So how do you target that market, what sort of strategies have you used there?
Well we’ve used so many. We’ve used the strategy of just paid online marketing, which is significant and we’re getting better at all the time and it’s a very big part of what we do. SEO obviously, that’s just standard stuff but even the smallest website needs to get it right. That was just an area that we overlooked to some extent at the beginning. That was an oversight and we had to go back and correct it later so that was something that we did miss. We’ve advertised on television, we’ve advertised on radio, we’ve advertised on outdoor.
Do you get a feeling of what works best?
Nothing works as well as frankly people reading about it in the media or watching it on TV and seeing how consumers are using this free service – nothing works better. Because then you are seeing someone in similar circumstances to yourself achieving an outcome that would be of benefit to you and you can see how easy it is to do it, it takes like five minutes. And a lot of people don’t realise how easy it is because electricity bills are daunting so they don’t realise how easy it is and that it is free and so when people can see that in the media, that definitely triggers an incredible response.
But all forms of advertising do and the reason for that is that the concept of price comparison for energy is new. A lot of people still have no idea that it’s even an option and in fact when we were in the very early stages of software development, one of my friends who’s a high profile Melbourne lawyer actually confided to me that he didn’t realise that there was actually a choice in providers. And this is a highly informed, commercially-aware individual and he didn’t even know he had an option for a utility provider at home. So the lack of knowledge in the market is enormous so the more you talk about it, the more you communicate it, the more you introduce the concept, the bigger the response. It’s just natural.
You guys are not alone in this sector and there have been a few companies in this area.
Many.
How has that competitive set changed? Have you seen some consolidation or some people disappear or how has that shifted?
The business opportunity was obvious to many and the need of the marketplace for a service like this was also obvious to many, so it attracted a bunch of competitors, many of them are qualified people, well resourced and so forth, some more than others. But there were just too many to begin with and it was very clear that only the very best were going to survive long-term. It was obvious that most would have to move aside and GoSwitch became by far and away the dominant player in its category although there are still competitors out there but their market share is very small.
How much of the market do you guys think you have, is it possible to figure that out?
Yes. The minimum I would say is that 85% of all the switches that occur on price comparison sites occur through GoSwitch, maybe even 90%. It’s a commanding lead. It’s by far and away the best site, I mean of course I’d say so, but you can see for yourself. We’ve got the largest number of participating retailers, the only one that contains discounts that are not available anywhere else in the marketplace so there’s a real price benefit there, the level of detail that it goes to, the impartial nature of it. Other websites are becoming more like brokers, where they might try and sell an offer.
Like highlight someone’s offer or something?
Well, the first offer may not actually be the cheapest offer. Which is fine but what we’ve seen is that over the last couple of years that at least the people who do use our website pay attention to the details and really look at the cents per kilowatt hour, the terms and conditions, all those things. So if the site lacks that detail and credibility, people are not going to use it to switch in my opinion. I think that’s one of the reasons why we’ve been so successful. So we’ve seen consolidation. What happened at the beginning is everybody sort of went hard at the beginning and we’ve seen people basically run out of money.
What sort of numbers are we talking? What numbers were there at the start?
At the very start, other than us, half a dozen.
And now we are down to a handful, two or three.
In a sense, all but one are still out there.
Given you have got 85% of the market they’re not going well, are they?
They have dropped their profile significantly in terms of their advertising, marketing activity. The marketplace competitors have really taken a step back and are not active in educating the market and that is the reason why they are so much smaller.
One of our competitors was taken over the consumer advocacy group Choice, which was something we couldn’t really understand because the company that they took over was a business and we were always of the opinion that Choice wasn’t a business, it was just a consumer advocacy group. We weren’t sure how you could be a consumer advocacy group and a not-for-profit one and run a profitable business. There seemed to be an inherent contradiction. And I think that contradiction eventually caught up with them and they have withdrawn their services. They were one of the more aggressive players in the market.
One of the higher profiled. You’ve got a couple of big name directors on your board, Cliff Rosenberg and Irvin Rockman. How did that relationship come about and how have they helped?
Really the key person is Geoff Tauber, who is our chairman. He recognised the value of GoSwitch and decided to get behind it and in a sense, as chairman, take personal responsibility to become somewhat of a mentor to me. Then he started to bring in likeminded investors, so Irvin Rockman was one, Peter Ivany was another, and the Smorgan family, the Wingate House Investment Bank and so forth. So what we got was a fantastic group of shareholders – all knowledgeable people, with different skills and different life experience and what really brought everyone together was a positive attitude to make this thing work. I didn’t know them myself before I started dealing with them, so I was progressively introduced to them but it has turned out to be a terrific change.
How hands on are those groups?
They vary. For example, our chairman is very hands on, Irvin has also been very hands on because he has had considerable hands on experience at Seek. The guys at Wingate House Investment Bank have been actually quite involved because they are exposed to a range of business and a range of industries and have a terrific grasp of financials. The others are more remote, they have other things to do with their time.
For an early stage business like this is it difficult to deal with shareholders with quite different views?
No, it is terrific. It is fantastic to have someone to go to and seek advice. The hardest thing when you are in a very competitive situation is you have to exercise a degree of self-doubt, especially if you are young and you are not sure if you are going to be making the right decisions. One of the greatest assets you can have is to call up more experienced people who are wise and willing to give you their time. It makes your life a lot easier.
Is there a specific exit strategy for those guys?
No, there is no exit strategy. That is the short answer. It is not one of those dotcom companies that we have a five year plan to list or do a trade sale. It has never been discussed. The intention is to build a business and that is where it is, we all recognise that we are still in an early stage, two years is very early. We have not fully educated the Australian market yet, we have a long way to go, and there is a lot of work to do. It hasn’t been discussed in terms of an exit strategy.
Honestly, it is hard to believe but…
James was the editor and publisher of SmartCompany and LeadingCompany for five years. He is now the Australian Financial Review‘s companies & markets editor, and a former BRW editor.
