Trade Me's 'greed' fuels new rivals

Is New Zealand's premier auction site Trade Me justified in going for a money grab by raising its fees, or will it open the market up to those that might do a better job?
Written by Darren Greenwood, Contributor

E-commerce websites are apparently very easy to build nowadays. But the problem, as one operator told me this week, is if you build it, will they come?

You might recall me last year posting about the dominance of the auction site Trade Me. This is the pioneering Kiwi website that was bought by Fairfax some years back for NZ$700 million, and, since then, has gone on from strength to strength, with its own listing on the stock market.

Trade Me's dominance came under the spotlight again this week, when it announced a hike in its fees of more than 5 percent. This followed another fee rise 20 months ago.

Trade Me argues that it needs to increase prices to cover the cost of improving its website, and to make it easier to use on smartphones.

However, its users, who run into the hundreds of thousands, have been complaining, and some accuse the auction giant of "greed." They point out that rising prices in general will push their products into higher price brackets, so inflation will lead to higher revenues for Trade Me anyway. It all smacks of a greedy monopolist abusing its dominant position.

Certainly, the auction site is a major cash cow for its owner, Fairfax. Last month, Trade Me reported an 8.4 percent jump in annual profit to NZ$75.6 million, with a profit margin of 75 percent.

But is Fairfax in danger of killing the goose that lays the golden egg?

As I said earlier, websites are very easy to build nowadays, and just as we've heard the complaints from Trade Me users, two new rivals have made themselves known.

There's Wheedle, backed by Rich Lister and Mainfreight co-founder Neil Graham, who promise to spend "millions" to promote their site. There's also ListSellTrade, which was sprung out of a website and advertising company, and is also promising to spend on nationwide advertising to garner attention.

Both say that they will massively undercut Trade Me's growing fees, which, according to the duo, provided the business case and market for them to enter.

It doesn't take a Fairfax-owned journalist to point out the challenges that the newcomers will face. My colleague Chris Keall of the National Business Review has confirmed this, noting that Trade Me already has rivals — but it has also fended off a few, including eBay.

Keall noted that Trade Me has a bigger membership and more participants, which means that auctioned items will likely achieve a higher price to offset higher fees. Trade Me runs trouble free, and despite its Australian ownership is seen as a part of Kiwi culture.

However, the comments under Keall's article highlight much grumbling in the online community. It seems that other websites are springing up for specialist sectors, suggesting a nibbling around the edges of Trade Me's vast and broad markets.

The big move for Trade Me is to expand farther into online shopping, and to be a platform for companies introducing overseas-sourced products into New Zealand. Thus, Trade Me might not be too worried about losing some sales around the edges.

Nonetheless, it is great to see the appearance of such competition to keep Trade Me on its toes.

I agree that Trade Me is unlikely to lose its dominance, but the very fact that its greed is fuelling the arrival of new rivals should keep Trade Me's greed in check and help keep it "honest," as it were.

But to ensure this, unhappy Trade Me users will have to give the newbies a go. Because if they don't use them, they will lose them, which is what we have seen before, and Trade Me will grow even more dominant and greedy than ever.

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