Design flaws lead to Ferrit's downfall

The company is refusing to confirm how much it spent or made on the online venture but its closure of the website after only four years of operation came as no surprise to technology analysts and the internet sector.

Ferrit head Ralph Brayham said at the start of 2007 it had spent $27 million to date and planned to spend $12 million in the next financial year.

Media analyst Lance Wiggs estimates Ferrit's total spend between $40m and $60m.

Others put it even higher at up to $70m.

The website was unlikely to have made more than $500,000 in gross annual profit and a maximum return of 0.7 percent, Wiggs said.

Ferrit failed due to poor technology, poor usability and a poor business model, said Wiggs.

The website relied on taking a large commission from retailers for directing traffic to their sites. But its 98 retailers could easily set up their own sites and buyers could find them via Google.

Meanwhile, the information provided by the site was often incorrect, said Wiggs, which led to a collapse of consumer trust.

Technology commentator Juha Saarinen said there was never any real driver for Telecom to set up Ferrit, because it had little to do with the company's core business  the selling of broadband and mobile connections.

Ferrit lacked an online-shopping cart and had a cumbersome process for buyers to follow, while other online sites focused on making buying as easy as possible. This indicates the Ferrit management had no real clue as to what they were doing, he said.

"The sea of bad publicity created by price discrepancies between Ferrit and its retailers, the horrible advertising campaigns that merely annoyed people, ferrit.com leading to a porn site, and the in-house written fake “consumer'' reviews severely dented public trust in Ferrit."

Even though Ferrit improved towards the end, with free shipping and discounts, it was too late, he said.

When the website was set up in 2005, the online retail scene was maturing and people had high expectations, said  Saarinen.

As the online-shopping figures show, there is no lack of interest here in shopping via the internet. Research by internet-market analyst firm Coremetrics shows the number of orders in online sessions on shopping websites between October and December in New Zealand were significantly higher than Britain and Singapore, and just behind the US.

In Australia and New Zealand there were  2.9 and 2.5 orders per 100 online sessions respectively, compared to 0.9 in Singapore and 1.4 for Britain. New Zealanders spend as much or more than their Australian counterparts when shopping online. In New Zealand, the average session length was 5.39 minutes, with 7.4 page views per session, and average orders valued at $71.20.

"For Ferrit not to be able to take advantage of that, with Telecom's marketing muscle behind it, is quite astonishing," said  Saarinen.

Telecom made 37 people redundant in the shutdown of the website.

Telecom spokeswoman Emma-Kate Greer said Ferrit has continued to grow during the past three years but the current retail environment meant the break-even point had shifted out a number of years.

Ferrit was launched to help develop New Zealand's online retail market, she said.

"Since 2005 we've seen a growth in the retail adoption of online with many retail players adopting ecommerce and web capabilities."

Retailers were encouraged to set up their own e-commerce presence, and Ferrit provided retailers with access to scale marketing and IT services. "While you can't always please every viewer, the Ferrit Guy ads were fun and got people talking. Ferrit saw significant increases in brand awareness following the launch of that campaign."

A six-monthly review completed late last year lead to the recommendation that Telecom close Ferrit. It chose to do so in January so Ferrit retailers could benefit as much as possible from the Christmas sales period.

While Telecom may have got it wrong, there are other online shopping ventures proving successful. For example, Hamilton-based Torpedo7 is getting more traffic than Ferrit was and Get NZ Made, which sells New Zealand only goods, has twice as many retailers on it as Ferrit.

- © Fairfax NZ News