The reasons Ferrit failed

Ferrit’s failure has been tipped enough times in these pages – so to make it easy here are the main posts over the past 2 years.

I believe that Ferrit failed for three main reasons:

  1. Very poor usability, with the site proving far too difficult to use, especially at launch. This turned away customers, and in particular the early adopter web community.
  2. Very high costs – showcased by an expensive advertising campaign, but also due to outsourcing other critical parts of the business and it seems the general lack of a cost culture. The advertising driven growth was unsustainably expensive and seemed (especially at first) to be wonderfully misguided.
  3. Poor business case – the value proposition to customers and suppliers didn’t ever really make sense. Customers could just go directly to retailer’s websites, while retailers were paying Ferrit for a percentage of their sales, when again they could just use their own websites.

All this was done in the context of Trade Me’s vast presence in the online retail space in New Zealand. I’m still not sure that Ferrit understood that Trade Me was a competitor, with new products accounting for about 50% of their listings.

NZHerald’s Adam Bennett quotes me saying the same in Ferrit’s failure tipped by industry. Forsyth Barr telco analyst Guy Hallwright is quoted as saying that Ferrit was so small that it took time for Paul Reynolds to pay attention. I think that is pretty close – though Ferrit was given a chance to shine over the 2008 Christmas shopping period first. In the scheme of things Ferrit is tiny and a distraction for Telecom.

“Telecom yesterday refused to say how much it had sunk into the business overall”

I’d be pretty embarrassed as well.

Here are the litany of posts about Ferrit – it’s been an entertaining ride. They are in reverse chronological order.

[Dec 15, 2008] Organic Torpedo7 beats inept inorganic Ferrit why a great website and slow, steady word of mouth is better than a lousy website and  millions on advertising.

[Nov 3, 2008] Paul Reynolds on Ferrit Paul answers two questions from Geekzone about Ferrit, sidestepping the question about profitability. I also question the quoted foreign online percentage of sales statistics – the share of online sales in the USA, for example, is only 3.3%. Meanwhile Trade Me’s gross merchandise sales are probably being under-estimated in NZ estimates of online sales

[Jul 24, 2008] Ferrit beaten by who? Torpedo7, that’s who Where specialty store Torpedo7 first comes to my attention after matching Telecom’s Ferrit in some Netratings statistics. It was a poor showing for Ferrit.

[Nov 16, 2007] How to manage your company’s online reputation Which praises Ferrit for responding directly to previous critical posts.

[Jun 19, 2007] Ferrit – ‘quality not quantity’ and [Jun 21, 2007] More on Ferrit Quality responding to a “puff piece” on Ferrit which did release some quotes, such as “says the company spends one third of its budget on IT and software development, one third on marketing and the other third on business operations.” That was telling given the huge amount that was obviously being spent on advertising.

[Jun 14, 2007] Ferrit’s Sale discussing the 20% off sale, which I thought was a “pretty good promotion, as it drives people to actually do a transaction, rather than just to visit the website.” However sadly the execution was poor due to poor usability – there are screenshots of how poor Ferrit was versus Trade Me and

The 20% off sale was tipped in [March 17, 2007] Ferrit – 2 unsubstantiated rumours…., which also tipped that Telecom staff had received Christmas shopping period discounts on Ferrit – great for traffic. “It is obviously better to slowly build based on word of mouth and minimal advertising – like Trade Me, or Plan HQ (congrats on the launch chaps). Of course word of mouth only works if your site and business model is actually half decent.”

[Jun 5, 2007] NZ Retail stats: How is Ferrit doing? Not so well – this stats-full post showed that Ferrit’s traffic growth driven by advertising was less than Trade Me’s organic growth – this when Trade Me was pretty mature as well.

[Mar 29, 2007] Random Photos: Ferrit, Sydney, Fairfax, boats has a photo of the outside of Ferrit’s plush office. Not exactly frugal. (This was taken from a Fairfax Media office in Auckland. I was acting Head of Fairfax Digital at the time)

[Mar 2, 2007] Who on earth is designerexposure? well they “beat Ferrit into second biggest retailer spot” back in February 2007.

[Feb 22, 2007] Ferrit as a price comparison engine – not good pointing out that Ferrit wasn’t doing well versus price scanning competitors. I also defend the number of Ferrit posts in this blog, saying “I guess I am just expressing the frustration that those of us in the business and the internet industries are feeling as we watch a partially Government owned company invest and reinvest in a seemingly pointless endeavor.”

[Feb 20, 2007] Ferrit – $36m flushed… Talked about the implications of this quote  “Mr Brayham says Telecom expects to spend about $12 million on Ferrit in the next financial year, matching its contribution for the past two years.” I summed it up as “there simply is no way to make the numbers work.”

[Feb 20, 2007] Ferrit – It’s worse than I thought This post tried to get behind quoted December 2006 sales numbers, which were pretty poor: “Firstly only 1.2% of the visitors in December bought anything, secondly Ferrit makes “between 4% and 8%” of each sale. (Let’s be nice and say an average of 6%).  Thirdly the average order size was “more than $100″. Let’s call it $110.”
Peter Wogan, head of Marketing at Ferrit, responded to this post. “The original business plan was (and still is) to provide an online shopping option for new goods for Kiwis, believing that New Zealand in time won’t be much different to the rest of the world who are spending more and more online. Telecom is committed to the business long term and the payback will be over several years – probably somewhere between three and five. Our costs are right on track. We were a few weeks late launching Phase II but we’re happy with sales progress so far. You bagged us about the revenue we have generated since we started as a business, but we have only been generating revenue for 14 weeks (also in the business plan). If we don’t meet our targets then we work out what we did wrong and do something about it. We’re as accountable as any business.”

[Feb 19, 2007] Online retail: Ferrit sinks Where I pushed the numbers farther: “Ferrit’s Unique Browsers have also dropped away post Christmas [2006]. Given that Ferrit is on record as saying that 2% of visitors buy something, that’s an estimated 1,600 buyers in the first half of Feb (to the 15th), or 108 per day. Call it 3,500 buyers per month, at an average of say $10 revenue per buyer (I made the $10 figure up, but the average sale price is most likely between $80 and $120 from the comments in the blog entry linked above). That’s $35,000 per month in income.
With 40-60(?) people to support and the huge advertising budget this dog still does not hunt.
When will Telecom wake up?

[Dec 18, 2006] Ferrit. Incompetent. #3 Where I tried to work out the value of each customer required given the very high levels of advertising spend. It was not good. “If a customer costs $20,000 to acquire then they would have to spend $400,000 to $660,000 each on Ferrit (@5% take rate) for Ferrit to make their money back. Before discounting for time value.”

[Dec 18, 2006] Ferrit. Incompetent #2 where I am a bit scathing of an NZ Herald article that is pretty soft on Ferrit, and also a bit scathing of Ferrit itself, and (my apologies) Ralph Brayham.
“In another article from the Herald, we see a classic quote from hapless Ferrit boss Ralph Brayham, who says that he “estimates that currently only about 0.3 per cent of spending [in NZ] is done online…”

Actually, as later in the article shows, NZ has about $1.5bn worth of online retail sales each year and as the article also points out, $60bn of total retail sales. That’s 2.5% Ralph – you are out by about an order of magnitude.”

[Dec 18, 2008] Ferrit. Incompetent The post that started it all off. I quite liked the title so I used it two more times. The incompetence was fairly mild – wrong spelling in an online advertisement. I guess getting the basics right is everything.

Published by Lance Wiggs