Opinion & Analysis
OPINION: In December, almost a year to the day after Fairfax Media listed Trade Me in a partial float on the New Zealand and Australian stock exchanges, the Australian-based media conglomerate cashed in the last 51 per cent of its chips for $770 million.
Six years previously, in 2006, Fairfax chief executive David Kirk was roundly lambasted by commentators and some directors for throwing $750m at a maverick start-up operated by a lippy ginga. It seemed a heady acquisition, but Kirk's motivation was simple.
Having seen Sam Morgan's business systematically eat up his advertising verticals and overtake Fairfax's own digital offerings, he decided he would rather eat his own business than be eaten by competitors. He also seemed keen to own a company of digital natives, hoping to see what could be learnt from them.
Six years, and two Fairfax chief executives later, it's interesting to ponder who got the best out of the affair? A few months after the Fairfax acquisition of Trade Me, one of my staff precociously asked Kirk what he did.
Kirk responded that his top priority was keeping the rest of Fairfax the hell out of Trade Me, so it could continue to go hard and not lose its flexibility.
Although Kirk was only to survive 20 more months at Fairfax, our fears of having suited MBAs walk around the place, trying to shore up old world media assets with clumsy online-offline bundling, and replacing flexibility with hierarchy never came to fruition. Months would go by without any Fairfax staff entering the building, so it was very much business as usual.
Although initially it was at the behest of Kirk, later the lack of intervention seemed more a case of benevolent neglect. Trade Me was the least of Fairfax's problems as it sought to address a heavily leveraged balance sheet, high fixed costs and falling print revenues.
Apart from the obvious benefits to Trade Me's productivity from this lack of intervention, a less obvious but important benefit was the absence of pressure to act like an Australian media company.
Trade Me was still regarded as an essentially New Zealand company, a key contributor to us continuing to be seen as a safe and trusted marketplace.
Over time, a few changes did come about. The Stuff website was added to the Trade Me page-top navigation tabs (and vice versa at the Fairfax end), both a reminder of a common owner and a useful source of traffic.
Then in late 2008 we began hosting the Stuff website on Trade Me servers - this made sense because we were able to provide Stuff with more capacity at lower prices. Trade Me serves about 70 million pages a day of which about 5 million are Stuff pages.
The relationship between Trade Me and the Fairfax newspapers was a bit prickly to begin with, hardly surprising given we had snatched a fair whack of their advertising dollars.
The exception was The Press in Christchurch which engaged with us early on digital matters and with whom we developed a strong relationship. In later years we would work with The Press to help get quake-affected traders online, and also to launch free wi-fi in the Christchurch central city.
Board meetings became a little more formal and long-term focused. The discipline and accountability that came out of this provided useful upskilling to many of the management team. However it came at a price.
In the case of Trade Me's group buying website Treat Me, the "go" decision ended up being pushed back about five months because Brian McCarthy, who was Trade Me chairman (and Fairfax chief executive) at the time, wanted additional analysis and was wary of incurring more costs on the Fairfax books in 2010. This delay probably ended up costing us market share in the super-competitive group buying space.
If the initial period of Fairfax ownership was one that saw Trade Me mature and consolidate, the period leading into and out of the initial public offering and listing, took us to a higher level. The preparation of the IPO documentation and the listing introduced a new level of scrutiny and compliance that saw a step-jump in our governance procedures.
Alongside this, the process of educating an investing market about the nuances of a company whose customers pay money to buyers they've never met for goods they've never seen began.
We also had to learn how to run an investor relations programme in a way that was consistent with our "informal but serious" credo.
Although it would be overly simplistic to say the six years of Fairfax ownership of Trade Me provided us with training wheels for transitioning to becoming a grown-up company, I think it's fair to say that Trade Me got value from the time.
The Fairfax years saw us lose our teenage gawkiness and make progress towards becoming a grownup. It also gave us insight into the challenges of trying to migrate a traditional media business into an online one.
Given how little Fairfax really harvested Trade Me for its digital insights and eyeballs, one could almost say Trade Me got the best deal. But not really. By my reckoning, between dividends, loans and share selldowns, Fairfax netted a bit over $1.7 billion from Trade Me, not a dud return on $750m over six years.
It does of course beg the next question: what is fair value for Fairfax with no Trade Me holding?
- Mike "MOD" O'Donnell is head of operations at Trade Me and author of Trade Me - The Inside Story . The views expressed here are his personal ones.