TradeMe - its a household name. If you live in New Zealand and use the internet you are almost guaranteed to be a member of this website. TradeMe is New Zealand’s equivalent of eBay, the US online auctions giant. Out of a population of 4 million, 1.9 million people are a member of TradeMe. The numbers are staggering, and the inspiring story behind TradeMe's success, is one of the "little guy beats the big guy".

Early Days
TradeMe.co.nz was started back in 1999 by Sam Morgan. TradeMe started out of a simple problem. Sam needed a small heater for his cold and draughty Wellington flat. He decided to have a look online to see if he could find a nice cheap second hand heater. After much searching he stumbled across the Trade and Exchange website. This was the online section of the popular classifieds newspaper. The funny thing was that the ads on the website were only put up online 7 days after they had been printed in the previous week’s paper. By the time you called the seller the items had long been sold. Looking at the funny side Sam decided to have a crack at his own classifieds website where people could post ads for free, and best of all the ads were current!

He was getting into a bit of website design so started to create the site in his spare time on his father’s laptop. He managed to get the programming to work and encouraged all his friends and family to sign up. It went this way for a few months, there were only a small number of members but slowly membership started to grow. Before long there were a few thousand members and things started to tick along nicely.

Growing Pains
Things went well for a while until Sam found the site running costs were starting to rise. He needed to get some revenue through the site. He experimented with banner advertising. It was mildly successful but never seemed to cover the costs. Also, the long hours time Sam was putting into the site were not being compensated. After much indecision he decided to start charging for the service. At first he charged to post classifieds. This gave revenue a much needed boost, and was enough to cover costs and pay have a little left over.

After looking at what the early eBay.com site was doing in the USA he decided to add online auctions to the mix. He charged a small success fee of around 5% of the sale price if the auction was successful. The auction phenomenon worldwide was set to boom and online auctions took off. This was due, no doubt in part to the convenience and addictiveness of this new craze.

Investors show interest
Some former Deloitte colleagues, who had started a business investment firm, heard about Sam’s venture and could see the success eBay was having overseas. They decided to back Sam with an investment of $75,000, provided some office space and a salary. A few staff were hired and the business was able to buy much needed computer hardware to keep the site loading fast. They also provided technical and business support.

TradeMe was not profitable at this stage, but the investment gave the much needed boost to grow. For Sam, having his idea recognised was inspiring and fuelled his ambition even further. It was now a serious business and it was his job to foster its growth successfully.

eBay Arrives in NZ
Around this time online auction heavyweight eBay.com started to venture out from its US base. They were having phenomenal success in the USA so they were looking to expand into other countries with a localized version for each. They opened eBay sites in the major markets around the world. They even opened a NZ eBay site.

Luckily for Sam, TradeMe already had a vast membership and the eBay NZ concept had some major flaws. The prices were all in US dollars and the majority of the auction listings were duplicates of what was on the US site. The ads weren't local to NZ. This was perhaps to make the site seem like it had more auctions that it did. Because if people were to go to the site but not find what they were looking for they wouldn't return.

But imagine using a classifieds newspaper (such as Trade & Exchange) where most of the ads were for items located in a different country! It is a little hard to trade that way! You couldn't exactly drive down the road to pick up a fridge you just won an auction for. So eBay got off to a bad start. But at this time TradeMe had so many members already and too many local items listed, that eBay never really stood a chance. Perhaps if they had undertaken a big marketing campaign with TV advertising they could have had a better chance. But NZ is a small market and wouldn't have been worth the effort and the return wouldn't have been worth it. Besides their sites in countries like Australia, South Africa and India each had more members than NZ had in population! So NZ was a small fish to them and the metrics didn't appeal.

TradeMe Grows
At this time, TradeMe was growing....fast. In a relatively small country like NZ, word spreads. TradeMe's most successful marketing strategy was one they didn't even implement - Word of mouth. As members had success, be it selling their old couch, or finding the missing piece of their collection, they told their friends, who told their friends. Sam was having to buy new server equipment each month just to keep up with the site traffic. Financial projections for the next quarter were quickly outpaced. Annual growth in these early years was sometime over 1000% on the previous year. And growth of that pace takes its toll after a while.

Sam takes a break
All this fast-paced growth had its effect on Sam. Bordering on burnout, he left the company in capable hands and headed off to the UK. He was quite content not to come back but after doing something less stressful (managing an IT Team) for a year was enough to inspire Sam to return to the helm.

Back to Business
Fresh from overseas, Sam took another tack on running the business - hire more smart people to take the load off. It was working smarter, not harder. Although Sam still put in long hours he outsourced the main jobs to new staff in departments like technology, and customer service. Staff numbers grew rapidly alongside the membership that was still growing exponentially.

The business world takes notice
TradeMe was getting noticed by the business community as not just a silly website, but a serious business model. Businesses across the country started to feel the effect of TradeMe of their own operations. Most noticeably the original Trade and Exchange classified newspaper that had started it all. They cut staff numbers, and the weekly publication was becoming a shadow of its former self. People with something to sell were instead opting to put up a more effective TradeMe auction for their item and gain the highest bid, rather than be beaten down at the front gate by people calling them from their Trade and Exchange ad.

TradeMe also started to branch out from general goods auctions (second hand garage sale style items) and into the bigger markets with TradeMe Cars and TradeMe Property. Turners Car Auctions (a sharemarket darling just a few years earlier after their IPO) was feeling the pinch of the recently launched TradeMe Motors. Their earnings dropped and their share price floundered as more opted to showcase their car online rather than take it to Turners Auctions.

TradeMe Property launched with a promising tagline: Advertise your property for $50 to an audience of 1 million TradeMe customers! Real estate agents were receiving increasing requests from vendors to put a TradeMe ad up for their property. The real estate industry essentially became forced to put an ad on TradeMe for every listing on their books. This of course suited TradeMe very well.

TradeMe in the news
At this time, around 25% of the NZ population was a member of the site and TradeMe was starting to become ingrained in the NZ culture. There were regularly pieces on the 6 O’clock news showcasing an interesting auction that had taken the country by storm. Tana Umaga's handbag was a memorable auction that sold for $30,000. (Click here to view our interesting auctions page).

And of course, these news items fuelled even more interest, and introduced TradeMe to people that have never heard of it. Everybody was talking about TradeMe, and auction fever had infected the nation. Anyone could write a simple ad for their item, put a photo up and sell it to the highest bidder. TradeMe was the place to buy goods (anything you could think of, and a lot more) at great prices from private sellers.

TradeMe was also being recognised in the media for their business achievements. TradeMe gained was the number one Growth company for 2004 and gained the top spot in the Deloitte Fastest 50 Growing Companies index. Sam was being lauded as the face of a new breed of online NZ businesses.

TradeMe gets offers
Sam had received many offers over the years from companies wishing to buy TradeMe. After meeting with them he always turned them down. He had spoken with many interested parties, usually big media companies aware that world wide, advertising dollars were shifting from newspapers to online advertising on popular websites. But Sam knew that media companies didn't understand the online market which was obvious from their useless attempts at websites in NZ. He thought that a media company would screw up the site dynamics that made it popular in the first place.

But it was another meeting with another media company that Sam met minds with the head of Fairfax Media, David Kirk. Kirk was a NZ celebrity after captaining the winning team the All Blacks at the 1987 Rugby World Cup. David had moved to Australia and into the business field and had risen to the top of John Fairfax Media, a large company that owned well known NZ publications such as Sunday Star Times, Sunday News, magazines such as NZ House and Garden and a plethora of local community newspapers.

Kirk understood from discussions with Sam, that TradeMe had gained a privileged position in NZ culture and pure focus on increasing revenue thru the site would likely turn users off the site and ruin the hard work. Sam wanted to remain loyal to the millions of users that had grown the site, but also fulfill his obligations to those investors who had believed in him from the start. TradeMe needed to remain true to its business model, its community and its history. Kirk promised that if he was to purchase the business the site would remain true to its core, and profitability would be increased in ethical ways.

TradeMe's $700 million Sale to Fairfax
They agreed on a price and terms and it became NZ business history. TradeMe was sold to John Fairfax Media for an unprecedented $700 million dollars! It was March 6th, 2006 and it was the top story on every news medium in NZ and Australia. TradeMe was the word on everyone’s lips. What followed was a media onslaught; every one wanted a piece of Sam. He was interviewed countless times, every business and technology magazine, newspaper and website profiled Sam and the historic sale. If he wasn't already, Sam became an instant celebrity and household name. For his one-third share in TradeMe he would receive $227 million, and overnight become a rich-lister and one of the wealthiest people in the country.

The media crowned Sam the triumphant king not only for NZ business as a smart young business leader but as a successful NZ'er in his own right. He was the poster child for every wannabe entrepreneur from Cape Reinga to the Bluff. Every one wanted to be the next Sam Morgan, and new auction websites hit the NZ internet space hoping to cash in.

Read about "Why TradeMe is No1" here



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Article used with permission from TradeIt - www.tradeit.co.nz