A look at ‘human capital management' with SEEK's CEO

Andrew Bassat is the CEO of SEEK. They released their results today, and they are pretty good. They’re growing in China, they’ve had to write off some money in Latin America, Brazil and Mexico – that hasn’t worked out so well – but they’ve got a good business in China which is very interesting for investors because it’s such a big market there and such a huge amount of potential for growth.

Andrew also talks about the potential for growth in what he calls ‘human capital management’ in Australia and New Zealand which is a much bigger market, he says, than the online employment marketplace.  The problem is trying to figure out what human capital management means.  I asked him a few times and I’m not sure I quite got the answer.

Here is Andrew Bassat, the CEO of SEEK. 

Andrew, just looking at your results you must be wishing you’d stuck with China and hadn’t gone to Brazil and Mexico?

Well, you know, we talk about SEEK heading for the business, you know, you’ve literally toured in China and Lat Am – China’s terrific for us.  It’s growing really strongly.  We’ve got a terrific return on investment.  We’ve got more money back than we’ve ever put into that business so we’re already ahead.  But we retained 63% of a very, very fast growing business in what should be the largest human capital management market in the world, so the right thing for us to do is to continue to invest in that to make sure that we’re the number one player over that long term. 

China is going terrifically and will continue to grow at the top line and the bottom line 20%.  Lat Am’s a bit different.  We probably haven’t given it the attention it deserves.  It’s a much smaller market obviously for us; it’s the smallest of our headings.  But we’ve got good positioned assets in good long term economies but a bunch of factors including the economy being weak, particularly in Brazil but also in Mexico, the competition being very intense.  Us not being quite as good as we are in Australia in terms of responding to that competition.  We’re paying more attention to it now, and we’re optimistic about those businesses in the long term and certainly committed to those businesses.

Did you make mistakes in Latin America?

Yeah, we always make mistakes everywhere and what we do is correct them.  But, yeah, look there’s probably a few things, I don’t think that’s been the biggest part of the story, but I do think there’s a few things in hindsight we would have done differently in Lat Am including turning our attention to it more aggressively sooner.  One and two specific things from those businesses we would have done differently.  So yes, probably mistakes, but I don’t think that’s been the biggest part of the story.

We feel we didn’t make a mistake to be in there, and we are committed to those businesses long term.

I wouldn’t mind focussing on China because it seems to me that’s where a lot of the potential for the company is and for investors going forward, because of the size of the market, as you point out.  Can you just give us some background?  I think you went into China in 2006, about a year after you floated and how has that unfolded?  Just give us some sense of what’s going on there.  How you’ve gone into it and the story of your involvement in China?

By the way, we’ve been there for 12 years and we’ve had lots of drama so I could spend a month on that in terms of talking to that.  I’ll try to give the quick version, but I’m very happy at another time to give you more details.  We started about 2006, the one time we bought a number three player rather than a number one player, has been in China and it’s been hard work to get the number three to sort of neck and neck number one.  A big part of the lesson for us is buy number ones and make them better rather than buy number threes and try to make them number ones. 

We’ve also had to learn about the market.  We’ve gone in there with a long term view.  It took us five or six years to get the business from moving money and really struggling to getting the right teams in place and starting to gain market share and starting to make some money.  But the business is now really strong.  We’ve got a really good team in place.  The business is actually really focussed on market share as it should be.  We moved to a ‘freemium’ model last year and which we think gives us a real competitive advantage over our competition.  The freemium model is similar to what you see in other markets in the world, which is free to list and pay more for positioning or prominence.

We’re really excited and we’re well-positioned with that business to grow into that potential.  You talked about the potential; it should be the largest human capital management market in the world, so we think that this business has 10 years of growth.  New partners also in Hillhouse and Fountain Vest, both really well-regarded Chinese partners that are helping us take that business forward.

What’s the competitive environment in China like?  You said you’re equal number one.  How fragmented or concentrated is that market?

The thing for us in China is that it’s quite a concentrated market, to the second part of your question, because we’ve really, you know, what’s different about China is we have really high market share, as does our main competitor, 51job.  But the job ads are really, really cheap; it’s less than $10.  Both of us have been very cheap and very aggressive in sales and marketing product investment and as a result we haven’t left a lot of room for competitors.  It tends to be a local market battle at the moment.  It’s us and 51job, it’s fairly one and two, on some metrics they’re well ahead and on other metrics we’re well ahead.

They’re well ahead on market cap, we’re hoping to catch them on that one.  There are other competitors at different ends, it depends if it’s a low end competitor.  There are noises of the big players, like the Baidus moving in but it really is just a local market battle.  The global players that we face in other markets, like Indeed, like LinkedIn, are not in China in a meaningful way.

So how much of the market do you and 51jobs have?

Look it’s really hard to measure these things but I think if you want to do it crudely and look at things like revenue you’d probably say that between us, we’re kind of a 60-70% level.  I think that’s probably a fair – I haven’t been asked that specific question before, so it might be plus or minus a bit.  But I reckon that skew is about right, we’re probably about two thirds of the market between us and then the other parts of the market are shared between people like...but probably that would be a fair estimate I think.

Is the growth coming from greater penetration of jobs boards?  Is there a shift from an older method of getting jobs and looking for people shifted to the two major online platforms?  Is that what’s going on?

Absolutely.  Everything that’s happening in Australia, the reason having a Group across multiple countries has been so beneficial is that everything that’s happening in Australia is happening in all markets.  So the shift from being at a job board, you know, version 1 of job boards, you get all this out and get all the job seekers, to what’s version 2 where you much more about getting placements, developing deep relationships with job seekers, deep relationships with organisations, solving more problems for them.  Absolutely, that’s happening in every one of our markets including China. We’re just at the stage of that evolution.  China is perhaps not as advanced as Australia, but gee we have a really good team there and some of the things they’re doing are actually better than we’re doing here down that path.

And because it’s so cheap in China, do people tend to put their jobs on both sites, or are they choosing one over the other?

Look, actually what’s been a real positive for us and what’s actually driven 51 moving a long way forward in terms of their market cap over the last bit is that until recently both job ad prices were low.  What 51job has been focussing on the last year or so is we’ve been focussing on really driving market share through freemium model and seeing the market share metrics go up.  They’ve been pushing forward their pricing and their...really strongly.  That’s pleased the market, obviously, but we think that gives us an opportunity to kind of gain share and maybe push our prices a little bit, but really take advantage of the fact that they’re going in perhaps a more short term direction.

One of the things you’ve been doing if I can move to the main part of the business, you’ve been moving the core part of your business from just an online marketplace to human capital management, which you’re calling phase 4 of SEEK’s development which started in 2015.  Could you explain what that involves and why it’s turning out to be so profitable?

Yeah the simple answer, we only just started that though.  We wouldn’t say that’s, you know, that’s where some of the early stage ventures are operating.  But to put it in the most simple way is we think that SEEK in all of our markets is better placed than any other organisation – I should start differently.

We think that there’s a lot more problems that can be solved for people or for organisations in relation to people’s career or in relation people who choose more organisations and we think we’re the best-placed organisation to sell that, given we are people that are relationship organisations.  The data we have, the technology capabilities and so on and what we’re starting to see one by one is new products that start solving problems for people, give us deeper relationships and more sticky relationships and drive value, that we’re starting to capture.

We’ve just started that journey but we see a whole lot more problems that we can solve over time and increasingly confident that we can do that well.

So how do you make money that way?  We understand how you make money from a jobs board, you just charge to put the ads up and you charge more to make them more prominent.  But how do you make money out of the other stuff?

Look, if you look at the broader human capital management market and we’re not pretending we address it all today or even will in the future, it’s 10 times the size of the original classifieds market we started attacking.  You’re well aware of the background, obviously Alan, about that market, which was circa $800 million or so at the time we started and probably still about that big.  We think there’s an $8 billion human capital management market in Australia and a much much larger one in China, so you don’t need to get it all to have a bigger business.  We confident that if we drive value for people, our history shows we’ll capture a fair proportion of that money back…

The problem is I don’t understand what human capital management is?

Look it’s broadly, it’s really everything to do with – everything under the broader value chain that goes from people trying to find a job and then when we start to include education it gets bigger still, the numbers are, you know, it didn’t include education.  If you take a long term view and I think you have to understand – sorry, I’m not explaining it well, I’m conscious of your time – is really the value chain for people to find jobs, there’s many aspects to it, if that makes sense and family organisation side.  Some of it’s software, a lot of it’s technology, a lot of it’s marketplace.  It’s everything for people in relation...whereas everything for companies in relation to people issues, it’s a broader game.

That was Andrew Bassat, the CEO of SEEK.