Barty’s Weblog

The only surprising thing about Telecom’s decision today to pull the pin on Ferrit is how long it took.

Telecom blames the current “retail environment” for the failure, yet this isn’t reflected in our own experience. Since relaunching in September, Mighty Ape has broken all sorts of records over the last two month and our January sales are tracking well up on last year (up over 45% so far).

And I’m sure Mighty Ape isn’t the only local web site enjoying success over the Christmas period. So with Ferrit,  maybe something other than the “environment” has gone wrong. The business model perhaps? The web site?

I’d suggest the following as the reasons Ferrit failed to deliver (in no particular order):

The web site failed – the web site while “pretty” on the outside, did not present the content well, nor did it work as a comparison site. The difficulty Ferrit faced was that all the retailers had their own product data, so price comparisons where merely a bunch of (sometimes random) search results. Then there was the old stuff presented as new… cold presented as hot …  a lot of basic mistakes that retailers wouldn’t make, if they were choosing which products to feature in their own stores.

Weekly content fails – Ferrit lacked good sticky content — there was no reason to come back tomorrow or the day after. The front page was changed once a week and the category pages are changed less often. Sites like Trademe are very sticky — i.e. it’s worth visiting often. I still remember pricing mistakes with some of our products on the front page of Ferrit… and we literally had to wait a week for the next site update to get the prices fixed. We were incredulous at the time.

The combination of a poor web site and stale content meant that Ferrit had to heavily advertise to get traffic to their web site — people did not come back of their own free will.

Business model – then there was the business model. The infrastructure needed to support a web site like Ferrit is substantial and when coupled with the very low commission model, it was always going to be very difficult to break even. To make matters worse, New Zealand is small, so they had to penetrate the market very well to just break-even. I’d suspect that the maths were pretty basic for Telecom in the end.

Overall, I think the main reason that Ferrit failed was that it just wasn’t very useful. People didn’t really need it.

We were retailers on Ferrit up until September 2008, at which point we decided that we didn’t need to compete with our own web site. I remember the last sale we participated in, we heavily discounted music… and Real Groovy discounted games. That typified the problem for retailers. Why bother to help something grow so others can compete with you? For us it was purely a business decision.

Speaking of which, I believe a pretty sensible economic decision has been made… finally.

I do have to say that in our dealings with Ferrit, while we’ve had to deal with some pretty “awkward” systems (being awfully polite), the people have always been great! We’d like to pass on our best wishes to all of Ferrits staff…

I recently noticed that Ferrit are promoting that they are now accepting credit cards from the USA, UK and Australia. This sounds like a cool idea — its a good way to get a few extra sales from ex-pat Kiwi’s etc. More sales = good.

But there is a down side … Ferrit sellers have no protection from credit card fraud. So how’s that going to work?

The NZ Herald posted an article on Sunday about the “huge jump” in credit card fraud in New Zealand. Articles like this represent the tip of the iceberg of the real problem — most online fraud committed in New Zealand is done with a credit cards stolen from overseas.

There’s no doubting that Credit card fraud is a major issue for New Zealand online stores. It’s something we have to be very very vigilant about.

To make life a little more difficult, there’s very little protection against fraud for the local online stores — there’s no Card Security Code and no Address Verification System. Actually, New Zealand online stores are one of the least protected species on the planet!

But the news is even worse for sellers on Ferrit. They don’t even get access to the credit card numbers used on Ferrit. Yet they are 100% responsible for any chargebacks incurred. That’s a risky proposition.

The Ferrit sellers are fully reliant on Ferrit filtering out the fraud (hopefully Ferrit have hired more people to do this). The Ferrit sellers are very much flying blind.

So with Ferrit now accepting credit cards from the USA, UK and Australia, the question has to be asked…

Did Ferrit just open a can of worms for their sellers?

With the recent launch of Mighty Ape, the question our suppliers often ask is… “Where are you going to promote it?”. My response is usually something along the lines of “Well we’re not going to do a Ferrit!”.

Initially, our focus is on getting our web site and our service working for our customers (which actually comes right after us getting our web site working!).

As a family company, we don’t have deep pockets like Telecom, so we know we have to develop a product that works better… preferably way better. We can’t win on advertising spends, but we can win on content, usability, better service, usefulness etc.

Our amibition is to be good enough so that we’re worth talking about. While we wish it was that easy, being worthy of a recommendation to friends is a big ask. But if our customers are 100% satisfied, then heopefully they’ll tell their friends and so on…

Its really about winning one customer at a time. The hard way.

This is the strategy that worked for Trade Me… and its worked for many other highly successful web sites. Actually, when was the last time you saw an ad for Trade Me, Google, You Tube or Facebook?

To execute this strategy, we’ve invested a huge amount of time in getting the web design right (so people find what they want), getting lots of stock on hand (so people get their stuff quickly) and built up a great customer support team (so people get all the help they need).

After only a few days, we’ve had some excellent feedback and data that we can use to improve the site and we’re really looking forward to focusing on getting the foundations right so we can promote the site…

But in the mean time we’ve got a stack of small bugs to fix, quirks to iron and an endless list of improvements to make. Busy busy times!

I passed on Ferrits free breakfast recently, but yesterday I got another email invitation from them. This time they’re inviting us to a Ferrit party to celebrate their success.

You can’t fault their sense of humour though… the party invite featured a big-old elephant… and party is being held at the zoo!

Brilliant stuff really.

Last week we got an email from Ferrit inviting us to a Ferrit breakfast presentation about the eTail08 Conference held in California in February. The presentation included summaries from two e-tailers that had attended the conference along with Ferrit.

Now, GPstore has supported Ferrit from day-one, and speaking from experience (two Netguide awards for best online store etc) we’d much rather see Ferrit investing their sizable budget on fixing their web site — that advice is free, no need to send me on an all-expenses-paid overseas trip!

Ferrit general manager Ralph Brayham was quoted in an article in the NBR yesterday saying:

“If our objective was to make money right now we’d be doing the same thing that Sam Morgan [of TradeMe] did. We’d have three guys in a garage working on a website.”

This really does beg the question… if its good enough for Sam Morgan to start small and its good enough for companies like us, why is it not good enough for Ferrit? Just because Ferrit have access a lot of capital, is that a good enough excuse to well … waste lots of it? Mr Bryham also admitted that it was a matter of “years” before Ferrit could reach break-even.

Does the mega-financing of “businesses” like Ferrit ($12 million per annum is rumoured) actually help them achieve success? No small company has the luxury of “years” to reach break-even? Small guys are forced to develop products, business models and websites that actually work. Because they have to!

Ferrits web site, while sporting a face-lifted front page, remains rather difficult to use (and the deeper you go, the scarier it gets). Some people would suggest that the cash spent promoting Ferrit could have been spent on creating a site that actually works. As my Grandfather once said… “anyone can buy internet traffic”.

Meanwhile we’ll continue to develop a web site that works and a business model that works… even if we have been out of the garage for nearly three years now. I still maintain working in a garage can be very over-rated.