The Trade Me team in 2003.

The Trade Me team in 2003.

What birthday gift is appropriate for a boisterous 7-year-old? The first idea that springs to mind is probably not the $700 million present John Fairfax Holdings bestowed on Trade Me this week as the online auction website celebrated its seventh birthday.

Welcome to the internet economy, 2006 style. The dot boom is back - but with a difference.

During the first internet goldrush, back in the late 90s, silly money was paid for internet operations with only a hint of a business plan - and usually just a faint promise of future revenues. In the more fiscally-sober 21st century, internet businesses that are actually operational and profitable are those that attract the big dollars.

On a good day, Google is valued at 75 times earnings, eBay a mere 27 times its annual income. In that context, Trade Me's sale price - 15.6 times projected 2007 earnings - looks like a bargain.

So what exactly is Trade Me and how did it become a success?

In its first week of operation in March 1999, the Trade Me site attracted just 155 subscribers. Now, 364 weeks later, the membership body count stands at 1,183,818 and there's a new member joining every minute.

More than 60 per cent of New Zealand internet traffic now goes to Trade Me. To put that in real-world terms, the site attracts more visitors than New Zealand's busiest shopping mall.

How did it all begin?

There's a wonderful company legend that goes something like this: In early 1999, 23-year-old Sam Morgan was looking for a second-hand heater to help him survive a draughty Wellington flat.

Being computer-savvy (he was an IT consultant for Deloittes at the time) Morgan turned to the internet to help with his quest, but couldn't find what he wanted on any New Zealand websites.

The closest was the website for Trade & Exchange, but listings on that site were held back until a week after they'd been published in the paper. By the time Morgan found an appropriate listing and phoned up, everything had been sold. That experience inspired him to create Trade Me.

It's a delightful story, and mostly true, although these days Morgan admits he can't remember exactly what product he was searching for online.

Despite the fact that classifieds and auctions had been flourishing on the internet internationally for a number of years, the online cupboard in New Zealand was still pretty bare in 1999, apart from the occasional corporate megasite.

There was still plenty of room for an entrepreneur (even one on a Kiwi-sized budget).