance, the brothers realised the development and search engine expertise needed to be brought in house, and managed by specialists working for the business. But bringing on staff was a difficult decision to make for a startup only just starting to see revenue trickling in.
“It was easier for Paul than me because he already had a pretty good income,” says Ballantyne. “My wife and I had a mortgage, so we set a limit that if we hit we would quit. We had just started making money from the business, but every week we were closer and closer to that limit.”
On the cusp
In the end it was Mike’s experience in the ad world that pushed him to make the first hire, as he felt the pushing of different agendas that plague many marketing relationships was taking a toll on the business.
“I remember [while working at an ad agency] sitting around tables with clients where the client is thinking ‘how can I get my message across?’, the suit is thinking ‘how much money can I get from the client?’, and the creative is thinking ‘ how can I win awards?’,” says Ballantyne. “And I was starting to see all this happening in our business.”
The company’s first hire was a search engine marketer named Mark von Nagy, who was previously working at an SEM company called First Digital (known as First Rate at the time). Von Nagy was brought onboard to offer the technical knowledge the Ballantyne brothers lacked, and one of his first tasks was to get the company’s web pages indexed by Google—a quaint request now, but incredibly important for the small business.
“He’s a talented guy, and was looking to move on. We had to almost bully him. We didn’t have much apart from our excitement and energy,” says Ballantyne,
Von Nagy is now Online Republic’s chief technical officer, and has a ten percent stake in the company.
“That’s been one of the secrets of our business. We’ve found what we believe is a world class super star, and locked him in,” says Ballantyne.
Not all roses
Online Republic hasn’t always had the same luck as it has with its rental and cruise offerings. Ballantyne says the business tried its hand at creating sites for charter boats and travel tour deals, but neither succeeded.
In particular, the business spent a lot of time and SEM dollars trying to make the tours business work, but Ballantyne says the category was difficult to master, and the “tour” keyword too broad to use effectively in SEM campaigns.
“We ended up paying to be placed next to music tours, like Ronan Keating. We were going after too broad a keyword, and there was a lot of wastage,” says Ballantyne.
Unlike the motor home rentals and cruise divisions, which Online Republic hired former industry insiders to lead, Ballantyne says the company attempted charter boats and tours without the right level of expertise, ultimately leading to their failures.
“Back in the early days with the car rental business Paul and I were making all the mistakes and desperate to succeed, but through all the bumbling we learned it all, and understood the car rental business,” he says. “By the time we came to the tours business we should’ve known to marry it to an expert in the field.”
Two years ago the business and Mike himself, would face their biggest challenge yet, the passing away of one of its founders.
Paul lost his six-month battle with melanoma in January 2011, just a month before his 44th birthday, and Mike lost a best friend and mentor.
“He was a great entrepreneur, Paul … After he passed away, the last thing I felt like doing was talking to anyone about anything. I just wanted to focus on working with our team to keep our business growing,” says Ballantyne.
In 2012, Mike and his wife Jenny set up the Starlight Fund in honour of Paul. Its mission started off simply, donating luxury Hungarian goose-down pillows to cancer patients, the type Paul had found comfort in during his stays in the hospital. More recently the Starlight Fund raised $200,000 towards building an ambulance for St Johns, along with essential equipment to go in it.
Ballantyne says he’s ready for Online Republic’s next big challenge, and its ultimate goal of becoming a billion dollar company by the end of the decade.
The first step towards this is consolidating the company’s federated sites into larger single entity brands to better compete with the big players in the market. This has already started with airportrentals.com, which acts as the umbrella site for Online Republic’s car rental division.
In January, the company launched Search Republic, an SEM-focused digital advertising agency which Ballantyne says is aimed at taking the wind out of the sails of the “ego-stroking” campaigns that litter the online landscape at the moment—and which he himself was involved with a decade ago.
The new agency has a three-strong team, including two ex-Googlers. Ballantyne says the new division, which might be spun out as a separate company in the future, will deep dive into analytics for customers, although he acknowledges there might still be some hesitancy by some marketers to embrace search marketing.
“Search is not the sexy side of advertising, it’s not something a marketing manager can tangibly put on their CV,” says Ballantyne. “Nobody wins a Cannes Gold Lion for an SEM campaign.”
However, the tides are changing, says Ballantyne. Last September saw an all time high for online ad spend in New Zealand, with $94 million spent in the third quarter alone, according to PwC and the Interactive Advertising Bureau. About a third of this was dedicated to search and other online directories.
“We’re interested in working with companies that are passionate about their online spend and making it work for them,” says Ballantyne.
A quick look on Google will show you a New Zealand SEM market that’s already saturated to the point of bursting, so what makes Ballantyne think his endeavour will rank above the rest?
“We have eight years of experience, and more than $25 million of lessons learned. We’ve already put our money where our mouth is,” he says.