Ben Freund

Ben Freund is the founder of GoSwitch.com.au, Australia’s dominant price comparison website for the electricity and gas sector. The company, which started two years ago, has the backing of some big names in Australian business, including veteran investors Irvin Rockman, Peter Ivany and the Smorgon Family. Ben won’t reveal revenue figures, but industry sources suggest annual turnover is heading towards $2 million.

Today Ben talks about how he built the business, dealing with high-profiled investors and why he has no exit strategy.

You started the business in May 2008. Talk a little bit about the opportunity that you saw back then.

The opportunity I saw back then was to bring transparency and sensible decision-making into a sector where the norm was confusion and misinformation. The Australian energy market has been privatised and deregulated to varying degrees in different states, obviously Victoria and South Australia are much further along the curve than New South Wales and Queensland. But nevertheless consumers have a choice whereas before they didn’t.

So that’s good. But in order for competition to work the consumers need to be able to understand what their options are and make sensible, educated decisions, otherwise competition doesn’t really work. You’re certainly not going to get the sort of price tension that government was hoping to achieve through deregulation unless the consumers know and can differentiate between prices and offers and understand the commodity nature of electricity – and that wasn’t happening. The vast majority of consumers both residential and in business were just paying way too much. So in some way competition wasn’t really working but in other ways, it was working because, for example in Victoria, we had the highest churn rate in the world, like 25% a year but most of that was driven by retail activity, doorknockers.

Direct marketing.

Doorknockers, just thousands of doorknockers out there just banging on people’s doors promising you everything and anything – you have the consumers switching from one provider to another based on a pitch they’ve just received at their front door. Consumers didn’t have any tools to really assess what they were buying. Again, we’re still in a world of confusion and misinformation.

So that was the opportunity, to bring transparency. We’ve seen the way in Britain where 30% of all the activity in the energy sector goes through price comparison sites, so the business model was already established in the UK. The question was how to do this, modify it to Australian conditions and launch it here in a way that is suitable for Australian consumers.

Personally I thought about this when I moved from Armadale to Fitzroy so I had to reconnect to an electricity provider and I realised electricity’s the same no matter where you get it from. And then I realised how difficult it was to really differentiate between offers – you need a minor degree in mathematics but you can have software that can do it all for you and that was the intention, that’s how we started.

And the business model’s based on getting the small commissions for leads, isn’t it? But bringing that transparency to the market though, that wouldn’t necessarily be in the best interests of the people that are paying you for those leads.

No not necessarily, no.

Did they take some convincing that this idea was good?

Yes. First of all, in terms of delivering that transparency we had to assume an element of risk ourselves. For instance what if the cheapest offer in your particular price quote for your particular circumstances was a retailer that won’t pay us a commission? Are we going to still display that offer in its proper ranking? We made the decision that we will no matter what, because the integrity of the site goes to the heart of our business model. Consumers have to trust us and the only way we’re going to win that trust is by telling the truth.

So that was the first challenge. The second challenge is actually convincing the energy retailers themselves to participate in what is essentially a transparent, price driven market place.

So what is GoSwitch?

GoSwitch is in effect a media company that publishes the available offers along with comparison tools. Just go there and you see what’s available and that in affect creates a virtual marketplace of sellers of energy and buyers. Finding the buyers, attracting buyers to this marketplace is not a problem. It makes perfect sense. But attracting the sellers could be a challenge. It’s a highly appealing model for a highly competitive energy retailer. So for example if you are a young or a medium-sized retailer and you are competitive and you want to grow then this is a wonderful channel. If you are an established incumbent and your prices are high and you’re relying on your brand and you are relying on inertia and you are relying on consumer ignorance to charge above average rates for a commodity product, this is not a pretty business model. It sheds light on a dark corner that you may prefer to keep dark in perpetuity, so it did take convincing and not all the retailers are convinced to this day. We still display them anyway.

Is it still those incumbents that are taking their time to get convinced?

Oh yeah, with one notable different exception, AGL. It is the largest energy company in Australia, 25% market share, two million customers out of a total of eight million residential accounts. They said ‘we understand that this is the way of the future, this is going to happen because it makes sense so let’s participate’. And what they’ve done is they’ve worked very closely with us and one of the things that they’ve done is create unique offers for GoSwitch users and that’s been successful for them. So they’ve shown how a large incumbent company can actually embrace new technology for its own benefit and at the same time deliver value to the consumer.

So in this particular scenario of AGL and GoSwitch and the consumer, everybody wins. Other retailers are still not convinced, others are watching, others are participating fully so it’s very much a mixed bag. What we’ve seen across the board though from the retailers that are participating is over time they take more and more initiative because we are passive, we’re hands off, we don’t direct the consumer. So it gives an opportunity to the retailer to become more active and show initiative and they do this by creating unique offers for our users. And in many cases the cheapest electricity in Australia is only on GoSwitch. So it’s an amazing experience that we’ve been able to bring down the price electricity for our users in various states in various stages of deregulation.

Could you give us an idea of size of the business? I know you’re not keen to talk about revenue, but can you give us something that would give readers an idea of how the business has progressed?

What I can say is about a year ago we were achieving approximately 20,000 unique visitors a month. That’s now running at about 30,000 a month. So that’s a 50% growth in the number of unique visitors but interestingly enough the number of switches that takes place in an average week is double what it was about a year ago.

So what sort of numbers of switches are we talking about then?

I can’t give you the number of switches or the dollars but what I can say is that two things have happened. One is that the number of visitors has increased by 50%, but also the conversion rate – the likelihood of a person completing a switch on the site – has increased immensely, because the number of switches has doubled. And we started to see that big swing when the economy became a bit shakier about a year ago and people were more concerned about their bills and containing costs but then people have come down, but we’ve still seen that growth.

I think what is happening is that more and more consumers understand that this is a commodity and with all due respect to brands and the difference that you can get in terms of customer service and whatnot, ultimately people care about price because they understand that electricity is the same no matter where you buy it. So that’s what drives them to the site and I think the reason why the conversion rate on the site is increasing is because GoSwitch has become a relatively trusted brand name in a relatively short period of time. And that goes back to fact that integrity is for the large part how carry out our mission. Also we are just becoming better in our business. Better at bringing in the right sort of traffic, we are very targeted with the sort of marketing that we do, we try and communicate with people who really are sincerely looking to save money.