$1 billion

“A million dollars isn’t cool. You know what’s cool? A billion dollars.”
— Sean Parker *

Trade Me has announced details of their IPO, valuing the company at over $1 billion.

That’s cool!

To those who may say this means the original shareholders sold too soon …

I was very fortunate to have a small role to play in this story. Relative to my contribution, I arguably ended up with far more than my fair share, so I try not to feel too sorry for myself.

* This quote was attributed to Parker in The Social Network movie, but according to a recent interview with FT, he doesn’t actually believe it – his words: “[A billion dollars is] not cool. I think being a wealthy member of the establishment is the antithesis of cool. Being a countercultural revolutionary is cool. So to the extent that you’ve made a billion dollars, you’ve probably become uncool.”

Ten Years Ago

I was asked to speak to the Trade Me Commercial team off-site this morning. There are now 35 people in this team – more than in the entire company in 2004, when the commercial team was MOD.

So, please excuse the reminiscent mood…

Ten years ago this week I left New Zealand to live in London.

I had recently sold my start-up to Trade Me in return for stock. Trade Me was valued at about $1m in that deal. Shortly after that shareholders were asked to provide loans to keep the company afloat while we waited for the recently introduced success fees to start to cover costs.

I had mixed feelings about leaving. I’d spent a pretty full-on couple of years at Trade Me and was pretty proud of what I’d helped to create. But I was a little jaded too and ready for something new.

I was also just married.

I had organised a sponsored work permit to get into the UK, and can only imagine how that must have looked to the person processing our visa applications.

We had no idea…

We were up for an adventure, but within a couple of months we’d be struggling to find new work post 9/11 and wondering what the hell we’d gotten ourselves into. Partly in an effort to deal with the stress of that situation, I started running.

As it turned out Trade Me and impending parenthood would eventually entice us back, but we returned having fallen in love with London and with a new perspective courtesy of travel to some amazing parts of the world.

It seems like yesterday, until I think about everything that has happened between then and now at which point it seems like half a lifetime ago.

Trade Me Math 101

Someone smart once told me that the best way to determine a price for your product or service is to find the point at which the customer will wince, and then take half a step backwards.

I was reminded of that this morning reading some of the comments in the media and online about the latest round of Trade Me price increases announced earlier this week.

The official justification is based on a 91% increase in traffic in the two years since the last increase (holy crap!)

But, I wonder this tweet from David Slack perhaps describes it more succinctly:

That Trade Me price rise rationale in full: “Because we can.”

Perhaps not surprisingly, this announcement was enthustically reported by the NZ Herald, but as far as I can tell ignored by Fairfax.

The Herald article is terrible – as well as being a shameless plug for Sella, which they partly own (although that isn’t disclosed in the article), they also let themselves down with some shoddy maths by miscalculating the impact of the increase on a hypothetical $1000 item.

Choosing $1000 as the example is in itself not very smart – most stuff that sells on Trade Me is much cheaper than that.

So, as a service to numerically-challenged or commercially-conflicted reporters, here is a quick back-of-an-envelope analysis of the impact of this change:

Firstly, let’s take a random sample of 100 listings – auction #348,000,000 through #348,000,099.  These were all listed on the site earlier this month and closed over the last week or so.

Of these, 24 sold and attracted a success fee.  Six were “Buy Now” sales, another three were “Fixed Price Offer” sales and the remaining 15 were standard auctions.  The sale prices ranged from $1.50 to $1300.

Obviously this is way too small to be a statistically relevant sample, but actually those values and proportions feel about right to me, based on the sale rates that are published on the site and a quick look at the list of items closing soon.

The total success fees charged on these 24 sales was $141.98.  If the new fee structure was in place that amount would have been $151.53, which represents an increase of just over 6.7% (the Google Spreadsheet linked to above has the full calculation).

To really understand the possible impact of this change though, you need to multiply that increase across the hundreds of thousands of auctions that close on the site each day.  Trade Me don’t actually publish those numbers, but with a bit of digging you can roughly work it out.

As I type, auction #349,438,751 is about to close (I’m going to assume that this was listed this time last Sunday evening), and the latest auction is #351,145,747. That would imply that in the last week there have been ~1.7million new listings (about the same number currently listed on the site).

Extrapolating the success fee revenue we calculated above across this number of listings gives revenue of $2.576m per week soon vs $2.413m per week currently.  So, approximately $163,000 extra per week or nearly $8.5m per year.  That should pay for some good times!

Of course, all of this assumes that the fee increases have no impact on the number of listings on the site, which may or may not turn out to be true.  I’d be confident though that the smart people at Trade Me will be watching this closely after the change is made to give themselves confidence that the overall impact is positive from their perspective.  I doubt they will be paying much attention to the wailing on the message boards, or in the NZ Herald comments, as similar threats, which have accompanied every single fee increase announcement since the very early days, have to date failed to make any dent in the continued growth in popularity of the site.

Anyway, the much more interesting question, which I haven’t seen anybody ask, is this: what good news does Trade Me have up their sleeve to announce on the 7th Feb? :-)

Disclosure: I am a Trade Me alumnus, but I left when the site was just a fraction of its current size, so really, what do I know?!

Ummm … I guess

I’ve been ticking off a few bucket list items recently. Including last weekend, when I had the opportunity to be on the Saturday Morning National Radio show hosted by Kim Hill, to coincide with the launch of Trade Me: The Inside Story.

It was terrifying at the time, but fun in hindsight.

As I mentioned on air, the podcast version of the show (now online) is unfortunately a little disjointed because they are unable to include the audio tracks for copyright reasons. It’s actually a shame that they can’t include the things we talked about off air while the songs were playing instead – in many ways that was the most interesting part of the interview.

I always enjoy watching people who are experts do their job, and so this was a great opportunity to watch a master journalist and interviewer up close. It was fascinating to see how well prepared she was – especially given the wide range of topics covered on the show that morning. And, to watch her constantly thinking several steps ahead. As I sat down the first thing she said to me was “So are you fabulously rich because of Trade Me?” I instinctively said “It depends what you mean by ‘fabulous’ I guess”. As I watched her scribble on her notes I realised that I’d already answered the first question, and we were still a few minutes away from going on air.

She was very charming and I managed to get through without saying anything too embarrassing. Although, the conversation I had earlier with Mark Cubey, her producer, about verbal crutches did make me doubly conscious of all of the filler words I use – you’ll notice that “ummm”, “I guess” and “sort of” feature heavily though out, as well as a couple of “hmmm”s as I quickly try and think of a sound bite answer to a difficult question.

Either way, take a listen and let me know what you think.

Hear if you can spot the obscure periodic table of the elements reference when we’re talking about athletic challenges.

Enjoy!  Listen Online

Download: MP3 | Ogg Vorbis

Trade Me Browser Stats

I’m pleased to see Trade Me have started posting their browser stats again, something I used to do here, way back in the day.

Here is the latest update, for May 2010: Browsers and Operating Systems

http://images.trademe.co.nz/tm/announcements/full/132922040.jpg

When people talk about Open Data they are nearly always referring to government data.  But, I think there are also lots of examples like this, where private companies have data which has a public good, and which they can open up at no material cost to themselves.

Trade Me is such a popular site that their audience can pretty much be used as a proxy for the internet in New Zealand, so this gives developers working on smaller or less popular sites a good idea of the sort of browsers they should be targeting.

Remember, if the equivalent numbers for your site are different from these there are two possible explanations:

  1. Your audience is a subset of the population which has a browser bias (e.g. if you attract more technical people you’ll probably tend to see a higher proportion of newer browsers and also some lesser known browsers that are not widely used in the mainstream)
  2. Your site makes it difficult for people with older browsers to use your site, so they choose not to.

Just about everybody assumes #1, when #2 is often more likely.

Remember that the 5% of Trade Me visitors using IE6 is still 31,500 unique visitors per day, or nearly one Westpac Stadium full.  Are you happy to turn all of those people away with a message telling them to upgrade their “browser”, what ever that means to them?

Learning from Flathunt

An old friend sent me this piece of nostalgia:

(full size)

This screenshot was taken in late 1999, shortly before launch.

If you look closely you can see some SQL debugging code and even a “blank cell” at the bottom.  All of the click HERE links are also a special touch.

Anybody else remember this old design?

Looking back, I can’t believe that I quit a perfectly good and well paid job to do this!

Everybody who thought I was a bit mad was clearly right.  I literally knew less than nothing when I started – because as lot of what I assumed I knew was wrong.

The very first feedback email I ever got was from a friendly stranger who explained why contextual links are generally better.  You do well to only make each mistake once, I suppose.

It’s now just over 10 years since I started working on this stuff.  That’s getting to be so long ago that it feels like a completely different time and place.

The web as it was back then is barely recognisable today: a relatively tiny population of connected users, the vast vast majority on dial-up (browsing with images turned off, to make it faster and cheaper was not uncommon); very primitive browsers which were rapidly evolving and quite unpredictable (CSS and JavaScript were only for the brave); tiny screen sizes (remember 640×468?); development tools and languages that required a bit of brute force; no conventions to build on or follow, etc etc.

The way we thought about the web back then, and what it took to create a successful site and successful business, is in some ways starting to look a bit dated  too.  Or, perhaps idealistic is a better word?

Here is one of the lessons that does still hold, I think:

The people who got up the learning curve the quickest were those that took off shoes and just jumped in, however unimpressive the initial things we were building seem looking back.  Those that sat on the sidelines desperately hoping to come up with a great idea for a website, or worse, spent all their time refining a concept or design until they considered it good enough to actually show people, were generally left behind.

I think there are a lot of parallels with the web back then and the way that mobile applications are developing at the moment: there seems to be a new or improved platform every week; nobody really has any idea about the best way to present applications to users (Objective-C or HTML5?) or to try and make money from them; the conventions and standards in interaction design are to a large extent still to be discovered and agreed; there is only a tiny user base (I’m told there are now ~50,000 iPhones in NZ, compared to about 8x as many internet users in 1999); pricing is an evolving art; and yet as all of this is playing out there is a huge amount of innovation happening.

If I were a discontented 24-year-old today this is what I’d be working on.

Or, a reasonably contented 34-year-old, for that matter.

More about that soon…

(In the meantime, if you’re a Powershop customer please download our meter reader and top-up app which launched this week).

Related

Whoppers

I was interested in this, from the recent NZ Herald profile of David Kirk:

“Kirk was personally responsible for its decision to fork out a whopping $700 million for online auction site Trade Me – a sum that initially bewildered analysts on both sides of the Tasman.

The deal was announced the same week Rupert Murdoch bought MySpace, and Kirk is quick to note he isn’t the one who is now experiencing buyer’s remorse.

Trade Me contributes around $85 million a year to Fairfax’s coffers, whereas MySpace, which has absorbed many more millions, has yet to make a profit.”

Fairfax paid NZ$750 million for Trade Me (there was a further $50 million of earn-out payments on top of the $700 million paid up-front).

News Corp paid US$580 million for MySpace or about NZ$860 using the exchange rate at the time of the acquisition in 2005.

By just about any measure Fairfax would have to be happy with their purchase.

Perhaps analysts in Australia were “bewildered” when they heard the announcement, but this was probably more likely because they had never heard of Trade Me than anything to do with the price, once they saw the revenues.

$750 million is actually not a “whopping” amount to pay for a business that generates $85 million of cash, just three years later, and continues to be in a strong position.

What do you think?