Fairfax Media (ASX: FXJ) has acquired a minority interest in the digital health platform Healthshare. The website is a marketplace for health practitioners, and also serves as an information portal for GPs However, it seems unlikely that the platform will have the same sort of success as marketplaces in other industries, such as REA Group (ASX: REA), Carsales.com (ASX: CRZ) and Seek (ASX: SEK).
One obvious distinction is that people tend to develop ongoing relationships with their health practitioners. Word of mouth is particularly important for professional services, and people aren’t simply looking for the best price. The most successful health practitioners don’t really need to advertise much; they are selling health services, not used cars, and most of them are busy enough anyway.
Not all networks are equal, and I doubt that Healthshare will prove to be anywhere near as successful as companies like REA Group, Carsales and Seek. At this late stage, in 2013, all the most obvious internet marketplaces have been created, although I think that newly listed Freelancer (ASX: FLN) will probably find success. Nonetheless, Fairfax shareholders should welcome the acquisition because, with the assistance of Fairfax, Healthshare should be able to grow.
Announcing the acquisition, Guy Reypert, Group Director Fairfax Digital Ventures, said: “Our investment strategy is focused on identifying high-potential digital growth opportunities in sectors ripe for digital disruption.” Investors should be wondering why the company didn’t have that approach 10 years ago.
Despite plenty of opportunities to invest in disruptive digital growth opportunities, the Fairfax board and management have a long history of destroying shareholder value with poor acquisitions. For example, in 2006 the company paid over $2 billion for Rural Press, which is now worth far less than that. Even back then, when valuations were high, the company could have bought REA Group with plenty of change left over, for that price.
Fairfax also had opportunities to buy into REA Group at far more attractive prices in 2000, and was offered equity in Seek.com as early as 2003. Indeed, according to Adam Schwab in Crikey, Fairfax executives mocked Seek in 2005, because (at that time) the weekly circulation of the print mastheads was higher than the number of unique monthly visitors to Seek.
Past decisions of a company can tell you a lot about whether it is innovative and forward thinking. Whereas Fairfax chose not to buy into the disruptive platforms like Seek when the time was right, competitor News Corp (ASX: NWS) has a majority holding in REA Group. Fairfax publishes top quality journalism, and many fantastic individuals work there. However, the company’s business model is no longer attractive due to the disruptive online platforms in which it failed to invest.
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Motley Fool contributor Claude Walker (@claudedwalker) does not own shares in any of the companies mentioned in this article.