Innovate or die!

REA Group chief executive Greg Ellis is clearly unimpressed with companies who complain that the booming internet has destroyed their business and expect the government to rescue their obsolete business models.

"I must say, just as an Australian, only an Australian could complain about a boom," Ellis told the American Chamber of Commerce in Australia in Sydney yesterday.

"If you're the president of Spain, or you're the president of France, and you looked at our numbers in our government accounts and you saw us complain about a boom, you'd have to say we have a substance abuse problem in this country."

Ellis cited Deloitte figures which showed that the internet contributed $50 billion to Australia's GDP in 2010 -- some 3.6 per cent of the economy, or "about as much as iron ore exports are worth today". That's forecast to grow to $70 billion in 2016.

"Traditional retailers like Myers and David Jones are now making major investments in online shopping platforms. The question is whether it's too little too late," he said, comparing their predicament to Sony's failure to capitalise on their dominance of the portable music player market with the Walkman.

"Those people who don't keep at the forefront of innovation will be left behind," he said.

In the four years Ellis has headed REA Group, the company's portfolio has diversified from the original residential-focused realestate.com.au website with the addition of realcommercial.com.au and expanded to include 11 other property sites globally. Today it's one of Australia's top 150 companies by market capitalisation.

"Four years ago we faced the situation that many businesses are facing today: invest in new technology [and] change the way we think about our business, or actually take the consequences that someone else might and take our business away," Ellis said.

REA Group has been transformed by the adoption of the agile development methodology. "We've actually introduced agile across the company as a methodology of running the business. It's actually not an IT-only methodology," Ellis said.

Ellis outlined what he called their "five tenets" for transforming the business, including his definition of the internet.  

"It's a medium by which the absolute knowledge of humanity is pushed to the edge of humanity," he said.

"There's not a single question or piece of information that you actually can't find out about. Now any business that doesn't understand that the power of information is now fundamentally and empowered in many of your customers and consumers is actually missing the point of the internet."

Ellis' second tenet is that all systems and processes should be completely interoperable with every web browser and operating system on the internet -- at least as far as is commercially achieveable. He contrasted that approach with the "five behemoths" building walled gardens: Facebook, Google, Microsoft, eBay and Apple.

The third tenet is that while REA Group's business model is advertising, their core competency is the collection, management and interpretation of information. The goal is to understand what people are doing within their websites and link that to market behaviour.

"When we think about usage stats in REA, we don't think about unique browsers any more. We think about time on site and levels of interaction," he said. The internet isn't so much a distribution mechanism as a medium for live communication, he said.

The fourth tenet is understanding that their business is an intermediary between those buying or leasing proerty and those with property to sell or lease out. While REA's direct customers are the real estate agents, it was important to build a relationship with and understand the behaviour of the individual buyers and sellers using the sites.

"The fifth tenet is to take all of that information that you've got, and those principles, and design really good products that meet your consumers' and customers' needs," Ellis said.

Supporting all that is REA's strategy to select staff with "unbelievably high self esteem, unbelievably low ego, unbelieveably high competency -- because you've always got to have the ability to challenge to status quo, and then focus on those five tenets."

Ellis cited last month's McKinsey & Company report which said that while improving resource-sector productivity can improve a nation's trade balance, for mature economies the real comparative advantage was in knowledge-intensive activities.

"Investments in education and technology and innovation are beyond comparison in terms of just the traditional discussion we have about productivity. We should take note of that when complaining about Fair Work," Ellis said.

"You may have a discussion about whether you think that's right or not, but the true comparative advantage is in the way you think about your business, the way you engage with your employees, and the way you run it, not about relying on legislatation to run your company."