A mentioned, we’ve covered Torpedo7 before on this blog. That was the surprising finding after Ferrit had been beaten by Torpedo7 in domestic unique browsers for the week to July 20, 2008.
Organic versus Inorganic growth
It turns out that comparing Ferrit and Torpedo7 is an excellent way to compare organic (Torpedo7) and inorganic (Ferrit) growth. Organic growth is growth that is based on word of mouth, supported by a growing community and perhaps light advertising. Inorganic growth (and I am making this up) is growth that is generated by spending big amounts of money on advertising campaigns.
My theory is that inorganic growth is actually a fallacy – while you can buy traffic, you cannot buy growth. Moreover, I also believe that purchasing inorganic traffic suffers from the law of diminishing returns – the more you do, the more it costs.
Let’s have a look at our case study traffic numbers.
Ferrit and Torpedo7 attract about the same amount of Domestic (NZ Sourced) traffic. Here’s the total time spent on each site over the last year, courtesy of Net Ratings. Note that December is a partial month.
Those red spikes are clearly advertising campaigns that Ferrit has used to boost traffic and hopefully sales. If you ignore the spikes then there is a trend, and that trend is even more noticeable in the Unique Browser chart below. The arrows are mine:
Torpedo7 is showing consistent growth in Unique Browsers over time, while Ferrit’s core traffic is actually decreasing. Notice also that the spikes for Ferrit are also falling, though Dec08 should beat out at least Nov 08, and the height should be a function of ad spend, which I don’t have.
The amount of time spent on each site is telling – roughly the same amount of total time come from a much smaller number of UB’s on the Torpedo7 site than the Ferrit site.
So what are the lessons?
Spend for traffic now, not later
The first is that if you are going to drive traffic to your site using massive advertising campaigns, then you should base the financial decisions about how much money to spend on the immediate results from that campaign, and not on any supposed future benefit.
Inorganic beats organic
The second is that, although big corporates struggle to believe it, an organic growth path creates a far more value in the short, medium and long runs.
In the short term the inorganic sites spend huge amounts of money on advertising to launch the sites, and this dwarfs any margins that the companies are making as a result of sales. Meanwhile the organic sites keep things small and lean, not selling much but spending very little as well.
In the medium term the inorganic sites need to continue to spend to show growth (I’d classify Ferrit as at this stage right now), and probably still do not make money. Meanwhile the organic sites start to make solid revenues and profits, and the owners are making money – much like Torpedo7.
In the long run the inorganic sites are very low margin or do not exist, while the organic growth companies make strong revenues, have good margins versus their peers and make extraordinary profits for their owners. Trade Me is NZ’s finest example of organic growth, while Ferrit and Flying Pig (which I was not here for) are perhaps the worst.
Target a community or a category, not everyone
Torpedo7 targeted a small community/category – bicycle fans – and built their success from there. (Miki commented about this on the previous post) Many bike fans are also fans of other sports, and so they are able to move across. Nike, Adidas and Icebreaker started in the same way – target a niche and then expand out. Ferrit tried to target all New Zealanders and all categories, and so didn’t generate or appeal to a small group of fervent fans. Trade Me’s community built itself on the site, and grew as the site grew, to the extent that the community is now essentially all New Zealanders.
It’s usability, and it’s products
This could all be completely wrong, as the sites are actually quite different. I’ve commented about this before plenty of times, but the devil is in the results.
As part of the research for this post I browsed to both Ferrit and Torpedo7. (Torpedo7 has no google ads that I could find, whereas Ferrit has ads everywhere) On Ferrit I moved the mouse around, saw massive complicated menus pop up, didn’t see any products that I can recall and quickly left.
On Torpedo7 I purchased something within 1 minute of arriving on site. That’s found, added to cart and paid for. And that just about sums it up.
What do you think?
Lance – while I absolutely agree with your analysis in this case, it’s probably a little simplistic to discount marketing fuelled (inorganic) growth offhand.
In this case Torpedo7 has a distinct advantage to offer its customers – its products are generally cheaper than at retail, and their selection is better than most retail outlets. In that instance (ie when there is a genuine unique selling proposition (USP)) then yes, organic word of mouth sales can work well.
In the case of the vast majority of commerce however, sellers are differentiating their products based on perception. This perception is generally one that is brand related – brands, in the absence of some other route to scale, rely on marketing spend to achieve their aims. Your example of Icebreaker is telling, they were the antithesis of a niche player and spent hugely to attract sales. I’m not sure when they turned profitable but it was many many years after launch (and that was a product that included a $250k spend on pre-launch marketing planning).
So absolutely I agree that organic is better than inorganic IF (and it’s a big if) there is a viable business model with organic growth. My own business (www.cactusclimbing.co.nz) has grown completely organically, with zero debt and self fuelled. It’s made it a slow journey but a rock solid one. It’s a great way to build solid Kiwi businesses but it’s a hell of a lot harder to go the organic route today than it was a few years ago….
(Oh and in the interests of organic growth (and Kiwi organic growth at that!) – Lance’s readers get a 15% on regular price Cactus products until the end of Feb ’09 – just use coupon code LANCEWIGGS at checkout)
thanks for the discount offer for readers!
I agree that the underlying business needs to be solid. Ferrit is off to a bad start on that one.
Usability is a close second for me – if I can’t use the site then I’m not going to buy.
and brands are perhaps based on perception, but underlying that perception has to be quality of the product. If the brand perception doesn’t match the product quality (my first mp3 player springs to mind) then that company has lost you.
Clearly I need to learn more about the icebreaker launch. I have met the people that invented the fabric and the jerseys though.
I think that many of Ferret’s problems are actually caused by their earlier, vast campaigns. They drove a lot of traffic (and hence people) to their site; it was rubbish; everyone now knows Ferret is rubbish.
Doesn’t matter how much it’s changed, my impression of Ferret is still that first impression. I’ve yet to hear any word of mouth that would change that impression.
Great piece Lance.
You are absolutely right about organic vs inorganic.
Content and useability win every time over fancy marketing campaigns.
I just don’t get why Paul Reynolds doesn’t get it.
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