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Idealog—in the ideas business

Why selling TradeMe could be a smart move by Fairfax

Big news in Australasia this weekend was the planned sale of the remaining 51 percent that Fairfax still holds in TradeMe.

ben kepes on trademe saleLance Wiggs has been doing the rounds of the media outlets with the view that the move is “absolutely bonkers”. At first look it’s hard to argue with that, until one catches a breath and gives Fairfax a modicum of credit for (maybe) knowing what they’re up to. I left a comment on the NBR story about the move but since NBR prefers its commenters to be both anonymous and full of ad hominem attacks, my comment got blocked. Here it is pasted below to add to the conversation.

I’ve spent a heap of time over the past few years with “legacy” businesses. From banking to travel to telcos to software I’ve had a glimpse inside these big companies and looked at what innovation might mean to them. I’ve spent more than my fair share of time hitting my head against a brick wall, frustrated at how the solutions were just so obvious, and that these massive companies, with all their smarts, couldn’t see the absolute tsunami which was bearing down on them.

But I’ve also seen examples of large companies doing smart stuff. Look at how Sprint has reinvented itself over the past few years. Apple’s return from the brink is a lesson in corporate rebuilding. While in the technology industry we’re keen to write off the traditional dinosaurs, companies like IBM are still going strong, generations since their inception.

Survival and innovation is never guaranteed, but I’d be reluctant to claim that TradeMe was Fairfax’s one shot at reinventing itself – that’s a case of shortsightedness that might prove premature.

Thinking about this over the weekend and I’m not so sure that everyone’s incredulity is justified. If you take the (admittedly attractive) view that Fairfax is a complete dinosaur, unable to innovate on its own and sitting atop a mountain of crumbling assets with rapidly diminishing value, then you’re likely to see this deal as the final nail in the coffin – an example of a company getting rid of the one asset that could save it.

Another school of thought would suggest that Fairfax can double the amount it bought TradeMe for but, more importantly, it’s had five or so years to look deeply at the culture and the paradigm within which TradeMe works and has been busily looking to apply that model in new ways to other initiatives. So if Fairfax could take the money and build some new businesses that, unlike TradeMe, are not nearing the top of their potential growth trajectory, perhaps this is a smart move.

TradeMe is an awesome business, but it’s hard to see how they’re going to markedly increase value in the mid to long term, take a few of those millions made from the total sell down and apply them to new businesses with potential for mass growth.

Of course there is still the issue of the innovator's dilemma and the fact that Fairfax would seem to be controlled by people with a fairly traditional view of the world (ie Rinehart, whose idea of “value add” is to dig strip the ground bare – either literally as in mining, or figuratively with her interesting investments).

Either way, Fairfax isn’t completely thick and, just in case anyone forgot, Sam Morgan, founder of TradeMe and someone who “gets” the new world, is a director of the company, I’d be surprised if he was a part of this decision without a plan going forward…

Ben Kepes is an analyst, an entrepreneur, a commentator and a business adviser. His business interests include a diverse range of industries from manufacturing to property to technology. He blogs at

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An interesting alternative perspective Ben. No, Fairfax isn't stupid. I'm not so sure that Sam Morgan has much sway though, but I'm just guessing. I think the power behind the decisions is the same as in the many print media companies, especially newspapers around the world who are struggling with a decline in print media. They are the people who look at the numbers, who look at the spreadsheets, looking to reduce debt and overheads. Its interesting that it appears that investors like the idea from both Fairfax's perspective and TradeMe.

Print newspapers aren't dead, but the decline will continue at a rapid pace if they don't adopt some disruptive technologies and reinvent themselves. That reinvention is unlikely to come from the people pondering the spreadsheets looking for people and costs to cut. It could come from within, asking staff at all levels for their ideas, but old school corporates aren't good at that.

Disrupt or be disrupted. The same goes for TradeMe. I think they still have plenty of scope for growth and the ability to protect their turf. I suspect that the sale had nothing to do with the ongoing potential of TradeMe, but simply the fact that Fairfax have way too much debt and needed the money. The problem to me is that if they keep doing business the way they have always done, the debt will continue to increase again and they may not have any cash cows left to bleed.

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