Podcast: Two Cents' Worth

Two Cents’ Worth: The evolving e-commerce wars

Trade Me has been the reigning e-commerce champion of the New Zealand marketplace for 20 years.

But some serious competition could be on the way.

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Trade Me has well and truly entered adulthood with new owners, the private equity group Apax Partners, who last year bought the company from shareholders for nearly $2.6 billion, a move that resulted in Trade Me delisting from the NZX.

Trade Me this week confirmed it is in the process of undertaking a restructure that may result in a small number of job losses. It’s new CEO, Anders Skoe, who headed the leading online classifieds website Finn.no in Norway, before crossing the world to apply his experience here, says Trade Me is “very much a growth company”

“Having over 600 employees on the ground in New Zealand is definitely an advantage we have over our competition,” he says.

“We are out there talking to consumers and Kiwi companies every day and that really allows us to develop our offering in a way that is more bespoke to the Kiwi consumer and company would like to see.”

Trade goes social

But Skoe arrives as Trade Me faces more competition than ever. The platform known for its Kiwi logo, quaint yellow and blue colour scheme and ability to serve up a deal, has long since moved beyond the secondhand goods auctions of its early years.

It’s bigger business is now listing new goods for sales as well as advertising cars, jobs, real estate and selling financial services. As such it faces a wide range of competitors, from Mighty Ape and The Market, set up by retailer The Warehouse, to international sites like Alibaba and Amazon that ship goods to New Zealand.

The socialisation of e-commerce is also a big threat to Trade Me, which is essentially a social network in itself, but a minnow compared to Facebook, which has 2.9 million New Zealand users. In 2016 it launched Facebook Marketplace, a free system for buying and selling goods online. Users simply list a product with a description and some photos and advertise it to people in their local area, typically up to 150km away.

The seller and potential buyers then get in contact via Facebook Messenger and arrange to meet up to exchange the goods for payment. It’s a simple system, proving massively popular with Kiwis, claiming 20 - 25 per cent of sales from general secondhand listings, by some estimates.

But it lacks all of the safe payment and reputation systems that have made Trade Me such a popular place to do business.

Buy, sell, trade

Before the rise of Facebook Marketplace, the social network was already a bustling hub of trading thanks to informal Facebook Buy/Sell/Trade groups.

Anyone can set up a Facebook group and that’s exactly what 17 year-old Aucklander Josh Wilkins did in an effort to create a place to sell clothing and fashion accessories. He progressed to selling vape pens, which were all the rage at the time, a legally grey market that was attracting plenty of interest online.

“I started to import very entry-level products, I’m talking $200 - $1,000 and wasn’t prepared to pay anywhere near what the success fees on Trade Me were to actually make that e-commerce platform profitable,” says Wilkins.

“It kind of just took off.”

Wilkins was able to leverage the Facebook platform to quickly amass a large audience in his groups. These days he runs 21 groups, split up regionally to appeal to people who want to trade with others in their area and complete the sales process.

Trade Me CEO Anders Skoe Photo: Supplied/Trade Me

He now has over one million members in his groups and while there will be some duplication of members across them, his largest group in Auckland has 93,000 members. Wilkins found that interest and engagement in the groups grew as other people started offering their own goods for sale.

Data-driven approach

His advantage as group owner was that he could control the prime real estate at the top of the group’s page - a banner image that he could use to list his own products - or those of merchants keen to reach that burgeoning audience.

Indeed, Wilkins no longer sells his own products in the groups, but sells the audience itself. He charges merchants for preferential access to the groups to list their products and have them prominently displayed. He is also able to use the data insights available to Facebook group owners to give advertisers valuable intelligence on activity in the groups.

“Out of those 93,000 members, there might be 30,000 active users per week and that means that people have either viewed, commented [on] or interacted with group content and that is the statistic I sell off.”

By day, Wilkins works at an Auckland advertising company. By night, he runs a thriving small business based on his groups. At any one time he employs 2 - 3 people working 24-7 to screen listings in the groups, removing illegal goods and working occasionally with the New Zealand Police when suspected stolen goods are listed for sale. It is a big job with 20,000 - 30,000 postings across the groups each day.

Wilkins admits that the biggest drawback to using Facebook groups or Facebook Marketplace is a lack of trust. It is something Facebook could easily address if it got serious about the e-commerce marketplace.

But the type of systems that Trade Me has in place to ensure its members aren’t scammed and ripped off are expensive to maintain. Facebook runs a notoriously lean customer service model, except for its larger advertisers.

Still, Facebook has begun the process of integrating shipping and payment gateways into Facebook Marketplace in its home market and is partnering with large merchants to give them an official presence in the Marketplace environment. It may well be just a matter of time before these tools are available to users in New Zealand.

For Wilkins, the availability of those tools on Facebook could change the e-commerce game virtually overnight.

Liquidity

Gaining a toehold against Trade Me is understandably very difficult. Many start-ups have tried and failed to take on the market leader. Allgoods.co.nz arrived in 2018, initially offering small and medium-sized businesses the opportunity to start online stores and sell products through classified listings.

It was offering a lower success fee than Trade Me and attracted over one million product listings when it began offering free general listings as an alternative to Trade Me’s popular auctions for mainly secondhand goods, a business worth more than $70 million a year for Trade Me.

One of the key measures of success in e-commerce is what is referred to as “liquidity”. This is a measure in how well a marketplace matches buyers and sellers and the speed with which transactions are made.

Allgoods is a data-driven start-up and Fawcett and his colleagues have used data tools to analyse the website activity of competitors, including Trade Me and Facebook Marketplace.

Allgoods can collect data on what types of goods are being sold on those platforms and for what price, where the buyers and sellers are and how quickly sales are made. This has allowed the company to fine-tune its own offerings, but also delivered some home truths about the online marketplace.

Facebook is winning when it comes to liquidity, says Allgoods founder Levi Fawcett, who sees many sales completed on Facebook Marketplace in 20-30 minutes.

“Facebook’s liquidity is extremely high,” says Fawcett. It is better than ours and far. Far better than Trade Me’s. It’s actually scary how good Facebook is. Long term it will be hard for them not to win.”

Fawcett says it is unlikely that any player can beat Trade Me as a marketplace for general goods, particularly with Facebook’s free platform gaining traction. That has led Allgoods to focus on lucrative niches, such as automotive parts.

Its dedicated site Partly.co.nz, lists nearly 1.5 million automotive parts for sale. The average sale price of an automotive part listed is $240 making it a relatively high-value marketplace. Fawcett said Allgoods had recently raised around $250,000 in angel capital to fund its push into automotive parts, an area that wasn’t previously well-served by Trade Me or parts suppliers themselves.

Digital transformation

Fawcett’s view is that there’s still plenty of growth potential in the local e-commerce market, so while Allgoods will continue to jockey for position with Trade Me, Facebook and a growing band of new players, the market for online sales is growing overall.

For Anders Skoe, now steering the ship at Trade Me, New Zealand is lagging in the digital transformation that will ultimately see more business go online.

“If I were to call out one difference between Norway and New Zealand I would say that the digital transformation of the economy has come a lot further than it has here in New Zealand,” he says.

“I was surprised at how important print distribution and print advertising continues to be relative to what you see in Norway or Europe in general.

He’s also surprised at how many physical stores exist in New Zealand.

“Again, that transformation has gone quite a bit further in other parts of the world”

So even with the big multinationals increasing stamping their mark on New Zealand e-commerce, there’s plenty of scope to grow the pie for everyone.

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