Christoph Tonini - Cross Marketplace Learnings Helping Create the Next Gen Marketplace

Good morning everybody. I would like to give you in the next minutes an overview of a quite still new company which turned out of a merger, which you're going to see is now the biggest marketplace group in Switzerland. We are just starting our journey and I hope I can give you an overview where we stand. Just about me very briefly: I'm a dinosaur in the media field. I worked a long time ago for Ringier in the publishing field, also in Eastern Europe markets, then a long period for Tamedia which turned afterwards to TX Group, also trying to turn traditional media into digital businesses. We started then also building up classified.

Yesterday we have been talking about disruption and I have lived real disruption to media. The beginning of 2000 was the clear leader in classified print. Just to give you an idea, we made profit in 2000 out of print classified of 300 million Swiss Francs. All this within a few years was totally totally gone. So this is actually my biggest fear, that I don't want to see or to live another disruption where we are not able to react. I was asking myself what we have discussed yesterday: are we standing in front of such a disruption with AI coming up? Maybe, but I think the big difference to what we have felt as a print mainly print company is that we are having the talents within the company who should be able to challenge now this transition, maybe this disruption, and to be able to make the best out of it of the new technology because they know what all this technology is about. If you look around, all the publishers in the old time they haven't been able because they were just not in the media in itself.

Then I stopped, decided to stop with 50, becoming an independent board member and that's a bit the journey how I came now back into business. I took a board position in SMG and it turned out that SMG is also looking for a new CEO. It was not a successful search process, and so the board together with me decided that I will take over for a certain time to also run as a board member also running as a CEO.

Now where is SMG coming from? You see on the upper level the assets TX Group acquired over time, and on the lower level the assets Scout was building up. It was in all the fields a tough competition also in a field which you don't see here, in jobs. At the end, two of 212, we decided together with our competitor to acquire the number one job portal jobs.ch and we merged it into a 50/50 joint venture and that was the starting point of the idea of SMG. 2012 because we immediately realized the power of bringing number one, two and three positions in one market together and capability to increase the products, to increase value for the customers, and the business became highly profitable. From then on I tried to convince Mark Walder from the Ringier side that we could actually do the same things in all the other verticals, and it took actually full eight years until we have been able to come to a deal where we were able to form this SMG group out of the two companies TX Markets and Scout. I will tell you later about the shareholding structure which was one of the main components obviously in the negotiations and the final situation we ended up helped a lot to make this happen.

Now this new company is in all the verticals which we are running we are clear number one. We are never saying that we are dominant because of competition authority reasons, but we are very strong. You see our brands in real estate, in automotive, and in general marketplace where we are not so strong, it's rather a startup. It's in finance and insurance. The brand is known as Finance Scout but the business is rather new, it's rather in so can't compare Finance Scout with all the other three verticals. In the name it's clear Swiss Market Group says we have all our business activity in Switzerland, but we are rather in a global setting. We have in Switzerland as in many Western countries the challenge that we will not find enough software developers, data engineers, so actually even though it looks complex I'm happy that we have in Asia or also in Eastern Europe with Serbia locations. For example, India nearly 100 people, Vietnam 60 people, so we have quite strong near and offshore locations where we are able to hire new talents. It's not so much about cost saving, obviously nearly every country is cheaper in terms of labor than Switzerland, but it's really the time to market that we are not able to hire people in Switzerland, and that's why we are having all these offices abroad.

Now talking about the shareholding, this was obviously the main issue of how to bring the parties together. We have now the two publishers TX and Ringier in the shareholding, then there is also Mobiliar which was already in the joint venture with Ringier at Scout. And I think the important fourth party was with private equity General Atlantic because they brought in out of the two competitors somebody with a neutral view also in terms of valuations. You can imagine that having the two parties, it's obvious that each of the one who was running the own company thinks the valuation is bigger than the competitor, and it helped a lot that you had somebody at the table bringing in a neutral view. You see that we have also, which is important for me, very experienced industry advisors with Malte Krueger in automotive, Nick McKittrick former CEO of Rightmove in real estate, and then Treyer was running for ships that general marketplaces. So these are our industry advisors. In the board as such, we have — I'm always joking a bit but it's also true — it's more a shareholder representatives than the real board, but it's obvious for them it's the most valuable asset in their company is this participation. The clear goal of all the shareholders when they joined together is to bring this company to an IPO. We are as I said just in the beginning, but the goal is clear within the next three years we should be able to bring this company to hopefully a successful IPO.

Giving you a bit an overview, in Switzerland we just reached 9 million population, so it's a very small country. But to give you a comparison of how much is the reach of our verticals: out of the 9 million population we reach, for example here is always February 23, we have per month roughly 4.3 million users just on real estate. That's our biggest vertical. It's also the vertical where I see for the future the biggest value increase potential. You can imagine Switzerland a small country but especially real estate very expensive, so there is a lot of value in it. We have always number one and two position: homegate and Emos Scout. Here the special thing is that we have the situation that each of these brands is in a single canton a number one position. So it's not what you normally see in Switzerland that we have different languages and normally you have in one language area one brand, in another one another. But here is really per canton: in Zurich it's homegate, in Bern it's Emos Scout. That's why we decided for the moment at least to keep the two brands, but we are bundling this into one contract. That's the big project now for next year to have one contract for the customers. This year we started already to cross-list so the customers from Emos Scout are also cross-listed on homegate and vice versa. We see we have heard before it's always about value creation and then also obviously price increases. We are very happy to see that we have less than 0.5% churn out of this combination. You can imagine that the price increases for some of the agents is going up to 80%, but they see they pay much more but also they get much more leads, they get much more value out of the combination. Obviously there is also value for the consumers: we bring on all the platforms all our listings, so it's now clear where they have to go if they're looking for a new flat or a new house. And also the value creation for the agent: we see that now we can deliver in these packages which we just discussed we can always add on some additional services. For example we acquired a company called Yatsi. They have out of all the properties in Switzerland all the datas which are necessary to valuate properties. They are in a B2B relation with Swiss banks. It's an obligation if you give a mortgage in Switzerland that you have to as a bank to be based on valuations of either Yatsi or another competitor. So we have from all the properties in Switzerland all necessary evaluation data and this part we will add up in our packages to give for agents and also for customers more value. But we also see now in Switzerland it's an extreme shortage of flats. In Zurich it's nearly impossible to find a new flat. So we will start to also have the search side trying to give them value. There is a package where users can pay and they will get upfront 24 hours new listings so that they have better chance if they apply for a flat. So there is a lot of things we can do in the future. At the moment my main focus is to bring the two main brands on one tech platform and this should be ended by 2023 and then we can focus on new innovation and values for the customers.

In car, it's a special situation. Auto Scout has over 90% of the market. We decided therefore not to keep the brand car for you. Just a recent decision we took, so we will sunset the car for you business and bring it to Auto Scout. You see also here out of 9 million population, 3 million users per month in car, just shows the very strong position of Auto Scout. Same here we will try to simplify search experience, we will have new options, we will bring a C2B offer into the market for our car dealers, and obviously also here going to one platform. Actually funny enough, we are switching the Auto Scout business which is the clear leader to the car for you tech platform because the platform is just much more advanced in terms of technology.

General marketplaces: we have two layers. We have a classified advertising paid business with tutti and anibis. Here we have the clear situation: tutti in the Swiss German part, anibis in the French speaking part. We will merge the two tech platforms and probably in one year also merge to one brand, which one is not clear. But that's the advertising classified business. And then we have Ricardo, our strong marketplace which is fully transactional. So it's only paid out of commissions. You see we have nearly 6 million users, so out of 9 million you can imagine that also in terms of registered user because of all these platforms you have to be registered, we have quite reach. Obviously also for advertising business it's a lot of very interesting intent data which we are generating. For us, general marketplace is not only a traffic machine but is also one of the main drivers where we see the value being one group. You see it here we have started to deliver out of general marketplace listings for real estate so to add up in the highest package also listing out of general marketplace. Same we have sell leads for real estate, we generate listing for premium seeker products, and the same we have introduced in order also to have a defense. We introduced a paywall for cars and for real estate so that if you are a semi-professional you're not able to have more than two listings on the general market platform, otherwise you're redirected to the verticals. So that we can defend that. In Switzerland if you want to list more than two items in the same time then for us you are getting into a semi or into a professional business and then you have to pay. So it's also a defense. Obviously we have still Facebook marketplace which is a competitor on the free market side, but what we try is to have a very low entry barrier with our general marketplace product and then as we have just heard this morning to upsell those customers into the verticals with higher packages.

Overview: we have expansion in the value chain where we see synergies, we have a leveraging of the horizontal flywheels, we have obviously tax synergies we're just working on it, and then in marketing where we were competing against each other — you can imagine in mainly also SEO/SEM we have also some synergies. So at the end the position is great. I think the role model how we should go forward is clear. But it's all about people. I think we should not underestimate that at the end the real difference if something works out good or great, the difference are people. That's why we are bringing together now two competitors. We have a high focus now on creating this unified vision, this unified culture. You see we have defined our values. One is really at the highest: be together. We are focusing fully on this to tell all our explorers that only together we will be able to achieve great things. As I said, aim high. It's clear we want to have this IPO story. We are in a small market but in a very attractive market with a great position. And then all the sustainability, the responsibility is very important also to keep our people motivated because they are not motivated because of an IPO but because they can contribute something for the society in Switzerland and also abroad. So we are on our way to a high performance team. Yesterday I have seen that also Apex likes singing karaoke. But we have had last week a great gathering, first gathering of all the people from all the locations together in Thun, and I'm even more convinced that we will be able to come to this high performance team. That was in short the overview. Thanks a lot.

Yeah, so collaboration for us, it's in the first row it was important that we built this one company feeling within the verticals. Because that was obvious that for so long Emos Scout was just competing against homegate. You can imagine that also the salespeople, when they're confronted with the clients, they had also always to argue why one product is better than the other one. So it had to happen an immediate mind change that now it's not against but we are just this one real estate team, this one automotive team. So a lot of time was spent also in this team building, in this collaboration. For me, great success to see that after now over one year, we nearly overcame about the 'you from Scout, you from TX' but they talk about 'we from Real Estate, we from Automotive'. That was an important thing. Obviously also collaboration with the international locations where also we had before: Vietnam was a location of Scout, Serbia location of TX Markets, and we immediately started to change the teams so that they are working also for the other brands to really have this — what is important is that we really try day by day to get this flywheel running within also cross-vertical. That's a lot about people. If they are not able to really speak with each other, to have an open mindset, that they don't have to defend just their own vertical but that they always think about the bigger picture. It sounds easy but it's not. And to give you a very concrete example: we decided to end up a lead collaboration with Comparis. It's the big comparison platform in Switzerland. Scout for years collaborated with them in order to generate leads, and now we have decided together with General Marketplace to try to also defend that. We don't want that our inventory is just taken over by Comparis and you could also take it over via General Marketplace, but they help also real estate to defend the inventory.

Yeah, so maybe two things to it. I think it's obvious that you should always try to bring additional value to the customer when you're increasing also prices. For us, we have this competition authority topic which helps us also not to overtake our position. So to give you an example, or maybe to explain why were we able to create this position in terms of competition authority: you didn't have to file the merger because the thresholds of turnover was too low as long as none of the shareholders is taking control. That's why we ended up in a shareholding where we have all the shareholders 25% of the rights, but we know even though we haven't filed this transaction, we are in the spotlight of competition authority and we have to be very careful how we act. And to give you an example: we increased commission at Ricardo, but in order to not get into this situation of 'why are you just abusing your position', we decided also to lower commission in certain areas where we think it's touching 80% of our volume but with low impact on revenue. So we try always to really bring to the customer an explanation why this increase actually — it's an increase where the value is definitely here. But you're totally right, we have also a bit to educate the market because for years they have just seen a good outcome for them out of the competition and this has now gone.

I hope I hope that the spotlight will dim. Yeah, and then it's about innovation. And as I said, I think with Yatsi we have not even started. There's so many ideas how we can innovate with all this data out of real estate. But that's for next year, we will start. And AI obviously will help because there's so many data which we can only bring into our products with the help of AI.

It's exactly the discussion you had yesterday here. I think we just know that it's the beginning of something really big. I liked this expression of maybe it's overestimated in short term, so probably we don't have to expect that next year something will totally disrupt us, but we might fully underestimate the impact in 10 years. What I am aiming in the company is just to give talented people who are highly interested in this whole development to give them really the room to follow up on the development. And also here we are very decentralized organized because I think for each vertical there will be different solutions using AI. We're just starting. I mean we started already last year but now with this development, we have said this is once we have done the replatforming, this is the number one key topic for us to innovate on AI.

So what we are just starting to do — because I think AI in your company is always depending on the structure of your data and it's only whatever you will use as AI, it's highly dependent on your data — we just started to implement over the whole company a central data platform. With this we have people on the topic which we will also train. As I said, I think you need just to follow the speed of the development. You need time. You can't have a 100% full-time job doing other things and trying to keep up what is going on. So we will really give them time to follow, to elaborate, and also to exchange with other groups. That's why I'm highly interested to get connected internationally but also with our shareholders. We have with the shareholders also a possibility to exchange what did they start. Neels will just talk later after me about South Africa. So I think we just have to be totally awake, hopefully not at night, to really see where the development goes. And it would make a lot of sense from my perspective to have a separate team.

We are not yet there. I tried to convince one colleague to take the head of AI in the company. He didn't want it. I said it's a big mistake. He said 'but I don't even have a team'. I said my bet is within 24 months we have probably over 50 people working just on AI. Yeah, it's a mistake. Yeah, so he should take it. But then we will see. There are the ones who are interested.

Thank you, thank you.