It was the late 90s. Andy Higgins was 24, living in London and working for a company called QXL.com. The young South African had already helped to set up several online auction sites in the UK, Germany, France and Italy for his employer, and business was booming. This was the era that launched – and crushed – a million dreams. Caught up in the exuberance of the time, and having gained a huge amount of experience in the online environment, he decided to come home and set up a local online marketplace – the first of its kind in the country. Higgins didn’t set out to reinvent the wheel. He knew that developing a unique system when someone else had already done a great job of it was a waste of time and money. That’s why he based his model for Bidorbuy on eBay, the world’s largest online trading community.
What differentiated Bidorbuy from online retailers then – and now – is that it doesn’t sell anything. It merely provides a platform to facilitate trade between buyers and sellers. Hence, set-up costs were low as there were no big capital expenses, no need for a brick-and-mortar presence, and staff could be kept to a minimum as the business would be driven largely by the technology backbone. In addition, it was a model that could easily be replicated anywhere in the world. To understand the business model, you have to know how the platform functions: any user who wants to sell can list the item or service for sale on the website. The seller sets a start time, end time and price, and provides a detailed description and images of the item. Other users can browse and bid on or buy items they are interested in. If there’s a sale, the Bidorbuy system puts the buyer and seller in contact with each other and it’s then up to them to conclude the deal, including payment and shipment. Bidorbuy makes its money by charging the seller a commission of between 1% and 5% on all sales, except for high-ticket items such as cars and properties where a flat listing fee per item is charged.
Finding the money
Enthused by his idea, a colleague in London suggested Higgins speak to her father, an Israeli investor who was visiting the city. The two met at a private casino. Higgins arrived armed with a two-page business plan and had to borrow a jacket to be allowed entry. “My plan was sketchy, but it was a time when investors wanted big ideas more than a solid business plan,” Higgins recalls. “He was utterly taken with launching this type of business in a country that was off the radar and really represented a land of opportunity. I also managed to convince him that given my experience, I was the right guy to do it. The next thing I knew I was on a plane to Israel to meet with his business partners.”
They were keen on the idea too. Online marketplaces were already big in Europe and the US, eBay was a tried and tested business model, and the rest of the world represented huge prospects – it was 1999, and the dot.com boom was in full swing. eBay had gone public a year earlier and founders Pierre Omidyar and Jeffrey Skoll were billionaires. With strong branding and a focus on collectibles, the site had started when Omidyar listed a single broken laser pointer for sale – as a test for his pet project – and sold it to a collector of laser pointers for $14,83, far more than he had bargained on. Everywhere Internet companies were emerging with ferocity and frequency. Caught up in the euphoria, Higgins’ investors gave him $250 000 to start the business. It launched in South Africa first, but he had by now decided to base Bidorbuy in Sydney from where he would launch other sites across the world. Once the South African site was live, India and Australia were next on the list.
Then the unthinkable happened: in March 2000, while he and his team were preparing to launch in 12 countries, the Nasdaq collapsed and the Internet boom came to a halt. Multi-million dollar start-ups had reported huge losses, some folding within months of launching. There was no hope of attracting further investment and no way that Bidorbuy was going to carve a niche for itself in the doom and gloom of the fall out.
Higgins retrenched employees and put cost-cutting measures in place just to keep the company afloat; most of the sites were shut down, except for those in South Africa and India, where the absence of competitors made it possible to keep going. Higgins also hadn’t counted on stiff competition in Australia from the likes of eBay and Yahoo Auctions, both of which were backed by big local media companies and were about to launch too. The Australian site was sold to eBay and 50 people were let go; the Indian site was eventually merged with competitor Baazee.com (and subsequently sold to eBay in 2004), with the profits from the sale being ploughed back into the South African operation. “We had some offers to buy the company, but they were way below what it was worth,” says Higgins. ”And neither I nor the shareholders were ready to sell because we believed we had a great product and that if we could ride out the storm, we would eventually reap the rewards.“We had to let about 25 employees go in South Africa, which was a hard task. I came back in August 2001 and at one point, it was just me and one other person working for the company.
We were not making any money. I managed to keep going only because I had saved the pounds I had earned in England.” Higgins says that although he was tempted to give up, he chose instead to put the business in maintenance mode, keeping it ticking over with just a couple of hundred users and making sure expenses were minimal. Although the timing could not have been worse for Bidorbuy’s launch, Higgins admits that he also fell into the dot.com trap – too much, too fast. His dreams of global success had been cut down to size and he had to re-adjust his thinking. The South African site was also weighed down by Internet access that was expensive and slow. He refers to the years from 2002 to 2004 as the Dark Age for local Internet users. Nonetheless, his investors were keen to persevere and so Bidorbuy grew bit by bit, its popularity fuelled by the fact that there were no direct competitors in the country. Higgins kept himself busy by running the business while doing his MBA at the same time. “I’d taken a hard knock, but I was still young and I was single so I had all the time in the world to keep working.”
2005 was a turning point. That’s when always-on access began to replace dial-up. Bidorbuy saw the impact of this progress as its gross merchandise value (GMV) grew by between 60% and 120% every year from 2007. It’s now at R30 million a month. Contrary to popular belief, the majority of goods sold on Bidorbuy are new, not second-hand. The ratio of fixed price listings relative to auction listings is on the increase, says Higgins, and similar to sites such as eBay, sellers make a business out of trading on the Bidorbuy website.
Having started out as buyers, they realise they too can make money by selling goods. In some cases these sellers have quit their jobs and become full-time traders. Students have put themselves through university and stay-at-home moms are earning a great income. The most popular category is jewellery and watches, followed by coins and notes, gemstones and rocks, computers, cellphones and electronics.
“It’s a good mix of mainstream consumables and unusual collectibles,” says Higgins. “A lot of the traders operate from home; the walls of their homes are lined with merchandise they’ve imported from China. One guy who sells bedding and linen has practically turned his home into a warehouse. He has his whole family involved in the business.” Today, Bidorbuy employs 25 people – one marketing person, three accounts people, a tech team of five, and the balance is made up of customer service and IT security. “The biggest challenge to the business is that people think it’s unsafe. We process more than 80 000 transactions in a month, and although fraud is very low, every fraudulent transaction reflects extremely badly on us. We cannot eliminate scammers, but we have sophisticated systems in place to protect our users. Each seller is also rated publicly, which is an effective way of weeding out dishonest sellers.”
Much of Bidorbuy’s marketing has always been online, although a national radio campaign, as well as selective advertising in niche magazines, on street poles and on billboards have also been part of the marketing mix. It’s the transactional model that has fuelled revenue growth. It’s so successful that the business does not even require a sales team. “The bulk of our marketing budget is spent online. We’re big on search engine optimisation and Bidorbuy is one of the top Google customers in the country. We track and measure everything so we know what we are spending and what the return is. We are also listed on many shopping comparison websites such as OnlineShopping.co.za, Shop-Online.co.za and Jump.co.za.
Focus on the user
One example of how Bidorbuy focuses on enhancing the user experience is bobPay, a payment system that is an optional add-on for users. This speeds up the receipt of payments between buyers and sellers and helps sellers to reconcile payments they receive. This service includes credit card and EFT payments. “Dealing with payments is fundamental; customers must be able to pay by EFT and credit card. Many smaller sellers don’t qualify for credit card merchant accounts themselves, so they use our payment system. We also give large sellers customised tools to make bulk listing of products easier, and to enable integration with online shopping cart solutions.”
A strong technology platform
Reflecting on the growth of the business, and describing himself as a bit of a nerd, Higgins notes that his strength lay in IT, all of which has been kept in-house. “The technology platform is at the heart of our business model, and it’s very scalable – the number of transactions could triple or quadruple and we would not have to increase our overheads. The entire business is automated and is run by our own team.” In the early days, one of the key requirements was to build the network of sellers and buyers, the archetypal Catch-22 as they would come only if there were lots of buyers and sellers.“We had a sluggish start, but the business scaled rapidly once we achieved critical mass,” says Higgins, referring to Metcalfe’s Law, which states that the value of a network is proportional to the square of the number of connected users of the system. Simply put, the value of the network increases with the total number of users, because the total number of people with whom each user may trade increases. Today Bidorbuy has more than 1,1 million unique visitors, 26 million page impressions, and 700 000 items listed for sale every month. Gross merchandise value is at R30 million per month and growing.
Bidorbuy.co.za is the largest online marketplace in SA
- Over 1,1 million unique visitors every month (source: Google Analytics)
- Over 26 million page impressions every month (source: Google Analytics)
- Over 700 000 items listed for sale every month
- Over 80 000 sales every month
- Over 50 000 successful online auctions (i.e. ending with a winning bidder) are conducted every month
- The site is growing at more than 60% per year
- Bidorbuy.co.za is ranked the 7th most popular .co.za domain in the world
- Bidorbuy.co.za is ranked the 20th most popular site in the world visited by South Africans
Source: Alexa Top Sites