Hearst can buy the Bring a Trailer community but it can’t own it.”
As the shock and awe of the sale of Bring a Trailer subsides, we asked the founder of eBay Motors, Simon Rothman, for his thoughts about the sale and his predictions for the future.
He said, “Over time, Hearst will absorb Bring a Trailer, and they won’t be able to keep from changing it.”
I first met Simon in 2002. eBay had just purchased the auction company Kruse International for a reported $145 million in cash and stock. That was an eye-popping number.
Dean Kruse was quoted on the website of KPC News in Kendalville, IN, as saying, “When eBay Motors first asked me for a number, I figured maybe $10 million to $15 million. When they gave me their number I almost wet my pants!”
In the end the acquisition was a failure, with Dean Kruse buying back his auction company just three years later for what was said to be “pennies on the dollar.”
Rothman noted that the acquisition of Kruse was part of an effort by eBay to change the demographics of its customers by reaching new ones.
“Prior to launching eBay Motors, the typical eBay client was a middle-aged woman in the Midwest buying and selling knick-knacks.”
In any case, eBay Motors experienced meteoric growth from $1 billion in sales in 1999 to $14 billion by 2005. It also changed the profile of eBay users dramatically.
“We would have succeeded whether or not we had purchased Kruse. But the acquisition accelerated our participation in the marketplace,” Rothman said.
“All acquisitions look good on paper,” Rothman said. “But they rarely work out. Synergies that are put on paper to justify an acquisition don’t often play out in the real world. When a big company buys a small one, the small company goes from a feisty upstart in control of its destiny to fighting for resources within a larger organization that has its own goals.
“When the owners of BaT have their ‘liquidity moment’ — and are fully paid for the sale — it is highly unlikely that they will continue with the company after any contractual obligations have been fulfilled. The people who made the magic will be gone.
“You have to remember that as a startup, BaT had everything to gain and nothing to lose by taking risks. That’s the exact opposite of a successful company like Hearst. I assume they paid top dollar for BaT. Hearst is not a holding company — they didn’t buy BaT to simply let it run itself and collect profits at the end of the year.”
Rothman commented that Hearst surely had a list of synergies that they believe would allow them to increase the profitability of BaT, which is necessary to justify the purchase price. In order to get a return, they will have to make changes to BaT to make more money from it. BaT will also have to fit within the Hearst corporate structure — they won’t have a choice.
“BaT has created a beautiful marketplace,” Rothman said, “with its engaged user community. Its relatively small size has allowed it to create a bespoke website tailored specifically to its needs.”
Messy and massive
I mentioned that many hardcore enthusiasts view eBay Motors as a “messy place” to buy and sell, with a confusing website and a lack of curation over the cars offered.
Rothman noted that eBay Motors is forced to use the Web structure that all of eBay uses. That prevents it from tailoring its site to be classic-car-friendly.
“Ebay Motors is chaotic, and its current structure doesn’t match the evolving marketplace,” Rothman said. “But Craigslist and Facebook are messy as well. Cars are being sold on all of them. They each provide a different user experience and a different degree of comfort for buyers and sellers.”
Messy or not, eBay Motors is huge. In 2015, the last year that eBay Motors revenues were broken out separately from the parent company, eBay Motors did $15 billion (yes, billion) in sales. Last year, the parent company eBay reported $10.8 billion in revenue, comparable to the $11.4 billion reported by Hearst. (Sales is the gross dollar amount paid for cars sold on eBay Motors. Revenue is what eBay received in income from the sales.)
In Rothman’s opinion, the worst mistake eBay Motors could make right now is to try to be more like Bring a Trailer. “The BaT experience is simply not in Motors’ DNA, and they would have a hard time succeeding.”
I asked Simon what advice he would give to Hearst about the acquisition. He replied, “As a friend, I would congratulate them on purchasing a beautiful marketplace with 500,000 committed users. Take it and run it and have fun. As an investor, I would tell them to sell it and move on.”
All things grow and evolve. The success of BaT has spurred a variety of new companies to leap into offering online sales. The traditional land-auction players, including RM Sotheby’s, Bonhams, Gooding and others, have all enhanced their online offerings. Online is the new normal, and BaT has led the charge.
We’ve all enjoyed the emergence and growth of BaT as a tremendous addition to the collector-car world. Now it will move from its role as a startup to becoming a piece of a huge corporation. How Hearst will absorb and evolve BaT to fit its corporate needs is the next chapter in the saga of BaT.
Simon concluded, “In five years we will know the outcome of this acquisition, and the picture will be clear. It’s not impossible to build on magic, but it is very difficult.” ♦