Trademe/Motorcentral Merger: Competition Concerns

Concerns regarding the proposed merger

We are concerned that TradeMe might withdraw or limit access to Motorcentral listings if the merger is approved. TradeMe/Motorcentral might do this in:

Simply turning off the listing feeds is enough technology. Commerce can be achieved through differential pricing. For example, a merged entity might charge dealers one price for TradeMe services, and another, higher, price for listing on multiple platforms. Although dealers may not like this pricing model, they will eventually see little value beyond TradeMe listing and will cease to be competitive in the future. Different pricing, such as raising the price of Motorcentral listings for other classifieds listing companies, is not an option.

We are sharing our concerns with TradeMe. TradeMe's clearance application states that TradeMe will have "no incentive" to foreclose after the merger. This is incorrect, we think. TradeMe's business model is built on winning as many listings possible. Why wouldn't TradeMe use Motorcentral as a way to direct dealers to its platform. This prospect, as well as the protection TradeMe from rivals on global social media platforms, is what we expect to be the key reason for the merger.

TradeMe also notes that it claims in its clearance application that it cannot "remove, degrade the capability of Motorcentral to upload or integrate automatically with other online vehicle advertisement portals".

Motorcentral would lose DMS clients and revenue to other DMS providers. TradeMe would also suffer a loss of revenue if it attempted to force dealers into uploading to TradeMe Motors. Dealers would "very quickly discover ways to direct their spending to the advertising channels they choose".

Motorcentral's market position is misrepresented, as well as the technology involved, according to our opinion.

Motorcentral is a listing aggregator. It is believed to have around 500 dealers and generates approximately 26,000 real-time listings. Motorcentral is a platform that focuses on small and medium-sized dealers in used vehicles.

Motorcentral's control over its vast SME dealer base is not something that any new entrant or incumbent could challenge.

DMS product companies need scale. We get that. Motorcentral would be very challenging for a challenger company to achieve scale. Motorcentral manages dealers inventories through a variety of products that make it very difficult for challenger firms to win scale off Motorcentral. This is because: changing DMS providers can be complicated and require manual data entry onto new platforms and other setup hurdles. A Motorcentral dealer would also need to manually "copy-and-paste" their inventory listings into Excel sheets to place them on non-Trademe advertisers.

We concluded that we don't believe SME dealers will or could easily move away from Motorcentral if TradeMe started favouring them over other platforms. Because SME dealers would not see the benefits of dealing with multiple platforms to justify higher costs, manual uploading time and hassles, or the potential downside of losing Motorcentral and its product range in exchange for a less-tested business partner that offers a inevitably more valuable bundle.

Also, we note that Motorcentral will provide seamless access to TradeMe if the deal goes through. TradeMe would be mandatory for all dealers, regardless of whether they like it or not. TradeMe could make Motorcentral's DMS product competitors more difficult to place ads on its platform if it so desired. This would also make it harder for Motorcental's DMS product companies to gain market share after the merger.

Autoplay

Motorcentral's only real potential DMS competitor is Autoplay, as we see it.

Autoplay's automobile arm, however, is focused on large motor-vehicle franchisees that typically sell higher-end vehicles than Motorcentral's SME or used vehicle dealers.

Motorcentral and Autoplay both control the listings of all dealers. They don't appear to be competing head-on, but rather they each target different markets. We don't see Autoplay imposing any significant constraint on Motorcentral if it starts favouring TradeMe over other platforms.

We don't see why TradeMe would not use Motorcentral to increase its listing revenues and stop rival businesses from vying for market share.

TradeMe's previous form

We also note that TradeMe has been a poor investor in the past. TradeMe purchased 100% of Autobase in 2012, a company it had previously held a minority share. Dealers can log in to Autobase and manage their own ads. Autobase was an independent company that used to send these advertisements to other advertising platforms such as Autotrader or AA Carfair. TradeMe invested in Autobase in 2012, but before their acquisition of 100%, we believe TradeMe cut Autobase's feed to Autotrader or AA Carfair. Autobase claims it has 67,195 vehicle listings today. We understand that this is what Autobase shows on autobase.co.nz but not elsewhere.

Trade Me's investment and eventual total ownership of Autobase, a key listing aggregator, has been key to Trade Me's dominant position in digital listings. Without access to Autobase's listings, other vehicle listing platforms have had difficulty scaling up.

We understand that Autobase dealers that store their data through Autobase (owned and managed by Trade Me), will be charged $50 per month if they wish to export their data to Autobase from any other platform (ie. Autoplay). Dealers have the choice of either paying up or manually loading data to use another DMS. We know that dealers will decline trials on rival platforms and stick with Autobase/Trade Me due to the high cost.