Recent news that Fairfax may float part of the Trade Me business they acquired in 2006 has led some Internet commentators to speculate the auction giant may now be worth much less than the NZ$750 million they paid in 2006.

Unlikely.

Online auctions may be yesterday's news, but in a "Web 2.0" Internet where many ventures remain cool but wildly unprofitable, Trade Me continues to truck on and generate upward of NZ$80 million per year in earnings for Fairfax - and growing.

If we apply the same earnings multiple used by Fairfax in 2006 to Trade Me's 2010 performance the business would now be worth around NZ$1.2 billion. This is a realistic valuation, especially compared to the dizzy heights reached by Linkedin earlier this month when it achieved a US$8 billion market valuation from profit of just US$15 million - a multiple of over 500. Sure, a company's only worth what someone's prepared to pay for it, but in today's environment, off the back of current earnings, I'd bet it's worth a lot more than the original NZ$750 million paid by Fairfax.

So what are the threats to Trade Me's long-term earning potential? Probably not a lot.

Competitors come and go (learnt that the hard way - doh), technologies evolve and improve, but the network effects required to create a successful online marketplace remain difficult to crack (sellers prefer to sell in the marketplace with the greatest number of buyers, and buyers prefer to shop in the marketplace with the greatest number of items for sale. Getting the two to happen at the same time whilst existing in the shadow of Trade Me, is hard).

When we launched Zillion back in 2005 we learned that it takes more than a shiny new web site to topple Trade Me - and I don't think much has changed. If there's one difference, perhaps it's Facebook. Facebook provides a unique opportunity to grow networks and connections at an unprecedented rate. At Mighty Ape we're acquiring "fans" at the rate of between 400-500 per day and will likely exceed 100,000 before the end of the year. Leveraging the social graph, it's now much easier for people to recommend new sites and services to their friends, and hook them in. Just look at the explosive growth of Facebook-enabled sites like Groupon and local guys GrabOne to see the evidence of that (great deals, often subsidised, helps too of course). There's likely an opportunity there for emerging auction and classified sites - but it will require quality execution in other important areas such as product design, brand, customer service and so on.

Perhaps the question is not "how to topple Trade Me" but "how to build a business as good as Trade Me". Trade Me is built on the back of people selling stuff. It's transactional, and auctions are but one way of achieving that. In the early 2000s Trade Me was the logical place to look to buy something - they were the only game in town. These days you're increasingly more likely to search Google and buy directly from savvy online retailers. It's never been easier.

Times are a-changing, but provided Trade Me keep up with emerging technology, retain key talent and its potential new owners don't get greedy and abuse the site's near-monopoly position - the auction/classified game is still Trade Me's game to lose.

What do you think?