Auction site going, going, gone ballistic

By SIMON LOUISSON

New Zealanders have taken to online auction trading like teenagers to texting.

Trade Me, set up five years ago by then 23-year-old university drop-out Sam Morgan, is expecting New Zealanders to undertake 20 million online auctions this year - more than three times the 2003 figure.

"Online auctions seem to gel well with the New Zealand psyche," Morgan, the company's general manager, said this week.

By the end of last year, New Zealanders were initiating about 600,000 online auctions a month, an annualised 7.2 million transactions.

"We confidently expect the yearly figure to triple to 20 million online auctions in 2004 as the online network effect really takes hold."

The growth in local online trading saw Trade Me grow 979 per cent last year, making it the second-fastest-growing company in New Zealand, according to the Deloitte/Unlimited Fast 50 awards. Electronics designer Prolificx was the fastest-growing company.

The high concentration of population in a handful of cities and New Zealanders' willingness to adopt new technology were partly behind the popularity of the site, said Morgan, son of high-profile Wellington economist Gareth Morgan, who sits on Trade Me's board.

Sellers list their products for free on trademe.co.nz and pay the company 2.5 to 5 per cent of the buyer's price, depending on the value.

Photos and comments can help to sell an item and there is a facility for buyers to query the vendor. The answers are public.

Trade Me allows regular users to build up a track record, which can be seen publicly.

Morgan acknowledges the potential for things to go wrong, and admits a few instances where people have tried to sell items they do not own and scarper with the money.

Trade Me works with the police and a few cases have gone to court.

Morgan also runs a website called safetrader.co.nz where traders register and for a small fee the site acts as the intermediary between buyer and seller.

Trade Me mostly sells itself by word of mouth. The most popular auction categories last year were computers, collectables and cellphones.

Last year, Trade Me branched into cars and even delved into the property market. In conjunction with an Auckland property developer, a block of sections was sold online.

Trade Me says the plunging United States dollar has seen an increasing number of American vendors using the site.

"We expect New Zealand to really start to show up on the radar screens of global players in 2004, with more global online businesses setting up shop," said Morgan.

The company expects global business online auctioneers such as Amazon, Yahoo and eBay to try to muscle in here, but Morgan is confident Trade Me's first-to-market advantage will stave off the competition.

"The experience overseas is that there is one dominant player in any one market. It tends towards a natural consolidation of that position.

Trade Me has been surprised at the lack of other e-commerce local offerings. Although there are a dozen or so other internet auction sites, none has a fraction of Trade Me's 130,000-plus items for sale.

Last November, internet rating agency Red Sherriff ranked Trade Me as the fourth-largest website in terms of traffic, with 446,000 registered users.

Morgan is considering tapping into the loyalty of those traders by issuing shares to them, even though the company has no capital requirements at present.

"We have a view that going public at some point in the future is maybe something we would be doing to reinforce the sense of ownership for our users."

Some internet firms in the dotcom boom gave shares away to entice customers to use the business more.

But Morgan said he considered Trade Me shares to be worth too much for that. The company had been profitable for the past three years and was "increasingly so", although he would not reveal profit or turnover figures.

Trade Me was launched as a classified ads site, but after seeing overseas trends, it moved to online auctions. Last year, it dropped classified ads.

In the early days, the company received funding from AMR Holdings, a small Wellington venture capital company established by some of Morgan's former colleagues at Deloitte Consulting. AMR and Morgan remain majority owners.

Trade Me was not unduly hurt by the bursting of the dotcom bubble three years ago because growth had been organic.

"We didn't really get affected by the dotcom boom because we never spent money stupidly. But the ending of the dotcom boom certainly narrowed our opportunities for getting investment at a time when we were looking for it." Keeping the website simple with a minimum of advertising is a key strategy. Morgan said growth on all measures was running at 200 to 400 per cent a year and must inevitably slow.

"From an audience perspective, we are the biggest thing in New Zealand, but we will run out of people."

"However, there are plenty of opportunities for buying and selling new categories, as has been shown by buying and selling autos."

- NZPA