Wheedle faces two insurmountable problems

GUEST COMMENT

I'm not sure if I should laugh or cry at today's launch of Wheedle, an online marketplace set up by Mainfreight co-founder and NBR Rich Lister Neil Graham to compete against Trade Me.

LATEST: Wheedle day two: down again

Having co-founded Zillion with Simon Barton in 2005, I'm in a unique position to explain first-hand why sites like Wheedle stand no chance of disrupting Trade Me's monopoly position in New Zealand.

Unfortunately for Neil Graham and team, Wheedle has two insurmountable problems: the network effect and a below-average website.

I'll get the website out of the way first, because it's the one part of the project they had complete control over, and sadly they blew it.

A five-second glance is all it takes for anyone with experience in web development and design to realise they have fallen well short of what's required.

I appreciate that a great deal of time and effort has been put into this site, and I mean no disrespect, but it's maddening to think you can go up against a $1.56 billion dollar online business like Trade Me, and er, build a website that's not as good as Trade Me.

Come on guys, if you're boasting about how much money you have to spend (reportedly over $10 million dollars – ouch), at least hire the very best and get the website right.

In my 10 years or so of experience with nzflatmates, Zillion, Mighty Ape and others we've learned that great design, strong first impressions and a website that people love to use is non-negotiable.

The network effect
But, unfortunately, an average website is not Wheedle's biggest problem. With Zillion we learned the hard way that even a great website isn't enough to unseat Trade Me.

Building a better website is one thing, building a better marketplace and a better business is something else entirely.

The second and far more challenging problem: the network effect and creating a marketplace big enough to work.

The reason that incumbent auction players like Trade Me and eBay have remained dominant for more than a decade is because buyers prefer to shop on the site with the greatest number of items for sale, and sellers prefer to sell their items on the website with the greatest number of buyers.

That is – the network effect in action.

This chicken-and-egg problem has, to my knowledge, never been cracked in any market.

To put it another way, if you were looking to sell your iPhone 4 quickly, and at a fair market price, would you list it for sale on wheedle (a handful of members) or Trade Me (basically every New Zealanders in the country)?

And don't bother trying to lure sellers away with cheaper fees, because the success fee matters for nothing if your iPhone doesn't fetch a good selling price, or worse yet, doesn't sell at all.

On the surface, Zillion enjoyed some degree of success from 2005-10. Our shiny new design, innovative features, lower fees (and once Trade Me sold to Fairfax, the New Zealand-owned angle) meant we signed up more than 120,000 members and earned the trust and respect of many large Trade Me sellers.

We won "Best New Site" at the Web Awards, were covered by the television news, we hosted a large auction for Air New Zealand and were generally regarded as Trade Me's strongest competitor.

But the Zillion marketplace never really worked properly.

No amount of shiny website features made up for the fact sellers sold more items on Trade Me, and at better prices.

No amount of effort changed the fact there was more of everything for sale on Trade Me, and as a buyer, you'd be remiss for not checking Trade Me first for anything you wanted to buy.

Despite our best efforts, we just couldn't crack it. By 2010 new opportunities presented themselves and we concluded we'd given Zillion our best shot. We sold the business to Sella. The listings and members were rolled into their site and Zillion was shutdown.

What I would do differently
I was 23 when Simon and I launched Zillion. We ran the site for around five years and I count it among some of the best but most challenging times of my life. 

We had a tiny budget (I think from memory, Simon and I put in between just $10,000 to $20,000 each to get it started) and a tiny team who we always paid before paying ourselves.

The hours were long, the hurdles were many, the expectations were high and despite some days feeling like we were winning, there was an overall sense that things were never working out. Tough times.

But on the flip side, at 23 I created the biggest learning experience of my life and we exited with a bit of money and the opportunity to apply what we learned to future projects. I wouldn't trade the experience for anything.

Facebook could help beat chicken-and-egg problem
Is taking on Trade Me impossible? I wouldn't say that. If I had my time again, there are things I would do differently. Certainly, the internet is a different place in 2012 than it was in 2005.

When we launched Zillion, there was no Twitter. There was no Facebook. People communicated and spread ideas via email and MSN Messenger. Today it's easier than ever for websites to grow quickly. The rapid ascent of sites like Grab One are testament to that.

Further, I believe that Facebook offers a unique opportunity for auction sites and other similar sites that rely on trust, safety and reputation.

A big part of what makes the Trade Me marketplace successful is the feedback system that means buyers can trust sellers to send items they've paid for, sight unseen.

New auction sites face the challenge of trying to get buyers to trust sellers with no feedback. Facebook changes this. New online auction sites should offer a "connect with Facebook" option that shows me as "Dylan" and not "dbkiwi" or whatever member name I'd sign up as.

When you view items I offer for sale, you woul see I was a real human and we had real mutual friends. You'd trust me, and you'd be more likely to buy stuff. Sites like Airbnb do this well, and I think it's huge.

Given my involvement with Zillion I am wary that my opinion on Wheedle may come across as sour grapes, and it may appear like I have some unresolved personal grievance against Trade Me.

I can assure you that neither of these things are true, and I'm just calling things as I see them. I am very satisfied with my experience with Zillion. I also have a deep respect for the Trade Me team, past and present, many of whom I now count among my personal friends.

I'll wrap this up by pointing out that Trade Me has always been in this somewhat unique and awkward position of being self-regulating.

Trade Me is a monopoly, and its fees only ever go in one direction – up.

It's in the business of making money, and they constantly push the limits of what the market will tolerate, which is why sites like Wheedle will always pop up in an attempt to introduce some fairness.

Trade Me did itself no favours as it as recently as last week cited "an 18% rise in site visits" (apparently more customer activity is a bad thing?) and "mobile development costs" as the motivators for today's 5.3% fee increase.

Rubbish. These statements are disingenuous at best. The Trade Me business currently generates profits of around $75 million a year for Fairfax and its other shareholders, and today's fee increase is designed to push that number up further still.

Trade Me needs competition. It drives innovation and keeps prices in check.

But a full-frontal attack from a sub-standard site like Wheedle is not the answer.

I only hope those behind it don't waste too much of their reported $10+ million dollar budget before figuring this out, because there are other aspiring Kiwi web entrepreneurs who could do with that kind of funding to put toward more worthwhile endeavours.

The last thing our industry needs is another high-profile loud-talking site like Ferrit going belly up and spoiling things for the rest of us.

Dyland Bland blogs at dylanbland.com.