Lance Wiggs

Final Ferrit: The business economics

Part three of a four part take on the end of Ferrit. We started with Market Space, then site idea and execution, and governance failure will finish things off.

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.

Final Ferrit: The site idea and execution

Part two of a four part take on the end of Ferrit. We started with Market Space, and business economics and governance failure are next.

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.

Final Ferrit: The market space

Design flaws led to Ferrit’s downfall sings out the Independent, but it’s a bit more complicated than a pithy headline. I’m quoted in the article, and so am providing a bit more background to those quotes. I also promise that these are the final blog postings on Ferrit. Really.

So here is a four part take on the end of Ferrit. We start with Market Space, and will have site idea and execution, business economics and governance failure later.

The Market Space

The first question was whether they were in the right space. To me there was indeed a gap in the space, but the way the went about addressing it was not. Indeed Telecom would have served NZ ecommerce better by concentrating on their core products, and improving the quality and penetration of broadband.

While Trade Me had/has done better than the rest of the world (e.g. in listing numbers) at establishing a marketplace for small sellers, there was and really still is a gap in the NZ ecommerce market for medium and large businesses. Put simply these businesses were not moving online fast enough and were and are, really behind the times.

This was partially inexcusable by those businesses, as the larger retailers couldn’t make the numbers work as they were confronted by a relatively small NZ market. The market was constrained by the tiny size of New Zealand’s economy, by the relative merits of online versus offline and importantly the access to the economy was constrained by poor broadband penetration and quality.

(Trade Me managed to succeed in New Zealand by taking advantage of New Zealand’s high internet penetration yet low broadband penetration. Their website was designed for dial-up, and only in recent times is becoming more suitable for broadband connections. However doing this required incredibly really talented people and a relentless focus on usability and speed.)

Internet use and commerce is directly related to speed of access – with those with faster connections are more likely to read news, communicate and shop online. (no source sorry) Telecom would have accelerated New Zealand’s online retail (and media) sector by simply focusing on ramping up broadband quality, speed and penetration. Their efforts were poor, and the service in New Zealand still inexcusable.

BHP Billiton SSM job loses – WA and NZ impact

Nickel prices are very low, and so there are some big cuts just announced for BHP Billiton Stainless Steel Materials. As rumored the $2 Bn Ravensthorpe laterite plant is going to go flat, and about 2,100 jobs in total will go across Nickel West and Yabulu. A total of 6,000 will go from the entire BHP Billiton group, so Nickel is being hit hard proportionally.

That’s really sad. I was lucky enough to consult to the Kwinana Nickel Refinery as well as across Stainless Steel Materials, and this will come hard. Don’t blame the talented people there however, it’s just that the industry is simply producing too much Nickel versus demand, and unless the supply is curtailed it spells doom for everybody.

The Ravensthorpe plant uses laterite based Nickel, which is in a more common yet much harder to process form. The plant creates MHP (mixed nickel cobalt hydroxide product), a high Nickel percentage green goop, and that is shipped in sealed containers to the Yabulu plant in Townsville. It uses a relatively new technology and was still ramping up, yet it seems just cannot make nickel cheaply enough versus the market prices.

The Yabulu plant was expanded as part of the overall Ravensthorpe capital project, with the MHP mixing in with the other sources of Nickel. The Yabulu plant, like any refinery, is a 24/7 operation, and reducing volume probably isn’t going to change the number of jobs much, but it will affect the volume of other inputs. Interestingly the BHP Billiton press release says that they will “complete a future options study” for Yabulu. This means one of three things – ramping it down, keeping it at old, pre-Ravensthorpe levels, or finding an aternative supply of Nickel. My take is that the answer will almost entirely be dictated by what happens to the Nickel price in the meantime, as well, of course, on how well the team operates the plant.

The Ravensthorpe affected ex-BHP Billiton employees and contractors will be facing a very uncertain market – and there are 800 employees and 1000 contractors across Ravi as well as Yabulu and, crucially, head office in Perth. There are a lot of very talented people inside Nickel West and SSM and my heart goes out to them in these uncertain times.

Meanwhile mining at the the Mount Keith Operation, which is an impressively enormous hole in the ground in Western Australia, is being scaled back. They will slow mining and produce concentrate from existing stockpiles. That saves 100 employee and 200 contractor jobs in a market where truck drivers have been seeing incomes of $120,000 per year. That sort of income is now completely unsustainable, and we can expect to see a huge follow-on effect in Western Australia.

The Mt Keith sourced ore is concentrated and then smelted in Kalgoorlie and refined at Kwinana, South of Perth. With the amount of concentrate staying the same we can expect that Kalgoorlie Nickel smelter and Kwinana Nickel Refinery will continue to produce at maximum rates, as the more you make the cheaper the unit cost. We can expect those sites to relentlessly continue to reduce unit costs.

The Impact
Overall the people that will go will more likely be the newer migrants to Western Australia. The mining industry has been fueling a serious boom, with housing, coffee and food prices reflecting a reality that simply wasn’t long term. I see this as yet another potential catalyst for a big popping noise to hit the region.

There are tens of thousands of New Zealanders in WA, and many of them are in the sort of occupations that will be the first to go, Where, oh where will they go to next?
Perhaps to those $22 per hour cleaning jobs in tourist towns like Broome, which employers have been struggling to fill. Those jobs won’t have to pay as much of course, as tourism demand will also dip and supply of employees will rise.

The knock on effects are obvious, and the results could be disastrous. It’s really not a good time to own a house in the Perth market – and I am glad I don’t. However as Nickel prices rise then Ravensthorpe will be able to ramp up again and Perth will come backas well. It may take a year, or many years.

Business lessons from the Kiwis World Cup victory

Over the weekend I finally managed to watch the New Zealand – Australia rugby league world cup final. The Kangaroos were expected to crush the Kiwis, but the Kiwis won, and won in style. Much has been written about the petulant response from the Australian camp after the match, but I want to focus on why the Kiwis won, and the lessons for the All Blacks and for business.

The evidence is relatively scanty, but to me it was clear the Kiwis operated as a true team can, while the Kangaroos were more a collection of great players.

Here’s the evidence that I saw:

On field

The Kiwis were very quick and genuine to rallying around anybody that made a mistake in the game. The mistake was accepted as part of the game and the player given a big lift from several of his mates.
The dropped ball:
whoops
The pats on the back:
one two

The Kangaroos has a little of this going on, but it just seemed less sincere and at times absent entirely. There were no team pats on the back after this guy knocked a ball on, and in fact he threw the ball away in disgust and was visibly frustrated.

I'm not so good with league later names

The on-field coaching for the Kiwis seemed very light – and from what I could see consisted mainly of “water?” and some focused motivation. There was no play calling or coaching from above that I could see.
advice free water

Importantly ex captain and Ruben Wiki was seconded as a water boy and on field motivator. He didn’t seem to be telling people what to do, he was being a motivating yet calming influence on the team. His presence was very obviously respected and desired. Here he is having a chat to a player after he scored a try.
Calm down now mate

The Australian team on the other hand had more visible scene of on-field coaching, and less interaction between the team. Here’s a shot of a Kanga layer after he made a mistake that garnered a try – he got a word from the coaching staff, but seemingly little from his own team.
Thurston?

It isn’t black and white – both teams were coaching from above, and both teams were coaching from within the players, but it was clear to me that the Kiwis were doing less of the first and more of the second.

The locker room

Half time was very telling as the cameras flashed pictures from the dressing rooms. The Kiwis were standing, sitting, milling around, and most of all interacting with each other. The lead coach was nowhere to be found while the assistant coach was demonstrating something and everyone was paying attention. It looks messy, but it is a sign of a healthy team.
Kiwi locker room

The way the team and coaches/assistants were standing meant that the communication lines were crossing over within the team – each person was helping, learning and getting energy from the other members of the team and the coaching staff. It was clearly about the team helping themselves get better, and with the assistance of the coaches, who were guiding but not directing.

The Australian camp was seated in a U shape with the lead coach seated in the middle of the gap in the U. This is a particularly ineffective way to encourage internal interaction:
Aussie locker room

I’ve seen this layout in a business environment as well – and while it’s great for focusing the attention on the guy in the middle, it’s lousy for promoting discussions within the team. It’s one to many and not many to many, telling and not problem solving. If you ever find yourself in this situation I recommend that you rearrange the room quickly.

The commentators could not show it, but after the match it emerged that the Kiwis had also posted pictures of their families and the word “Brothers” all over the locker room.

This is powerful stuff, and with players of roughly equal ability the winning of the cup was in the locker rooms..

After the game

It was staggeringly asinine, but the man of the match medal was awarded to an Australian. I guess this was because the (Australian) people selecting the man of the match were in denial that Australia would actually lose, or that with only one eye open they thought the Kangaroos had played the better game. The had not. However perhaps it was also because no one superstar player stood out for them in the Kiwi team.

Meanwhile the Kiwis themselves after the match were impossible to pin down when asked about their own performance. They kept referring back to their team mates – their “Brothers.” The “17 players” had delivered the goods, and nobody was going to say that it was their own effort that made any difference, and rightly so.
Reuben Wiki - part of the team

It also came out after the match that Kiwis always knew it would be a hard road through the World Cup, but they never doubted that they could do it. They knew they would lose early games, but would learn, grow as a team and come back to win at the end.

The behavior of the Australian coach Ricky Stewart, who abused and accused the referee the morning after the match wrapped a nice bow around the whole affair. The refereeing seemed fair enough, and every player in every game knows they should just play the ref and move on. Graham Lowe’s response said it all:

“They (Australia) cracked under pressure. They gave away some inexcusable tries and they didn’t play the whistle.”

“It’s real cry baby stuff.”

Summary

The Aussie league commentators didn’t get it, and even the prize ceremony bestowed a crystal thing on the winning coach. The real coaching was done not just by him, but by the assistant coach, the other coaching staff, but most of all by the players themselves.

Australia choking: Kangas choking ”

The Kangaroos should have won the tournament, but were badly coached, poorly led and did not form a high performing team. They had the best players, access to the best coaches and even a home crowd advantage.

Does this sound familiar?

The All Blacks

As beautiful as it was to watch the Aussie league commentators eat some very large crow, over here in New Zealand we really only care about one Rugby World Cup. Sadly our All Black teams have kept making the same mistakes that the Aussie league team just made.

John Mitchell’s World Cup All Blacks were the nadir. The “Leader” was Mitchell and it appeared to this outsider to be a command and control kind of thing – the team in a U. The game plan was overly rigid, the ability of the team to make their own decisions on field strangely absent and the on field leadership and team dynamics were a shadow of what they should have been. He’s still doing it at Perth with the Force – as a Sunday Star Times article recounts:

One of the best involves an enraged Mitchell tearing strips off the Force during a halftime speech last year. The story goes Mitchell was indignant his team were not following his gameplan and stormed out of the shed after a few choice words saying “you can coach yourselves”.

Tellingly:

The players locked the door behind him, and did just that, and went on to comfortably win the match.

That’s a shocking indictment, and it says a lot about the man that he is still attempting to stay on. It’s now about the money for Mitchell, and the team dynamics are destroyed as long as he is there.

Meanwhile Graham Henry probably destroyed the chance of creating a high performing team for the last Rugby World Cup by the player rotation policy. The policy may have made sense physiologically, but it resulted in an unwieldy large “team” and what must have been a sense by players that they were not in control.

Strangely enough there is a link between Mitchell and Aussie league coach Ricky Stewart. Both have the same manager (also referred to as mentor), John Fordham.

Fordham is believed to be a devotee, like Mitchell, to self-betterment and is known to devour self-help books.

Perhaps he is reading the wrong ones.

The Mitchell reign, and to an extent the first Henry reign seemed to me to be about the coach much more than about the team.

It seems to me that teams with the best players in the world coached using the coach as boss style are very good at winning, and winning well, but fall apart when faced with new circumstances, and so lose.

We must aim for teams that have genuine leadership on the field, where all team members are contributors to the collective intelligence of the team, and where team members interact primarily with each other to lift the performance of the group.

The lessons for business

The American Football coaching staff call every play – it’s the rare NFL quarterback that calls his own. The star coach as an American Football coach seems to be something the media demand, and yet it removes the team intelligence and it removes the team. One 50 year old guy is nowhere nearly as smart as 13, 15 or whatever 20 somethings who are at the peak of their game.

It’s the same with business. The CEO, the manager, the team leader are not there to tell people what to do. They are there to foster an environment where the team can work toegther (with the boss) to arrive at the best answers and results.

I’ve seen this in industry time and time again. While it’s easy to show immediate turnaround results by hacking, slashing and burning, it is much harder to keep those results for the next two years. Truly sustainable turnarounds take time, and no matter what the process, the result is everybody across all layers is working together to drive toward common goals. A CEO, no matter how smart she is, is no match for the smarts of everybody in the organisation working with each other at full potential.

Time to update the airline safety procedures

Notice anything?

That’s right – nobody is wearing a lifejacket.

I’ve always been amused at the traditional picture of a plane floating gently in the water on the safety briefing cards.

Now that we finally have one after billions of flights we can see that the safety policies based on flying 50 years ago are completely useless today.

The pilot landed safely, which is astounding, but more importantly the passengers had no time, nor need, to don the lifejackets.

If all big planes abandoned the extra weight of the lifejackets under every seat then the amount of dollars and CO2 emissions saved each year will be substantial.

I hope the FAA in particular takes this accident into account and really has a good hard look at the existing safety policies.

More commentry on Ferrit’s rise and demise

Perhaps we will never know, but some details are emerging on the likes of Twitter and personal emails. I’ve also had a conversation with Ralph Brayham, which is sadly confidential. All I can say that I won’t be purchasing Ferrit.

Let’s start with the most interesting ones:

Telecom’s own press release

Telecom has decided to close its online shopping mall Ferrit as part of the company’s focus on the delivery of its core services.

This is the critical news – it’s what we have been asking Telecom to do for years, and finally the moment is here. The core services are the upgrading of broadband to the home/business and the roll out of the new high speed & compatible mobile network. It’s a very clear signal from CEO Paul Reynolds that businesses that are not core and that are not generating income can expect to go.

Now let’s go anonymous:

“There’s been a lot of bullshit smokescreen spoken about the retail trading conditions causing Ferrit’s demise. The fact is that they had a flawed model, executed it poorly and had shit customer service”

anon.

Ralph Brayham and his crew were the only optimistic ones.

Telecom insider

Kiwiblog commenter “the deity formerly known as nigel6888”: “Its like some MBA looked at Amazon and trademe and said we could do that, but make it harder, offer no real bargains, and no reason for anyone to ever use the site. Now lets make it expensive to run and maintain too.”

Sol, who naughtily cross posted the same comment to a number of blogs, linking to his site:

I have had personal, insider experience of both 1-day and Ferrit. Both have ambitious e-commerce models, except that 1-day has a fabulous business model and a very user friendly, simple site, and Ferrit does not.

jonmac807 on Aardvark

Th(e) fact that it was Telecom is also an issue. As I travel around fixing computer in peoples homes I note that the telecom customer base seems to be an older person/persons rather than younger folk so pushing “geek” advertising to their market place is patently offensive!

On that subject, being a Telecom Free person, I find it most annoying that when I log into my Yahoo mail account, which I have had for around 10 years, I am confronted with Xtra stuff. If I wanted Xtra as my service provider I would use them. I don’t so please get out of my face!

Twitter as always seems to bring opinions and facts to the surface:

@nzben Fun Ferrit Facts: Guesstimate of spend: $70m. 125k orders based on retailer order numbering. Therefore $560 cost of each sale.

@barniclebarnes Average order price was around $85 last Xmas. That means $10,625,000 in sales. Ferrit Rev (at 10% com) $1,062,500

@barniclebarnes My $85 was based off their live sales screens at their offices pre-xmas 2007.

I estimate that the average commission paid is more like 2-4%, as the biggest players would not pay the retail commissions. That would give trivial all-time revenues of $200,000 to $400,000, or a return of 0.28% – 0.56% of the amount that @NZBen estimates they invested.

@matt_mcmahon Much as I’d like to blame mngmnt incompetence, Ferrit was Fubar from conception. Logistics f’d as well… same PM’s as Bubble?

@stevebiddle: You didn’t try and buy flowers and find the price difference between Ferrit & the retailer. I did! :-)

@bataglia At least we won’t have to watch those annoying TV ads anymore.

@armsultan : not surpried they never turned a profit

@toxaq: Saying goodbye to ferrit, actually, we were never introduced… a sadly predictable waste of money.

@rosswell: “FERRIT” the new “FAIL”

@intrepid101: Ferrit. I did a small dance of “I won’t have to see those annoying adverts anymore” joy. Sorry about the jobs though.

@PaulColes: So we have seen the demise of Ferrit.co.nz no surprise there! Trying to be all things to all people is just not an option.

The blog and twitter comments on Ferrit closing

Here are what other commentators are saying about the Ferrit closure. It is certainly a popular topic, and the themes are recurrent and certainly entertaining. Everyone brings a slightly different perspective, and it is worthwhile checking them out.

This is also makes a snap nice survey of the New Zealand internet/business blogosphere, including a couple of sites that I had not run into before.

Jim Donovan: Ferrit to be put out of its misery

The only surprise is that Telecom has taken so long to send in the exterminators.

Ferrit failed to capture customers because its brand personality was fundamentally flawed from Day One. It doesn’t matter how great your site is if no-one wants to visit it.

Stuff: Ferrit to fold as retailers move offline where Ferrit blames the retailers, not themselves, but

Ferrit never made a profit, and Mr Brayham said in June last year that the business was still years away from breaking even.
Telecom retail chief executive Alan Goudie said yesterday: “Ferrit has continued to grow during the past three years, but the current retail environment has meant the break-even point has shifted out a number of years.”

Juha on Geekzone:Telecom closes Ferrit

Tech journos like myself have been taking bets on when Ferrit would close, but expected it to happen much sooner after Dr Paul Reynolds took over after Theresa Gattung at Telecom.

“Journalists based across the road from the Ferrit offices in Auckland during the set up phase had a good view of the busy emerging new business. Ferrit staff’s ability to play ball games while speaking on mobile phones was envied.” (Juha was one of those Journalists)

Devour’s Barnicle Barnes: Who killed the Ferrit?

I’ve had the pleasure and the pain of working with Ferrit over the last 3 years and it was interesting to say the least. When it comes down to it the biggest problem with Ferrit is the same issue that has tripped up Telecom time and time again. That was the fact that it was run by marketers and not technologists….

….The list goes on but from the word go it was over spec’ed, over-funded, over-staffed, over-marketed and ill implemented. Next time Telecom please, please, please before you build anything ask yourself “Is this the right thing to do? Would I use this?”.

And please, be truthful and authentic. It is going to take a long time until people start to love you again.

Ben at Geek.nz Ferrit is no more

charging large commissions on all sales from day one is not the ideal way to kick off an online selling community, especially when the majority of your partners already have their own web presence.

Alister Helm at the excellent Unconditional: Does the closure of Ferrit provide any insight for real estate?

the question would naturally be – how many sales were converted from that traffic and how did that compared to the operating overhead of the company (easily $1m per month)?

Many tens of millions of dollars have been poured into Ferrit largely focused on advertising the brand which to me always felt like taking a sledgehammer to “tell” people to use a site that of itself lacked a deeply engaging or memorable experience.

Web businesses require a culture of lean operation matched to fast learning.

I think the summation is we are seeing natural “Darwinian” evolution at work – aided by the current economic climate no doubt.

Dave Farrar at the popular Kiwiblog: Dead Ferrit

It didn’t provide people with enough of an incentive to shop there, rather than elsewhere.

Vaughan Rowsell – Ferrit – an expensive lesson

PEOPLE ARE NOT THAT LAZY: Ferrit fell for the misconception that people will shop online in their undies because they can and it is less work than going to the shops. People are not that lazy. People love shopping. The trend is to research online and then buy in store.

THEY FORGOT ABOUT THE CUSTOMER: I kinda get the feeling Ferrit thought the retailer was the customer, and forgot about the people who will actually part with their cash.

Will anything fill the gap, well is there a gap? I think Trade Me have it pretty much covered. Otherwise, if you are a retailer wanting to sell online, then there are plenty of plug and pay shopping tools that you can plug into your own site.

Tony Hughes on Geekzone: Telecom’s Ferrit.co.nz online store os finally being eradicated

given the sheer amount of undisclosed millions of dollars in development, marketing and running costs comes as no surprise to anyone with an elementary understanding of e-commerce, business and/or 3rd Form Economics,

deciding “Hey lets open a website, and be successful by pouring millions and millions of dollars into it.” is NOT actually a good web strategy.

Skinny: The Ferrit is dead

It’s finally been acknowledged that the site is no longer core to the company’s business strategy.

Wow. It took three years and several hundred million dollars (at least) to work that out.

e-commerce sites became cheap enough that any retailer could set-up a presence. Obviously this was not factored into any projections for the future of the site.

Telecom was in the business of selling mobiles and phone plans. What gave them the notion that this was ever going to fly.

Natalie at SimpleandLoveable: Ferrit’s gone bust – what a surprise

We always hear about the necessity of entrepreneurs to leave their startups behind when they reach a certain stage. At that stage the skillset needed for success is entirely different. Apparently it works in reverse too. It must be hard to think small and simple when you are part of a massive complex corporate.

The Ferrit ads were stupid. They appealed only to the likes of my mother who doesn’t DO internet shopping. So the money was probably wasted anyway, but also made them the laughing stock of the very people who should have been their core initial customer base – techies

allaboutemail: Farewell to Ferrit – thank God!

A common theme amongst the myriad of comments made about Ferrit experiences was the appalling after sales service

electrictoolbox: Ferrit finally shuts down

I had a bad experience with Ferrit right at the start. I was trying to integrate Outdoor Action with their system, did a heap of work and then they went and completely changed the spec about how data was supposed to be supplied. Whenever I emailed people for support (and complaints) more and more people got included in the email and there were something like 10 people involved in the emails (although I never got any help). In the end I said enough is enough, didn’t charge the customer and decided to not have anything to do with Ferrit ever again.

Aardvark: They spent HOW MUCH on Ferrit?

I despair when I see how much money is thrown down the cyber-toilet by otherwise sensible people who seem to throw all their regular checks and balances out the window when a project has the word “internet” or “online” associated with it.

THIRTY SEVEN? My God! It was just a website for goodness sakes.

Meanwhile Twitter is all a-twittering about the closure. Check out the comments.

@nzkox: Finally ferrit.co.nz succumbs to the epic fail that is their business model, bye guys.

@deeknow: So ferrit.co.nz is to be axed, would LOVE to know how much they spent on advertising

@kingnivin: Ferrit – The fact that I still don’t know what you {are} means I’m not surprised by your closure. Later bro.

@che_tibby: ferrit was a stupid idea >.< who in their right mind tries to compete with trademe, or pricespy for christssakes. @telecom, ur idiots.

@natobasso: #ferrit I LOVE how Teleom had to buy ferrit.com that was a porn site in order to clear up confusion. Did that not tell them anything?

@Stuartm: Glad to see the end of Ferrit – only because the ads were so annoying.

@farmgeek: There are some very smart folk in Ferrit with some great IP from the whole experience – hopefully @TelecomNZ will make the most of them now.

@ad_pro: With Ferrit gone, who’s going to buy masthead adspace on Stuff and NZH?

@davesparks: I like Ferrit. Always had good times there. *Best* place to buy a kettle ever. Fact. One can only hope the knockers take time to be gracious

Ferrit should not close down

While it is very clear that Ferrit has failed as a business, I do not believe it is as clear that it should be closed down.

The reasons for the business failure are usability, costs and strategy. All three can be worked on, and from the evidence, I don’t think any have been given a fair chance.

The change required is enormous, and perhaps Telecom doesn’t have the appetite, which as a giant corporate focused on greater things, is probably right.

I do, however, believe that a clean break under new management could make something work. It would mean starting again in a way, and based on much lower traffic, but organic growth.

Here are four things I would change to try to make Ferrit work:

Dramatically lower the cost base

Shut down advertising completely, fire the external developers and marketers and reduce staff numbers from 37 to, oh, about three. Those three should include say 2 developers and one business oriented person. The focus would change to attracting and retaining customers through word of mouth marketing and a great site experience.

Improve site usability

Systematically identify issues, prioritise them and change the site to make it easier to use. Be very open about what you are doing, and ask your visitors for feedback in a forum/blog. There is plenty of work to do here, but nothing that a couple of great programmers couldn’t handle.

Find a strategy that works for suppliers and customers

Lower the commissions payable by retailers so that they don’t feel pain when selling through Ferrit. Meanwhile offer discounts that eat into but never exceed the commission for other products. Keep the retailers happy by being pain free, and by driving results. This is the hardest part to get right, and without seeing the inner numbers I cannot say whether it is even ever possible to achieve.

Move to Wellington

Wellington is the design, usability and web development center in New Zealand. Moving Ferrit means access to the great local talent, great feedback from the community and a complete break with the old culture. The rents are cheaper, the talent is better and the community is simply stunning. If you are in the internet in New Zealand then come to the home of Trade Me, Ponoko, Plan HQ, Big Ears, Silverstripe Xero and many many others. It’s all tied together by several communities, including the internationally acclaimed Webstock.

What do you think – can it ever work?

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:

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.
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.
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 Apple.co.nz.

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.

Want to start a business to reduce the road toll?

Mathew Sanders raises an interesting point is comments to the last post. It is very difficult to report poor driving in New Zealand.

It seems it is also difficult to do so in Australia.

In other countries there are a few non-governmental sites that are sites in this space:

betterdrivingplease (UK, 18000 reports, activists, plate based)

arrivealive (Sth Africa) (not bad – general advice, not government owned. Seems to make it easier for reporting but not the main focus)

Bad Drivr (under construction since 2006, messy layout, some potential with video, maps but updates are old)

platewire (records US licence plate numbers of idiots – not bad. It has been “in the middle of upgrading for this week” since 2006, but front page is up to date)

roadragers (US/Canada. General advice, can report but doesn’t seem to do much.)

There does seem to be a gap in the New Zealand and Australian markets.

So – how about it?

Let’s make it easy to capture and send traffic incidents to police. At the very least why not make it easy to simply capture idiot driving and name and shame?

The Mission

The point would be to discourage the poor behaviours that could lead to accidents, and to report extremely poor/hyper aggressive behaviours to the police. Extreme poor behaviour is blatant drunk driving, road rage, group hooning/racing and so forth. It’s behaviour that has the clear ability to kill people.

The Site

We could capture input from any source: email (pictures, video), mms pictures, flickr/youtube/photobucket/etc., facebook, SMS, twittering and even blogging. Video cameras are getting smaller and it won’t be long before there is a cheap way to record everything from inside you car.

We would display the input in a easy to browse/search manner, categorising by incident type, by location and by things like vehicle type.

We would give people the ability to make a report “official” and which we will pass along to the police. (e.g. that will have to be non-anonymous, at least to the police)

We would back the site up with good editorial on what makes good driving, what we can do when we see dangerous driving and so on. We would not necessarily take a single stand on issues, but would encourage the community to come to consensus. Hopefully some of the clips will go viral and/or get on TV – helping the site, the police and embarrassing the offender. Which is the point.

We need a web design firm, a graphics person, usability folk, some cunning programmers, some clever marketers, time, and, sadly, a chunk of money that frankly probably won’t get any financial return.

The money will determine the success or not, as we all have plenty of other free work to do. Regardless – the design and development contributions would probably have to be for free, or if we are well financed, for “not much”.

We’ll probably think of a revenue model somewhere along the line if we get big enough.

So – is anyone keen?

But what about Big Brother?

Yes – this is big brother-ish.

And I have at times driven too quickly over the years and would probably have (or maybe will) featured on a site like this. It’s not the relatively minor transgressions, but the really unsafe behaviour that we are targeting. But if a site like this had existed in the past then my driving would have been slower (but less exciting) and safer. And that’s the point.

And why stop at driving – why not road conditions, hazards, and so forth?

Alcohol and driving: make it 0.0% or forget it

Good news – the NZ Government wants to look at reducing the drink driving limit from 0.8 g/l to 0.5 g/l.

It’s been 0.5g/l in Australia for years – folk over 40 will remember Peter Brock always had had 05 on his car, as that was the limit for drink driving.

But is it the right solution?

The problem is that we just don’t know whether 0.8g/l is ok for you and yet 0.01g/l is not ok for me. The problem is also that there are so many other reasons why one could be impaired – fatigue, drugs – legal and illegal, phone, screaming kids, adjusting the radio and a lousy vehicle.

So should we be judged on our alcohol levels in blood, or on our actual on the road behaviour? Here are three alternatives to the current policy – what do you think?

The Case for Zero Tolerance

By setting a limit above 0.0% g/l we are promoting the thought that some drinking is ok when you are in charge of a motor vehicle. It’s not. Any alcohol in your system means that your ability to drive is affected. I can feel myself being adversely affected after just one beer, and on a motorcycle it is particularly dangerous.

If you had asked me 10 years ago I certainly would have reacted against the thought of 0.0% as a limit, but after working in a zero tolerance environment I now understand the reasoning. It’s simply that it is dangerous to yourself and to others to operate machinery when you are impaired. It is also so simple in practice – you just don’t drink.

A Zero Tolerance environment is much easier to police – both on the road but far more importantly at a social event. If you see one of your friends drinking anything then that means they are not driving. It also applies if they take anything else that could affect their judgement.

The Case for Zero Testing

Some people are able to drink and drive safely, and even do so at relatively high levels of alcohol. This occurs a lot in other countries, such as Italy, where the driver will drive safely and slowly, is 100% focused on the road (and not answering cell phones, chatting and so forth) and poses no threat to himself or others.

So is it really wrong to drive home drunk if you are driving well below the safe speed and when others know that you are impaired?

Here’s a proposal. If you have had anything to drink, then you can still drive, but must do three things:

Place large florescent “D” signs on the front, sides and back of your car – signifying that the driver is under the influence, and that others should give space
Drive at no more than 40kmph in cities and 75kmph in rural zones
Never ride a motorcycle, never drive at rush hour

I found in my recent trip in Australia that a “P” plate was a solid indication that the driver was likely to be an idiot, and so I stayed well clear. Similarly with a “D” sign – other drivers will stay well clear and give you the space to survive.

Meanwhile police can easily identify the impaired drivers and pay special attention to how they are driving. Any hooning while impaired, speeding over the D limits or driving impaired without D signs can be harshly dealt with.

The case for increasing driving monitoring

Why not abandon alcohol testing and simply be more rigourous on monitoring driving quality by increasing the ability of police and public to catch people that are driving poorly? Let’s use the natural increase of cameras in society to allow police to monitor more roads at once. It’s Big Brother, but he is here already and by proposing it now we can do it right.

Make it easy to send videos of idiot drivers to police – e.g. we can expect in-car video recording systems (make them evidential quality) to increase sharply in popularity over the next few years, and passengers can use cell phones to take videos – give them somewhere to send them to.
Increase fixed location roadside surveillance cameras, place them in known hoon areas and go after idiots.
Use remote cameras before and after police checkpoints to check for and pull over idiot drivers.
Roll out in-car monitoring of speed and location – and give registration rebates to people that voluntarily set up their systems to report on instances where the driver exceed 115% of the speed limit in a location. Alternatively give ACC rebates to businesses that do the same for their vehicles, and push for insurance companies to do the same with premiums.

Note that it is dangerous driving that we should be focussed on – not low-level speeding in a safe way.

Bush’s tombstone

Is it just me or does the cover of GW Bush’s end of administration report seem a little morbid? The stark white on black makes it look like some sort of tombstone or perhaps a report on some tragedy.

Less death on the roads, but more to do

A huge reduction this year in NZ road fatalities, continuing a fantastic series.
NZ Road Fatalities series
What’s stark is the reduction since 1987, which is around about the time, as I recall, when the advertising campaigns really stepped up, drink driving was finally perceived by most people as a bad thing and random stops came in:
NZ Fatalities since 87 (road)

These stats are backed up by excellent work by Transport NZ, who publish annual reports and excellent source material.

Stuff’s lowest road toll since 1956 article mentioned these factors driving the drop:

Driver education/people driving more safely
Improved road engineering
Safer vehicles engineering
Police enforcement

Which ones matter the most? Easy – it’s road engineering and safer vehicles. Indeed you can heavily reduce the impact of idiot drivers by having separation of lanes, long, straight boring roads, big boring cars and perfect road surfaces. That would be the USA.

Then again – in Western Australia there are plenty of those – but their statistics are worse than NZ’s:
comparitive fatality stats - NZ/ Australia

Lowest ACT is all-city driving, while WA has a huge amount of country driving. There are plenty of kangaroos on thise roads, and, as I’ve seen, plenty of appalling dirt and sand roads to lose control on.

Not only are those roads extremely dangerous, but there are also a lot of idiot drivers. The prevailing car for hoons in WA seem to be hotted up Commodores, combined with speed and alcohol, if Fremantle on a Friday night is anything to go by.

Indeed the rural areas contributed 106 of the 188 fatalities to November 2008, which is 56% of fatalities from 25% of the population. If that percentage stayed for December, then Perth itself is around NSW and ACT (Canberra) in death rates. But just look at the death rate for rural Western Australia – outrageous:
fatality stats - WA split

Aside from rural WA, NZ is the top of the list in death rates.

To me this is a fairly simple difference, and it is probably more apparent with vehicle miles. NZ’s roads are narrow, all corners and subject to a pretty astonishing array of weather conditions. Australia’s roads are wide, straight, more often separated from opposing lanes and subject to much milder weather.

Both countries have worked hard at reducing the road deaths – and the results show. Kudos to South Australia and ACT in particular, with ACT proving that a low starting point doesn’t mean it is hard to reduce even further towards Zero Fatalities. Queensland and WA lower the standard and show the least improvement. Is it related to the fact that they both have substantial rural areas with still appalling roads?

Percentage drop in road fatalities per population from 1998 to 2008
comparitive drop

Will the iPhone be the new Nintendo DS?

Over at MoGeneration they have made some predictions for the iPhone in 2009. Nothing too radical, but clearly what happens with the iPhone is crucial for developers.

Top of the list is a subscription payment model. I’m not so sure – perhaps that is wishful thinking, but developers and users would love it. With iTunes’ excellent payments system the idea of paying, or charging, $1 a month really appeals. It works for developers as it takes a positive action to stop payments, and works for users as you pay less up front.

Mogen also predict an iPhone product that is not tied to carriers. Perhaps wishful thinking, but it would really be wonderful to see Apple sell an iPhone platform that is not tied to telcos. A new product line (iPod Nano, or iPod “Mano”) could avoid conflicting with existing contracts, and cater for the many people that cross borders or have multiple carriers. Given that, how about one with multiple SIM card capability? That would become my one-true-phone.

Capturing the older-age Nintendo DS market

The overall trend appears to be towards consumer and industry recognition of the iPhone and iPod Touch as genuine gaming platform, driving sales to compete with Nintendo DS. This will spark even more development from major software houses, while making it harder to be seen on the crowded, and slow, app store.

I see the iPhone/Pod Touch platform as taking the market above and after the DS – slightly older, wealthier and more cerebral. It allows for the transition from gaming to social networking, with the iWhatever devices offering both on a pocket sized device you can take to school, and even be allowed to use at school.

The sales statistics

The Nintendo DS had 84m units out there by September 2008, while the iPhone had sold just 13m units to end September 2008.

However there were 6.89m iPhones sold in the July-Sept quarter versus 6.79m Nintendo DS’s in the same period.

To be fair the iPhone number captures an enormous launch surge, so the December quarter stats for both will make fascinating reading.

However again, add the iPod Touch sales to the iPhones, and they are apparently pretty high, with the Touch perhaps the most popular iPod model.

So the combined iPod Touch and iPhone sales should easily exceed the DS’s for the December quarter. I still see that the DS has a place – the iWhatever sits after the DS, while Nintendo still has the positively Apple-esque Wii.