Why TradeMe is Number 1 in NZ

There could have very easily been no such thing as TradeMe in New Zealand. Ebay was the market leader worldwide but had not yet ventured as far as NZ in 1999. Perhaps they thought NZ too small a market to bother with at that time. Perhaps they thought the small population didn't justify the costs of establishing an office here. Sam Morgan, TradeMe's founder had seen how successful the online auction concept had been in the USA, but there was no local player serving the NZ market.

So Sam set to work building a basic site on his father's laptop. You can view the early site here and read more on our history page. The site became very popular as more and more people signed up. Membership was growing extremely fast. Soon enough Ebay realised what was happening and opened a NZ version of Ebay. Their site and concept was flawed in many ways. Everything on the site was listed in USD and most of the listings were a duplicate of the USA based seller's listings - not very localised at all. Hard to drive up the road and pick up a toaster you just won for $5, if the seller is in the USA!

So TradeMe is number one for a multitude of reasons. The first and probably the most important aspect that contributed the TradeMe's success is due to a marketing law called the "First Mover Advantage". This concept seeks to explain that the first significant player in a new market always has the edge over competitors who start later down the track. Once a player is well established in a market segment it is very hard for others to compete. TradeMe was the first company to offer online auctions in New Zealand. Because they were the only site they grew fast and became the significant player. By the time eBay had set up a site here TradeMe had signed up so many members that eBay didn't stand a chance. TM's market share was too great. TradeMe had become a daily part of people's lives.

The other key factor to TradeMes success over eBay was that TradeMe was designed from the start to be very simple to use. Sam put most of his attention on making the site load fast. There is nothing worst to turn away customers than a site that is slow to load. And of course a fast loading page is particularly important during the frenzied final moments of bidding at the end of an auction.

Throughout their growth TradeMe have shunned unnecessary site features that would complicate their simple model. They don't have so many features that the site becomes overwhelming to navigate. If you every get a chance to use eBay, you will notice just how complicated the navigation panels are. Yes, lots of features, but very hard to work out what to do. Another downside to eBay is the complicated and lengthy page layouts for each auction. eBay also allows sellers to write their ad text using html coding. This means you can make your auction look like a website page - you can personalise your pages.

The majority of auction pages look cluttered and each page from seller to seller is different so you have to adjust your eyes to each sellers individual page layout which is very straining on the eyes and the brain! Not a good thing when you are supposed to be focused on bidding on the auction, or deciding whether you want the product in the first place. TradeMe keeping each auction page uniform has enabled users here to focus on the product being sold and bidding, and not being distracted by the flashy graphics some eBay sellers use on their auctions. Keeping the pages as simple as possible also allows TradeMe faster page loading times!

So TM had the first mover advantage initially, but why hasn't a big company with lots of money to invest in a competing site not entered the market? The simple reason is market share. TradeMe has almost 2 million members, many of whom have been members for years. They are used to, and have formed the habit of using TradeMe daily. It's hard to break a habit. It's also hard to get 2 million members to break a habit and switch to a new website.

So why do TradeMe members keep the habit? Why do they continue to use the site when they could trade on some of the new competitor sites without fees? For the simple fact that by having the biggest market share, TradeMe also has the biggest range of goods listed. The seller pays the fees, buyers don't pay any fees. If you are a buyer and you want to buy the best product for the lowest price where are you going to go? To the biggest online mall in the country! Where are you more likely to find the final missing item for your collection? The biggest market or on some new auction website with only 2,000 products listed?

If you are a seller who wants to get the top price for your product, where are you going to list your product? Where the most buyers are! You won't bother putting auctions up on some new website with only a few hundred members! Also if you are a seller writing ads for your products can be quite a chore. By writng an ad and managing auctions you want to make sure its worth your time, so you will list on the biggest market place.

So could a new entrant take TradeMe on? It's highly unlikely. Lots of new sites offer no fees and are totally free. But again, if you want the best price for your couch, you are happy to pay a $20 (5% success) fee to sell you couch for $1000, over listing your item for free on a new website and only getting bids of $500. You save $20 but lose $500. New sites offer fewer buyers, less competition and lower bids. As a buyer you can find a few bargains on the newer sites, due to less bidding competition. But as the seller receiving a very low price, you probably won't bother listing your items again on the new site again. And the buyers will go where the products are.

So it seems that TradeMe has firmly established itself as the market leader. And in some market segments particularly online auctions, there is only room for one dominant player. The biggest range of products (for the buyers benefit) (and the most potential buyers (for sellers benefit) will always beat a no fees site.

The Sellmefree.co.nz website is a good example of a big media company trying to take on TradeMe. They conducted lots of expensive advertising; TV, bus stops, advertising on the sides of buses. They threw a lot of money into the venture. The websites charges no fees, but as we know no fees doesn't work when trying to build the best site. How do you pay for the growth of the site? It has to come from somewhere. And advertising revenue alone is not enough to grow the business as Sam found out in the first year when the site was losing money. He HAD to change the website revenue model from banner advertising, to auction success fees just to survive. People are happy to pay a small success fee if they can offer their items to 2 million potential customers and receive the best market price. The fact that Fairfax paid $700 million dollars for TradeMe when they could have started their own site shows the power that a market leader has. If you can't beat 'em, join 'em

So it looks as though TradeMe is set to remain the market leader. But this has not stopped many from trying. People will continue to try to be the next TradeMe. Who knows, one day a new player might start taking market share away from TradeMe. Perhaps if TradeMe raise their success fees too much once Sam Morgan steps aside from the Day to Day running? Read on to learn about some of the contenders....who knows, one of them might just be the next big thing.

Next Page: Other Online Auctions Sites - NZ



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