QXL is an online auction company which was founded in 1997 and went public in 2000. It had operations in many major European markets, and became the largest consumer auction player in Switzerland and Eastern Europe.
Online consumer auctions are classic network effects businesses. Buyers get choice and attractive prices by participating in a marketplace with large volumes, and sellers get access to demand, and often the winner takes it all. So, when QXL found itself a distant number two or three behind eBay in many of the larger Western European markets its stock market value suffered badly. To make matters worse, the company was involved in a complicated dispute over its Polish subsidiary. In 2004, Andrin together with a business partner set up Florissant for the purpose of acquiring QXL, and focusing it on the countries where it was succeeding.
In the end, Florissant bought just under 30% of QXL, brokered the resolution to the Polish dispute , and the business gained renewed focus and strength. It was the best performing stock on the LSE in 2005 fuelled by Allegro, the group's subsidiary in Poland, which had a 95% market share and successfully extended its offering to online payments, comparison shopping and various classified sectors. By FY 2007/08 QXL was generating revenues of about $120 million, and operating profit of around $40 million, while still growing more than 60% per annum. QXL was renamed to Tradus and acquired by Naspers for approximately $1.9 billion in early 2008. The business has continued to grow strongly and the Eastern European part of the business is now generating around $100 million of operating profit.
Since Betfair was launched in June 2000 it has grown to become the dominant person-to-person sports betting exchange, and one of the highest volume electronic financial exchanges in the world, processing more than 5 million transactions per day. A betting exchange allows users to bet at prices set and requested by other users rather than by a bookmaker.
Like other types of financial exchanges, Betfair has distinct network economics - as more players participate, spreads narrow with more contention to set price, larger transactions can be settled quickly, and an increasing range of bets of all kinds can be offered – all benefits that a low volume player cannot offer. The result can be natural monopoly if one company wins a big enough lead, and it was this consideration that drove early consolidation of betting exchanges in the UK. In the early stages of this industry segment Betfair and Flutter had 60% and 30% respective market shares, with dozens of other initiatives splitting the rest of the market. These two were sufficiently threatening to each other in these winner-take-all conditions that both boards saw the logic of a combination.
In 2002 Greg joined the enlarged Betfair board after its merger with Flutter, which he had originally backed with UBS Capital, and soon after became Chairman of the Betfair Board. The immediately profitable merged company, retaining the name Betfair, experienced growth of 15% each month for the next 18 months as bettors embraced the benefits of better pricing, the ability not only to take but also offer bets and trade in and out of positions, and other innovations such betting on live and dynamically changing prices during an event.Betfair went public in 2010 at a £1.5 billion valuation, and continues to hold 90% of the exchange betting market.
This venerable classified magazine is behind one of our team’s pivotal experiences and serves as early inspiration for what Piton looks to invest in today. For a five-year period at the start of his career Greg held various operating roles within the Canadian group controlling thirty AutoTrader publications around Toronto. At that time the striking feature of this business was a rapid market share increase in automotive listings from 30% to 60%, resulting compelling advantages for both buyers and sellers, and ultimately, market dominance.
AutoTrader taught the lesson that some business models are fundamentally much better than others – the AutoTrader product got stronger as more buyers and sellers participated so it was naturally monopolistic, it grew year after year as competitors faded, was highly profitable, even making a very successful online transition. The same story played out in countless North American metropolitan markets, and in several markets around the world not least the UK. The AutoTrader story is one of the main reasons that today strict business model selection is at the heart of Piton’s investment process.