by Beverley Head
In the beginning there was REA. It was 1995 and the real estate advertising marketplace was established in Doncaster in Melbourne’s East. Two years later two soon-to-be iconic online marketplaces also sprang out of Melbourne – Seek and Carsales.com.au.
Today the city is overrun with marketplaces; Envato, Redbubble, 99Designs and Aussie Commerce being just some of the best known. It’s even spawned Marketplacer, a software company that writes for marketplaces.
Ask the founders of these organisations what makes Melbourne so special for marketplaces and there is an almost unanimous response; “I’ve thought about that and don’t really know why…it’s chance/coincidence/luck,” they state.
Push them a little harder though and what they describe is a marketplace and Agile ecosystem that has acted as a fertile petri dish for new businesses.
Cyan Ta’eed, co-founder and executive director of Envato, says that although she and her husband and co-founder Collis Ta’eed set up shop in Sydney in 2006, they relocated to Melbourne in 2008 in order to access the “really diverse and good talent base” and particularly the “high calibre Ruby On Rails community.”
Neither Cyan or Collis had lived in Melbourne previously, but were lured by access to the strong Agile and start up talent base. “And there are a lot of early adopters in Melbourne, probably more than Sydney,” she says, which was useful for the then fledgling marketplace.
Today with 1.75 million active buyers, Envato has delivered $300 million worth of services through the platform, and has 250 staff around the world, 180 of whom are located in Melbourne.
The high concentration of marketplaces in Melbourne also means: “We have been able to acquire talent who understand the marketplace model,” says Ta’eed. “I don’t think you get that talent in other cities.”
And there is a willingness to share. The Ta’eeds are now mentoring Morgan Ranieri, co-founder and CEO of Melbourne’s providore marketplace yourgrocer.com.au. Ranieri says that he is “not sure I know why with technology and start ups when you have success in one area it snowballs… you see Seek and Carsales.com.au do well and think ‘I’ll have a go.’ And then sew back into the ecosystem through investment and mentoring.
“Being part of the Melbourne ecosystem has allowed me to plug into skills – the fact that I can book up a meeting with Envato is definitely a big leg up,” says Ranieri.
That marketplace ecosystem has also been valuable for Martin Hosking, CEO and co-founder of Redbubble, though he thinks Melbourne’s marketplace concentration is a product of good luck rather than planning. Hosking’s university years were spent in Melbourne and he chose to settle there when he returned from the US. “I know the guys at 99 Designs and Seek and Envato and why they set up here, but I can’t think of any other reason.
“Marketplaces are an Australian phenomenon. The reason we got traction is that these are not very capital intensive marketplaces, which is good for Australia where we have not always had access to capital.”
He thinks the rise of the Melbourne marketplace is “more a Darwinian thing; you look at the ones that survived and the ones that remain are marketplaces because they are the most likely to survive without access to capital. “If a market slowly grows into itself they are incredibly capital efficient.”
Access to Agile skills and a Ruby on Rails community (which Hosking said has helped Redbubble scale rapidly) also made Melbourne attractive, but Hosking notes that Sydney also has a growing Agile base.
“So for example if we introduce a speedier checkout process… we want to measure the total impact and adjust to that – where waterfall assumes an outcome. Also marketplaces go through phases that you can’t predict,” says Hosking, saying the Agile approach makes it easier to respond rapidly to changing situations and to scale.
Eric Willeke, formerly with Rally Software and now director of transformation services at CA Technology following CA’s purchase of Rally, isn’t too surprised at the marketplace concentration that has emerged in Melbourne or its determination to leverage the local Agile community.
He says there is clear evidence of sectoral consolidation in the US with tech companies focused on Silicon Valley, medical technology in Austin, and insurance companies anchored in a handful of US cities. He believes that in any highly competitive market there are benefits to be wrung from locating close to other similar entities.
“As you close the gap between technology and business you need technologists that understand how value is delivered to the market. People who understand the target value of the domain are more valuable. You have more capability, faster decision loops and success finds success.”
Ajay Bhatia, chief product and information officer of Carsales.com.au, says that his perception is that although Sydney has a growing Agile community, the concentration of large enterprises has made its adoption somewhat slower than in Melbourne. “Sydney does have the image of being less Agile than Melbourne,” he says.
“And the public success of REA, of Carsales. com.au, of Seek – it’s a whole virtuous circle of success breeds success with the founders as role models,” says Bhatia.
That role of the early marketplace founders can’t be overlooked according to Hosking, who says that both he and Seek founder Paul Bassat, now with Square Peg Capital, are active in Melbourne’s start up landscape.
“With each wave (of startups) the people involved in the earlier wave are reinvesting in the next wave. When we are reinvesting money and skills we tend to back things in our area of expertise… that’s because you can’t do due diligence on a company you don’t understand. You reproduce, but we are getting broader.”
Adam Schwab, managing director and founder of Aussie Commerce, has like many of his peers mused on why Melbourne became a magnet for marketplaces, deciding finally that it was “just luck” because “start ups are very democratic”.
Nevertheless the “luck” was such that “myself and my schoolfriend (Jeremy Same, Aussie Commerce executive director and founder) went to school in Melbourne and had quite a few businesses when we were at school,” and set up shop as adults, also in Melbourne. “We don’t consider ourselves a Melbourne business though I live in Melbourne”, says Schwab, who said that the business was today very Sydney centric.
“I don’t think it matters where you are based as long as you are prepared to work hard. “You’ve got an idea, run with it, and put everything into it.”
Then, presumably, catch the tram home.