Companies are failing the online test

Leading internet based businesses, Seek, Carsales and REA live in constant fear of disruption. The way they approach risk should be a lesson to board members across Australia.

The Australian skills shortage is no longer dominated by the trades. The most critical shortage is those who can manage in the internet age and understand this totally new environment.

That means vast areas of Australian business are in danger of being ‘Fairfaxed’ – seeing their core business taken away by rivals, now often from overseas, who have the required online managerial skills.

That was the major conclusion I drew after chairing an amazing panel that featured the chief executives of the three Melbourne based companies that diverted the ‘rivers of gold’ (classified revenue) away from Fairfax in Sydney.

The venue was a Melbourne Press Club lunch and it was the first time the chief execuitves – three Fairfax beneficiaries, Andrew Bassat of Seek, Greg Ellis of REA and Greg Roebuck of Carsales – had sat on the same panel.

Each of them fear that they will be ‘Fairfaxed’ (my term) by becoming complacent and being replaced by groups with better ideas. A key focus of these companies is to try to protect themselves from such developments. They believe they must be ruthless in allowing new ideas that work to cannibalise old methods and replace managers who find they cannot adapt to change.

Too many Australian companies have yet to adapt to the full implications of the internet to better understand customers, and to develop new production and managerial methods.

Each of the three companies approached Fairfax between 2000 and 2003 but were all either shown the door (Seek and REA) or Fairfax muffed the opportunity (Carsales).

Most of this happened during the reign of Fred Hilmer as Fairfax CEO. These days the three companies have a combined market capitalisation of around $9 billion and Fairfax is $1 billion. The current Fairfax management has had to adapt to the new situation as journalism in Australia is no longer supported by the classified ‘rivers of gold’.

I got the impression from Messrs Bassat, Ellis and Roebuck that there are going to be many more ‘Fred Hilmers’ as managers of companies fail to adapt to the dramatic changes. Failure often takes place because managers want to keep managing on a command and control basis, as they always have.

Seek, REA and Carsales all believe that they are world leaders in what they do. Seek and Carsales have gone abroad to take advantage of that global lead.

It’s not just managers who are in danger of being caught – boards are also vulnerable. All three companies believe that their boards are been supportive of their entrepreneurial approach. However, there is a growing risk-averse culture in large numbers of Australian boardrooms because they watch CEOs (and other boards) being hammered when they take a risk and it does not work. Being risk-averse is a ticket to disaster in this new world.

Finally, why were the rivers diverted to a different city (Melbourne) rather than staying in the larger Sydney?

Partly it stemmed from the fact that Melbourne has a number of families who are prepared to back entrepreneurs. And it was easier to operate outside the home ground of the old media groups who 10 to 15 years ago looked frightening to start-ups.

Footnote: Andrew Bassat expressed regret at diverting the rivers from funding good journalism. Sometimes in the very distant future he might even consider allocating a portion of his fortune to promoting good journalism.

InvestSMART FORUM: Come and meet the team

We're loading up the van and going on tour from April to June, with events on the NSW central & north coast, the QLD mid-north coast and in Perth, Adelaide, Melbourne, Sydney and Canberra. Come and meet the team and take home simple strategies that you can use to build an investment portfolio to weather any storm. Book your spot here.

Want access to our latest research and new buy ideas?

Start a free 15 day trial and gain access to our research, recommendations and market-beating model portfolios.

Sign up for free

Related Articles