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Shamubeel Eaqub: Trade Me is 3.5x more productive than national economy

Contributor:
Fuseworks Media
Fuseworks Media

Trade Me is three and a half times more productive than New Zealand’s national economy according to analysis by economist Shamubeel Eaqub.

Eaqub’s company, Sense Partners, analysed Trade Me and national data to determine what impact Trade Me has had on the New Zealand economy over the last twenty years.

"Trade Me has had a significant impact on the New Zealand economy - it makes a significant contribution to our GDP, grows regional economies and Trade Me’s alumni have created incredible businesses off the back of their success with this Kiwi company," he said.

Mr Eaqub said Trade Me’s level of productivity really stood out. "We discovered that Trade Me is three and a half times more productive that the national economy. We estimate Trade Me created $380,000 of economic value per employee in 2018, compared to the economy average of $110,000.

"In practical terms, a business or industry is productive if it generates high levels of wages for its workers (returns to labour) and high levels of profits for its owners (returns to capital).

"Trade Me delivers on both fronts: it pays higher than average wages and generates significant profits relative to the number of employees and capital employed.

"In fact, Trade Me’s productivity is ranked in the top 10 per cent of industries when we analysed 104 detailed industries from the Annual Enterprise Survey."

Contribution to the economy

Mr Eaqub said productivity was not the only measure in which Trade Me has proven beneficial to the New Zealand economy. "Trade Me’s economic contribution has increased steadily since it began in 1999.

"In the report, we estimate Trade Me as a business directly contributed around $225m to the national economy in 2018 (0.08% of GDP), on a gross value added (GVA) basis.

"While 0.08% of GDP may seem small, it is a significant contribution for a single business."

Opening up regional economies

Mr Eaqub said more importantly than overall economic contribution was the fact that Trade Me facilitates a wider scope of economic activity throughout the country. "While it’s hard to imagine now, 20 years ago commerce between regions was quite difficult.

"The further away market participants are from each other, the less likely they are to engage in commerce with each other. The tyranny of distance is real. Our analysis shows that Trade Me facilitates trade across regions. This is a positive for businesses, as it gives them access to larger markets at low cost. And for consumers it gives them access to a greater variety of goods and competitive prices.

"Trade Me facilitates significant interaction between regions. We looked at each region and explored two dimensions: which regions they bought from; and which regions they sold to.

"Our analysis shows that those who use Trade Me to sell are reaching a national market and their geographic footprint is broad-based. Trade Me offers provincial businesses the opportunity to access larger markets and help overcome distance."

Mr Eaqub said it gives producers access to large and efficient markets. It even reduces the tyranny of distance by making regions more inclusive in the economy. Trade Me encourages competition and innovation in the economy: with the weight of its users behind it, Trade Me bring credible competition to industries it enters.

Trade Me’s growth

Mr Eaqub said that Trade Me had grown rapidly over the last 20 years from the foundation of its second-hand goods marketplace. "It was on this foundation that Trade Me built its economies of scale. As the number of users, both buyers and sellers grew, it became a platform business. Over time it leveraged its expertise to increase its economies of scope.

"Last year Trade Me’s Marketplace business saw over 12 million transactions, at an average value of $65 each, totalling $0.8b, with around $0.3b of that in new goods."

However, it’s not just in buy and sell that Trade Me holds an influential market share. "New Zealand’s property, jobs and motors markets are busy, large and valuable.

"The economic contribution of Trade Me’s presence in these classifieds segments is to introduce competition with the weight of its platform behind it, which a standalone competitor would struggle to achieve.

"Our inspection of Trade Me’s expanding scope shows that it has entered into highly profitable industries, and its size and low cost of doing business as an internet platform has added credible competitive force in these industries."

The impact of the Trade Me alumni

"Being homegrown, Trade Me has left many multimillionaires in its wake. Their investments, talent and support continue to foster new generations of businesses (many who have gone to become success stories of their own) and philanthropy."

The Trade Me alumni include:

Founder Sam Morgan who has gone on to support various businesses, including Sonar6 (which was sold to a US company), Xero and vWork. He also setup Jasmine Social Investments that funds high-performing social ventures and outstanding social entrepreneurs who are solving a basic need of the very poor.

Nigel Stanford went on to co-own various sites servicing the media industry through starnow (to recruit talent), Rubber Monkey (to hire audio and visual gear) and Mighty Ape (an online retail store).

Rowan Simpson invested into Fishpond (an online retail store), Vend (point of sale software), Timely (online booking system) and various other investments and non-profit ventures through Hoku. He was also a key figure in the growth of Xero, another locally grown technology success story.

Sam’s father Gareth Morgan went on to start Gareth Morgan Investments and Gareth Morgan KiwiSaver which was subsequently sold to Kiwibank.

Movac Capital invested $100,000 to grow Trade Me and they have used the windfall gains from Trade Me to fund various ventures, including PowerbyProxi (bought by Apple) and Green Button (bought by Microsoft).

The future

"Trade Me as an entity is enormously successful: it creates many well-paid jobs, generates handsome profits and is three times more productive than the wider economy. It is clear why they have been acquired by Apax Partners and we’ll be interested to see how they grow and progress in the future."

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