Frankly I had thought the time for these sorts of arguments had long past – the MOTU report was back in 2009 and the Australian election, which was won on the commitment to the NBN project, shows that most people understand. To hear someone like Ben, who is a cloud computing advocate, try to reason that 1 Mbit/s is enough for anyone was a bit shocking.

So here was my reply to his post.

Imagine a bell curve. At one end is your ‘Grandma’, still on dial-up and perhaps just migrating to broadband now so that she can maintain a low resolution Skype chat with your children. Also on that end are families that cannot afford broadband connections, and so their kids are unable to properly join the online world. (Perhaps those kids are lucky, and are at somewhere like Pt England school where they give every kid a laptop for $15 per month and connect to the KAREN network to provide decent connectivity.)

At the other end of the bell curve are people that consume vast amounts of data at high speeds. They might need it for media consumption (of increasingly high definition video), for work (I’m using Dropbox as I write this to transfer large files) or for Skyping their grandkids on high definition. Or perhaps they are creating a business that requires those services. Or perhaps it’s like the majority of Christchurch schools who want to get HD video connections so that students from one school can attend classes over video conferencing with teachers and students from another school, saving us money and increasing the knowledge of our kids. That’s happening right now, thanks to some tireless workers and the support of Enable’s fibre to the schools project.

But regardless of where we are on that curve, that entire bell curve moves each day, as the carriers deliver and we require higher and higher speeds, and as we increasingly accept always-on high speed internet as a requirement. Sadly NZ and Australia are well behind the rest of the developed world on this, while the definition of developed world itself expands as countries like South Korea invest in fibre (and other areas) and leapfrog their economy over ours.

In the future it will be normal to have some of your kid’s classes conducted remotely at school or even to your home. Teaching material such as Khan academy will become the norm and for the video resolution of everything to be such that it’s ‘just like being there’.

It’s the same for work. Skype may work for start-ups, but for dealing with corporates we need high quality vide conferencing that is not only increasingly higher in resolution, but also never drops out and just works. That’s not Skype, and it’s incredibly expensive to deliver right now.

It’s critical that we all understand that what’s sufficient today is insufficient tomorrow. Just as we all laugh now at Bill Gate’s assertion at 640 Kbytes should be enough for anybody, we in the technology and business communities also natively understand that in 5 or 10 years time 1 Mbit/s is going to be ludicrously slow. Imagine trying to load the homepage of Stuff (over 1Mbyte) on a 9.6 kpbs connection. Imagine trying to watch SHDTV emergency alerts about the latest ChCh earthquake over a 1 Mbit/s connection.

Fibre, copper and wireless are all bound by physical limits. Proponents of each show that the capacity that can be delivered over each keeps rising, and that’s true. However it’s also consistently true that fibre is the technology that can deliver the most capacity, and by quite a margin. It’s expensive to deploy, but once in the ground it’s relatively cheap to upgrade. Meanwhile in New Zealand the copper network to the home is most often ductless – and thus exposed to be corroded and difficult to maintain. There’s a place for wireless, be it networks generated in the home or business, or cellular networks that cover the populated country or, via satellite, an entire hemisphere.

The UFB and NBN programs are not abut 2011, nor even about 2015. They are long term focussed and are ensuring that the necessary infrastructure is in place. Copper just won’t cut it in 2020, but fibre will still be working and expanding in 2050 and beyond. Consider that the base case for Pacific Fibre is 2.56 Tbits/sec for a fibre pair on a 10000 km+ fibre leg, and we can see that the potential for the link from the exchange to the home is huge.

Consider also that what I regard as pretty conservative externally commissioned projections show Australasia running out of international capacity before 2020. A project like Pacific Fibre takes a long time to set up, and a long time to build, but like the NBN and UFB we’ll all be glad it is there in 2020.

Yet another classic Stanford undergraduate story. Google releases Google Instant, and so Feross Aboukhadijeh creates YouTube instant.

Try it.

Very shortly afterward Feross received a tweet from YouTube CEO Chad Hurley offering him a job. That’s smart – other students have stuck it out and formed companies – like Google itself.

More on Venturebeat

To work like it is intended YouTube Instant requires a high speed connection and an essentially unlimited data plan. That’s because it downloads the best guess video as you type. It’s not going to help much to cache locally – YouTube instant lets the long tail of videos get exposed.

Can we imagine this being created in New Zealand? It’s got to be tough, especially when looking at YouTube at night. At the moment, when high speed, always on and unlimited broadband isn’t yet a reality, it’s difficult to see how NZ developers can break through to the world.

A surprising puff piece from Chris Keall in the NBR sings the praises of Telecom’s Chorus Division’s cabinet roll out:

The Telecom division is now half way through its government-mandated project to roll-out 3600 roadside fibre optic cable cabinets around neighborhoods nationwide. Each shortens the distance that data has to travel over an older copper line on its way to a phone exchange.

The aim is to give 80% of New Zealanders access to a 10Mbit/s to 20Mbit/s internet connection by the end of 2011.

Costing north of $1 billion, it’s the largest telecommunications infrastructure project currently under way across Australia or New Zealand.

While it’s great that Telecom are spending money on infrastructure my understanding was that cabinetisation was less than optimal.

I was cabinetised recently – I found out when my internet disappeared and connected that event with the chap playing with wires in a box down the road.

To reconnect I needed to downgrade from naked ADSL 2.0 (no phone number required) to an ADSL 1.0 product which required that I start paying for a telephone number. I have yet to plug in a phone, and resent paying the extra dollars each month.

I’m a decent distance from the exchange and as xDSL degrades over distance the cabinet process worked, and my average connection speeds went up.  I now get 12 MBPS from my house to to the local Wellington server – so thanks Chorus.

But how good it would be if I was able to use an Orcon ADSL 2.0 connection, and not have to pay for a phone line?

So Chris – I have a couple of questions – maybe you can answer them, or maybe Telecom and Chorus can next time you chat:

• As I understand my ISP, Orcon, cannot put their own ADSL 2.0 (or VDSL for that matter) inside the Chorus cabinet – is that right? (I actually don’t know)
• Indeed are competitors able to get unfettered access to these cabinets?
• Will those cabinets support delivering fibre to the premise? I’d really like really fast two way connectivity.
• Was this really a government mandate as the article says – or just Telecom’s way of delivering to a broadband mandate?
• Can anyone sign up to a Telecom service without committing to a 2 year contract?

And there I was praising Telecom the other day – praise it seems that was all too soon. I am concerned that recent behavior is indicating that Telecom is back to its old monopolist ways.

I write of course of the XT network interference with the Vodafone network. The facts laid out in Vodafone’s submission and the court case – ably reported by the NBR – are on the surface pretty simple:

• Telecom’s new XT network interferes with the Vodafone network
• Telecom has known about this for a while
• Telecom could have removed this interference by spending $900,000 to install filters

There is a bit more nuance in the court case, but as a customer I am mad enough as it stands.

Yes Vodafone could spend some money to maintain their own service quality, yes Vodafone coverage is not close to perfect anyway, and yes Vodafone could have formally engaged with Telecom earlier.

But one the thing that has changed is Telecom’s new network.

The absolutely crazy thing is that the $900,000 to update all Telecom cells is chump-change in this context, and by not spending it Telecom is not only risking a lot, they making us all suffer:

• Telecom suffers as they suffer PR damage, just as they launch a new network
• Telecom suffers if their launch date is delayed
• Telecom and Vodafone suffer financial costs of the court cases
• Vodafone suffers as their network quality drops precipitously
• We all suffer as we all have even more lousy phone services
• The lawyers win – they always do

It’s positively juvenile, and the sort of behavior I would have expected from the old Telecom administration.

So please wake up Telecom – and behave in a way that shows you care about all New Zealanders. Demonstrate some of the values that you are trying to show in the video you produced.

1. Fess up, say you will install the filters as quickly as possible
2. Install those filters within a week. Nothing is impossible
3. Settle with Vodafone so that their lawyers don’t run your business.

In the meantime those in the executive suites please ask yourselves How did this happen? Was this a decision made at the top or were you as blindsided as much as we were? If you were blindsided then how could your culture let that happen?

Until you fess up and move on we are back to the old promote one way and behave in an entirely differnt way – it doesn’t work for children and it certainly doesn’t work on us adults.

We’ll find out tomorrow at midday whether Vodafone is vindicated, but in the meantime I just want my phone to work properly.

It’s important because it shows that Telecom increasingly gets it – they are getting that it is about delivering the right service to New Zealanders (fiber to the home rated a mention), they get that it is about the people that work there, and they get that Youtube (and twitter) are great mediums for spreading the news.They manage to say this while taking little digs at themselves and being very human.

It was uploaded yesterday Youtube time, and  had just 392 views when I saw it. It will be interesting to observe how far and fast the views go.

The cast list was telling – the boss is the eighth listed, which means he was the eighth person to appear in the piece. That’s leadership.

It’s so nice to be able to write something good about Telecom. Roll on the days when we can write a whole lot more.

• I like it for mass reduction, especially when travelling – it sharply reduces mass that you need to cart around on an airplane or  motorcycle.

• I like it for convenience – You’ll get books that you purchase instantly, rather than waiting for days or weeks for them to be delivered.

• and finally I like it for price – books are US$9.99, which is a lot cheaper than their paper equivalents, and a heck of a lot cheaper than buying in New Zealand.

It’s clearly the path to the future – a single device that removes the print and distribution industry from the Author-Reader flow. (There is still, and I believe always will be, a role for (book and news) publishers, to raise and represent quality of their branded products.)

So while the Kindle is not perfect, it is certainly a vital step to the end game. That’s an endgame where we stop using so many trees, we stop manufacturing so much paper and ink, and that’s good for our ecosystems.

But sadly I cannot buy a Kindle.

Amazon, apparently hamstrung by publishers, will only allow those with US issued credit cards and addresses to buy the Kindle, and only those with US issued credit cards can buy the books.

This is transparently protectionist – and stupid – as Amazon has always allowed me to purchase US published books in paper form with my NZ credit card and NZ address. There is no real difference – save that I don’t have to pay 25-100% of the price in shipping costs, and that I don’t have to wait 14 to 40 days to receive the books.

Amazon’s international sales could explode if they released the Kindle offshore – and the future of local rivals such as Fishpond and Whitcoulls would be doomed in the long term. To be blunt, Amazon has the ability to be the iTunes of the book publishing world, to move books sles from stores to online, to move book selling power from bookchains to Amazon. Hoewver by constraining sales to the USA they are blowing it, and risking being like Sony, who released beautiful yet DRM crippled music playing devices that left the market wide open for Apple iPod and iTunes.

At this stage I should be able to turn to Shipbuktu, a promising Kiwi startup that provided US addresses and also wanted to provide US credit cards to Kiwis. However their forwarding service is on hold, and has been since Christmas:

Meanwhile their US credit card service never emerged. That’s sad for all of us.

So Amazon just continues to piss me off. Their US-centric approach means that I can actually buy less and less from their store, while locals like Fishpond and MightyApe just get better and better. Still-  they have enormous critical mass and they have the Kindle – so if they can get their act together quickly enough then they will be hard to beat.

On the other hand Apple, while US-centric themselves, now have 80 countrybased iTunes stores, and must be learning quickly. What if their next product, as some rumopurs have noted, is a kindle-sized device with the iPhone software? Kindle reader is available for iPhone, and if Amazon opens up their service then it is game over.

Meanwhile I’m searching for someone in the business of providing US-based credit cards to foreigners (cash up front, clip the ticket on each transaction). I’m guessing there is nothing there – so does anyone want to have some fun?

The Governance Failure

There were failures at a number of levels from Telecom, including poor strategy, poor execution, but to me most of all it was a failure of governance.

Strategy
The strategy failure was at the highest level – and not only in the way Ferrit addressed the perceived space (see above). The failure was at clearly articulating and following a vision of “What does Telecom do“. The answer is that Telecom NZ delivers telecommunication (& IT) services, and until they can demonstrate that they can do that well, anything else is a distraction.

The launch of Ferrit meant that Telecom moved focus and resources away from its core broadband and mobile business lines, and so NZ slipped even further behind the rest of the world. It is heartening to see in the press release that the main reason for Ferrit closing was to move back to the core business.

Branding
The branding of Ferrit was brilliant as a case study in ineffective branding. Beyond ineffective, Ferrit’s brand equity managed to plummet from day one. From the choice of rodent name, to the sleazy and intelligence insulting advertising, to the Ferrit.com website which was a porn site domain that Telecom was forced to purchase. Perhaps they could sell it back now.

Meanwhile New Zealanders are smart, and can see through branding campaigns that seek to portray an image that is clearly inconsistent with reality. Telecom itself suffered from this approach for years, and Ferrit was another example of just what not to do.

Simply put – Ferrit may have done everything they could to create a poor brand, but the failure to gain traction was caused by the poor site and flawed strategy, not by the poor brand.

It’s easier to describe how successful web (and other) companies go about building credibility, or brands. Trade Me, Google and Apple all followed a similar path. They start small, they make a great product and they grow slowly and organically through word of mouth. Only after they have established a strong beach-head do they contemplate an advertising campaign.

Torpedo7 is a Kiwi success story that has out-performed Ferrit by using this method. The bicycle and sporting goods site usability is fantastic, their fulfillment stunningly quick and their advertising spend is very hard to see. The result is traffic to their sites that is larger than Ferrit’s, and no doubt revenue figures that dwarf Telecom’s folly.

Ferrit turned this approach upside down, launching a wildly extravagant and misguided campaign months before the site was able to do anything useful. Anybody that visited the site had a poor experience and thus moved on, often never to return. By the time the site became mildly useful it was too late – the brand was in ruins.

Execution
Telecom took a corporate approach to the development and launch of Ferrit. They did the equivalent of buying and adapting SAP rather than just using Xero. That’s not how things work in the web-world.

They could have done it well – here’s how:

• The leader of the team needs to be someone that completely “gets” the internet, someone that had no legacy power internally and someone that understands the technologies.
• The number of staff needs to be tiny – obeying the two pizza rule, where two pizzas can feed the development team.
• The software should be open source, or developed internally using the newer tools and never outsourced.
• The marketing team should not exist until well after the soft launch and early market acceptance, (they just spend money) and external advertising agencies should never be contacted in the first few years.
• The budget should be small – making the team work smarter with what they have and preventing any expensive follies.
• The location should be away from the corporate parent (it was), and in a lean environment (it was not)
• The team should be interconnected with the local web community, be that on the latest social networking tool, conferences such s Webstock or simply through blogs.
• The early scope should be small, with more features (and dollars) added only after the concept is proven

Telecom and Ferrit failed on all of these levels. Sadly I’ve seen corporates fail consistently at building their own businesses – Pfizer’s recent laying off of research staff was an admission that they are just too big to innovate, while Trade Me is the classic example of a start-up taking away the corporate incumbents’ businesses.

Governance
This is where I am truly perplexed, and concerned not just for Telecom but also for many other large corporate businesses in New Zealand. The total failure of Ferrit was obvious to any external observer right from the start. How could the leadership of Telecom let this happen? And if this was really was a pet project of the then CEO, then how did the Board of Directors let this start and keep going for so long?

Was there anybody on the board that gets the internet? Was the board able to reconcile the tens of millions money being poured into Ferrit with their fiduciary obligations to shareholder to maximise value? Was the board able to reconcile their obligations to other stake-holders with not only Ferrit’s poor performance but the resulting internal distraction from the core goals?

Who was asking the hard questions? Telecom.co.nz has pages and pages of corporate governance material on their website, but I can’ help but observe the board failed dismally in their obligations to shareholders.

All is not lost – they did exercise their biggest power and bring in Paul Reynolds as CEO. He is slowly turning around Telecom, and is doing it well. We could argue that the Ferrit closure happened about a year to late, but really it is a small amount of money to the giant corporate.

Paul has managed to change out his management team and now drop Ferrit without acquiring a nickname such as “Neutron Jack” or “Chainsaw Al”. Credit to him for that, but I hope that his current board is asking him the tough questions.

It’s a sad interlude for Telecom that needs to pass into history. The great news is that this closure is yet another sign of a resurgent Telecom that puts customer needs first and understands that shareholders benefit when you create value for all.

The economics

The business result had to be razor thin commissions, if any. The site depended upon the larger stores providing volume of products, which they really had no incentive to do. There was also real internal cost to those businesses of providing the feeds to Ferrit, and the power of their brands were also being diluted. It just wasn’t a good deal for retailers, and the resulting revenue for Ferrit was never going to be significant.

I (wildly) estimate that the average commission paid by retailers was 2-4% – that’s a guess really, and it is a critical number that I would dearly like to hear from an insider.

The shonky revenue model was overlaid with a cost structure that was inexcusably large. We all saw how much money that Ferrit blew on often appalling advertising, but what didn’t really come out was that that spend was only a third of total spend. The development and operations/sales spends were also inordinately high, and also fraught with error.

Apparently a lot (or substantially all? – need sources) of the development and marketing was outsourced, which increases costs substantially and reduces control. Telecom would have paid top dollars for top firms, but clearly failed to manage them well, and gave them a technology burden that was just too much to handle. A lot of people made good money from the Ferrit debacle, but they are not necessarily proud of their involvement.

Meanwhile the end game team of 24 employees and another 13 contractors was huge – and I suspect that most of these were in sales/operations.

All of this was simply unsustainable on top of a revenue model that never had any industry credibility.

At the beginning of 2007 Ralph Brayham said that Telecom had spent $24m to date and was going to spend another $12m in the next financial year. It’s now two years later, and so, if nothing changed, I would estimate Ferrit’s total spend in the range of $40-60m. Others have estimated more – around $70m.

The overall economics of Ferrit was pretty appalling. Some numbers flying around twitter and here guesstimate that Ferrit was unlikely to have made more that $500,000 in gross profit throughout its existence, and was in fact more likely to have made substantially less than that.

If we estimate that Ferrit spent $70m then we see that the return on that investment was about 0.7% – a pathetic number. My own estimate of all-time revenues is between $200,000 to $400,000, or a return of 0.28% – 0.56% of a $70m investment. That’s a very rough estimate, and again I would be fascinated to see actual facts.

The idea of the Ferrit site

So while there was a space, the proposed way to address that space was flawed. The  problem was that the proffered solution didn’t offer anything of value to anybody.  The medium to large companies that Telecom identified had not moved their commerce online were not looking for a giant website to aggregate demand. They needed to open their own ecommerce websites backed up by their own fulfilment processes.

The problem was that for an aggregator site like Ferrit to work properly the retailers had to get their own websites in order, and once they had them in order there was no need for Ferrit.

To provide a feed of products they needed to be able to pass on SKU’s, details, photos and prices, along (importantly) inventory numbers through to Ferrit. They also needed some way to accept the sale online and fulfil the order. Once companies had all of this on place then building their own site was a formality. They could even use one of the many off the shelf and open source (read free)  eCommerce website solutions out there. Wellington’s Silverstripe offers a complete website CMS including ecommerce, while OSCommerce is a dedicated open source solution. Both are free.

The business model was fundamentally flawed. It relied on taking a commission from retailers for directing traffic to their sites. A large commission. The flaw was that the retailers can simply set up their own sites and buyers can easily find them using Google. (Indeed Ferrit’s usability issues made it harder rather than easier to buy things from particular stores.)

Finally there was the Telecom question. Why would any supplier want Telecom to be their ecommerce route to the internet? What compounds that question is the presence of Gen-i within Telecom’s ranks, so a company already doing this sort of work for clients  was ignored within Telecom.

The Weaknesses of the implemented Ferrit site
The weaknesses were manifold, and summarised threefold: Poor technology, poor usability, poor business model. Overall it was a model of what not to do.

The technology was apparently based on an off the shelf product that was substantially changed by the outsourced programming team. The impact of this is threefold: It’s expensive to purchase a system in this way, the changes to the system probably mean that upgrading is difficult to impossible and the time and costs taken to make changes are prohibitive. The slow and expensive development of the site are external evidence of this occurring.

Sadly there were and are plenty of alternative ways to develop a site like Ferrit,  ranging from open source solutions to simply starting from scratch using modern building blocks and tools.

The poor usability of Ferrit was legendary in the New Zealand web industry. It was so bad that it turned visitors away, and though it slowly improved over time the end result was still basically unusable. To dissect just how poor the usability was is an exercise best left to the individual, and I would rather point to Trade Me, Google and Apple sites to see just what a great website can be.

Meanwhile the execution was so poor that the information provided by Ferrit (price, availability) was often incorrect, leading to a collapse of any consumer trust in the site.

The front page is simplicity itself.

Then it’s straight into questions that you can relate to:

The guy’s statements change with each screen – and they are actually helpful.

You can also go down a business route, and the questions are quite different. (do try it)

After 4 steps (which are actually fun, aside from the postcode/phone number bit) you get presented with three options. The consumer version came up with the option that I eventually selected for myself – that would have saved me a bit of time. Here is the business version

all in all a wonderful demonstration of how excellent usability can drive customer acquisition.

Or does it?

Sadly clicking on one of those business links led to this rather unseemly page.

Not only is the design ugly, the promised product didn’t show, and wehen I followed my nose I got asked for a phone number. I wanted naked ADSL, so no phone number should be required. Besides, I had already given my postcode earlier.
I figured out that I had to click the Naked DSL box on the far right (lucky I have a big screen), and I did so and faced another failure of a page. Sad.

I will guess that iiNet sees a mass exodus of potential customers from the process at this point. Some more work to do then, but a really promising start.