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NBR Rich Lister Neil Graham takes $10 million bath as Wheedle closes

Wheedle is closing, NBR Rich Lister Neil Graham said in a statement last night.

When the auction site launched in October 2012, the Mainfreight founder told NBR he was putting more than $10 million into his project to take on Trade Me. 

He was the largest of three shareholders in the Christchurch-based company, and the only one with the wherewithal to tip in major funding (the 2013 NBR Rich List put his wealth at $75 million).

Last night he said the closure was because he did not want to invest any more money in the venture, plus health reasons. 17 staff had been given notice. 80,000 registered users were claimed, but I suspect far fewer were active.

It's an orderly wind-down, being managed by Ocean Partners. There are said to be two possible buyers for e-commerce technology developed by Wheedle. Traders with money still in their accounts will be refunded. There are no creditors.

What went wrong?
Nearly everything. And more than you're aware.

Wheedle launched with high-rotate TV advertising (the first of what would be at least three prime time campaigns).

But as software developer and commentator Ben Gracewood quickly alerted the world, it had gaping security holes. A buyer could change the reserve price on a seller's auction, among other problems.

The original site, developed in India (and, it seems, tested nowhere) had to be taken offline within 24 hours. It wouldn't reopen until April 2013.

In truth, the bungled October 2012 launch alone was probably enough to stuff Wheedle.

But there were two other factors that pushed it onto the back foot.

No public face
In a cruel blow of fate, Mr Graham was diagnosed with a brain tumour in the run-up to Wheedle's launch. 

It required brain surgery, and thankfully turned out to be benign.

But late 2013 saw him back in hospital, this time for spinal surgery. His main life project was trying to learn to walk all over again. 

Mr Graham, whose Hoon Hay Valley home was destroyed in the 2011 Christchurch quake, won't look back on it as the best two years of his life.

Last night, he said ongoing health issues had contributed to his decision to pull the plug on Wheedle.

In any event, Wheedle never had a public face. 

I only ever got to speak to Mr Graham a couple of times, briefly, by phone. He showed promise as a populist pitchman, calling Sam Morgan a "bully." But then he disappeared off the radar (with health complications of course looming large).

There might have been public rumblings over Trade Me fees, but there was no lightening rod to capture the popular discontent with the incumbent, as Sir Peter Leitch did with The Mad Butcher. And just no human face at all, as plucky Sam Morgan was for Trade Me in the early days (I asked Wheedle's managing director and day-to-day boss for a photo of him and his team in the office a couple of times, which I thought would humanise things, and give people something to identify with rather than knock. But nothing emerged).

Trade Me legal threat
Trade Me founder Sam Morgan took exception to Mr Graham's jabs about his site's fees. He took several shots at him on Twitter after Wheedle had problems at launch, including: "Being rich clearly does not give you skills transferable to areas outside your domain of competence." (Tech bosses sometimes accuse media of focussing on the negative, but that rule seems to go out the window when they comment on competitors.) 

But Trade Me's main role in Wheedle's demise was its implied threat to go legal if the newcomer attempted to link to its user profiles and feedback.

A central issue for Wheedle was, of course, the critical mass problem.

The newcomer might have lower fees, but the incumbent had practically everyone in the country on its books. And paying a $7.90 sale fee to Trade Me on a $100 second hand bike sale bet no bids on Wheedle (and I'm not being flip, lots of auctions did close with zero bids).

Another budding Trade Me rival of the time, Geta, struck on a way to help jump-start momentum: allowing its members to link to their Trade Me profiles, including buyer feedback. Community ratings are so crucial to auction sites, and this gambit would have been a way to effectively gain access to more than 3 million profiles at once.

Gerard Peters, who was behind Geta, told NBR that his members had a right to prove their legitimacy as traders by linking to their Trade Me profiles. Doing so would be legal, he had been advise, and to block it would be an unfair restraint of trade on a competitor.

Trade Me's then head of marketplace Craig Jordan disagreed, hinting strongly his company was willing to go to court over the issue.

"People work hard for their Trade Me feedback and there’s nothing to stop a person telling others what their Trade Me feedback rating is," Mr Jordan told NBR.

"It is a violation of our terms and conditions to have other websites link to Trade Me feedback.

"We don’t want to get silly about it, but would remind other website operators that inducing people to breach a contract is a tort and probably not a great idea. We’d suggest any website considering this sort of thing takes good legal advice before proceeding."

Wheedle never said if it was considering this front-foot move. It would have made an intriguing test case. Public sentiment would have been on Wheedle's side, and it would have put the Trade Me competitor onto the front pages for months. Would it have won? Now we'll never know.

Other routes went unexplored. Wheedle made no major social media push. It failed to exploit unrest in real estate and other segments over Trade Me's increasing dominance in classifieds. And while Mr Graham's Mainfreight background hinted at some kind of logistics play (free delivery, same day delivery?), nothing emerged on that front either. 

A personal crusade
Through a rep, Mr Graham declined NBR's request for an interview this morning.

In a statement, he said: “I continue to believe that New Zealand should have a choice when it comes to online trading and that listing fees should be fair and reasonable. We also think the Wheedle business model of a paid membership and set fees has potential, but we’ve been unable to make it work within a realistic time frame.

“This has been a bit of a personal crusade for me – the name Wheedle comes from a phrase my grandmother used all the time and I’ve invested millions into the venture.

"There were doubters from the start. But we’ve given it our best shot, created a large group of satisfied customers and built some very interesting technology. But I’m afraid the business has run its course in its present form."

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Comments and questions

When you are trying to compete with monopoly position companies, you have to be well capitalised, an business model that is forward thinking and a hands on approach.

There have been plenty of biggish players that have tried to take on monopoly positions and failed. Its very difficult to take on the establishment, as the system is not entirely democratic.

I hate to say it, but alot of these monopoly type positions have been created by government poor regulation. It wouldnt be so bad if these monopoly position companies charged appropriately, but they dont.

While we all understand the logic around economies of scale, the model is flawed due to corporate greed and no the reluctance of governments to bring them to charge reasonably.

Ask yourself, do we really want to be controlled by a select few, whos greed and egos seem to be the governance directive. Their long term consequences will be wide spread poverty and/or a nuclear war, while the elite bunker down and/or dine out on their super yachts, or leave in their space ships.

I commend Mr Graham for giving it a go, and wish him good health in the future.

Governance needs more Shane Jones of this world, taking on Countdown and other businesses in a controlling position to keep them honest. Jones should have been more honest with himself, by sticking it out however. Maybe we'll hear more about this in his memoirs.

In the online world cash is not as important as a new site that appeals to people then word of mouth will get it going, not advertising.

Look at all the big players, Google, Facebook, twitter even Trademe they stated at home in garages with little funding.

But there cannot be any mistakes on the way otherwise its all over.

Trade Me over the years has crushed a number of competitors - APN, Amazon (early 2000s), and now Wheedle
The well funded CarSales has never really come here and Seek is #2
The Real Estate agents if they can 'hold the line' might be able to stand up to them, but when Trade Me has such mass don't see them lasting...

I watched with interest as Wheedle and List Sell trade launched

Trade Me Sam Morgan mocked Mr Graham for telling media that Wheedle – a Trade Me rival was backed by huge infrastructure.

"Being rich clearly does not give you skills transferable to areas outside your domain of competence," Mr Morgan said.

As Quoted in the same NBR article.

I hope Treacy does well meaning (List Sell Trade) It must take a lot of moxie to not only stick it out in Christchurch, but launch a new business.
She says she is no Rich Lister, "just a regular Kiwi woman" trying to make her way. Marketing will be ongoing she says, but funded from cashflow or her own pocket.

There is no moneybags partner waiting in the wings.
She says that for a long time she has listened to business clients complain about Trade Me's success fee.
When the quakes hit and many clients left town, she and her team knuckled down to develop listselltrade.

Starting with a blank canvas in 2013 List sell trade has gone from strength to strength.

Wheedle had a $1 flat fee on auctions above $20.

List Sell Trade has a $10.00 a monthly flat fee No success fees to list and sell multiple products

They offer

Automated daily product imports
Their motto
3 easy steps
Subscribe $10.00 a month no success fees.
Sit back relax we do the rest

These guys work hard for business and private sellers alike
They are a pleasure to deal with.

Give them a go.

Satisfied listselltrade customer

Unless you're a fulltime seller, $10 per month is a lot more than you'd pay on TradeMe, and that's one of the main reasons LST has never taken off. Without thousands of people like me putting up listings, there's not much to attract buyers to the site. I check LST every six months or so but there have never been any listings of interest to me.

We all grumble about TradeMe fees and their litigious attitude towards competitors - I'd love to see a legal challenge to their assertion that they "own" a user's feedback. In the real (bricks & mortar) world it's hard to imagine anyone setting up business in an old butcher's shop in Te Kuiti taking on the big city superstore which has all the stock and tens of thousands of customers every day. And that's the battle that faces every wannabe auction site.

All the best to Neil Graham... well done giving it a shot. And R.I.P. Wheedle.

Not sure if this is still the case but a while ago some research showed that the no 1 player in the internet market (e bay, amazon, betfair) all got around 80% market share. The number 2 player 12% and the rest the last 8%.

The problem in NZ 12% is not a very big number and being one of a group fighting for 8% is a nighmare. in the US 12% or even a share of 8% is probably ok.

This was a nuts venture. There is zero consumer need for more than one online auction site. It's of huge advantage to have everything in one place as opposed to having to search several different sites each time. Who on earth looked at this market and concluded a need for a second offering? It doesn't matter about capitalisation. Or lack of a public face. If there isn't a need, there isn't a business.

mmmm......if all people had that philosophy then Ford would still be the only company making cars.

Your comment might have some merit if you can manage to properly define "consumer" in the context of your argument and then provide some evidence that you somehow speak for or have sufficiently researched the wants and needs of said consumers in the online auction space.

Otherwise your anti-competition argument lacks insight.

I really wanted Wheedle to do well because Trademe fees are too high and they have an arrogant attitude to customer service - you have to pay to ring them and they tend to ignore email.

However, the Wheedle developers were hopeless and even after it was relaunched I immediately spotted various bugs. - is another site that trademe have to worry - very sad to see wheedle is switching off

Your site has yet to launch. Nice job on the shameless promotion tho and good luck.

15 years ago, before Trademe, many of the items most people sell on Trademe would not have been sold, or sold for the amounts Trademe can fetch. A lot of goods would have either ended up in the dump, given away, or maybe a very few percent sold through classifieds. And house lots would go to auctioneers or second hand shops, who take a much bigger percentage.

I've never though Trademe's fees to be high. If they are too high, what are they high compared to? Who can provide a platform that has Trademe's market penetration and do it cheaper?

You will always get some people complaining about price. If you match prices to cater for the bottom 20% who complain, you end up going out of business. Let the complainers go to a cheap site where the fees are cheaper or free but the visitors and sell through rates are lower.

I've always said, for someone to compete with Trademe, It will not be on price. It would have to be on market penetration and features. Trademe works well, so it would take something really special to come up with better features.

For me, market penetration is going to be the deciding factor when I place an auction. I want the best price I can. Anyone that is seriously about selling, wants as many bids as that will drive up the final price. If one site has 100 times the number of visitors it is an easy decision as to which one you want to list with.

Competition is good, and good on Neil Graham for giving it a go.
However it's fate was predictable. The site needed to be far better than Trademe, and far more capital. Adding another zero to $10m would have been a better starting point.

If you are getting into a market worth $165M+ annually with profits of $65M, and unseat the incumbent monopoly, you are not going to do it with capital that represents just three weeks worth of income for the existing monopoly. That might have been the case 10 or 12 years ago, but not now.

The bigger the natural market monopoly, the deeper the pockets, and better the service a worthy competitor needs to bring to the table to get a foot in the door and snatch a sizable share of the market.

It will happen, but it will take a competitor with sufficient capital and staying power.

Very sorry to see Wheedle fail and I hope Mr Graham wins his health battles. I think Chris Keall's analysis is spot on.

"Being rich clearly does not give you skills transferable to areas outside your domain of competence," says the luckiest man in the world since Ringo Starr.

I believe he was a bit tired of work and went on a "big OE" whilst others slaved away in the garage and built the business.

I know right. I mean all he did was chuck 10 million at it. What a sherker!

Good luck to Mr Graham on the health front but it was not this that made Wheedle fail. At the end of the day the trading floor is littered with the dreams of people who did not understand the Pool of Liquidity law.

So the way around linking to trade me profiles for accredited rep gain is very simple and is done everyday when you want to configure your domain name for email. You simply need an identity token.

For email this is in the form of a cname or html upload to the domain. So say you want run your email off Google apps, then to prove you own the domain, you create a cname record or upload an html file (supplied by Google) to the root of your domain. Google bots then check this and if found you are authenticated.

So just transpose the idea to TradeMe. Use TradeMe against Trademe. You simply have TradeMe sellers that have signed up to your site, give you prior notice that they are going to put up an auction on TradeMe with Title==XYZ on some future date.

Your budding auction site then checks their TradeMe profile for such an auction on that date, if found then you're validated against your TradeMe profile and you can have some normalised value of their TradeMe profile rep awarded into your site.

There's no law against that. And you're not linking.

If Title==XYZ doesn't suit, perhaps because of recurring auction titles providing a means for authentication abuse, then just use some other data point, maybe something in the body.

Or even, if you want to be really cheeky, just have them auction a "give-away" on your site, which I personally think would be hilarious.

Trademe is a great business but it's far from perfect. But taking them head on is competitive suicide. Shane Bradley and his team had some very good ideas that would have caused a shift in the online auction space as it shifted towards micro online businesses (if they had had time). The solution is really one of helping small online sellers run better businesses - so it needs to be more than just an auction website (though of course no customers = no business). Ebay is already headed well down this path - will NZ follow?

Agree with above comments. Taking on TradeMe head on is going to be competitive suicide 99 times every 100. And to do it properly you would need a massive war chest. Something to sustain a cash burn for many years before you gained adequate market penetration to compete head to head with TradeMe.

What about starting small, lowest overheads possible, but penetrate a specialised segment of the market - something easy to partner with commercial players (preferrably ones aggrevated with TM's pricing structure) like real estate or automotive (yes im sure many already exist). But brand it as a generic auction site, and keep bolting on new sales categories as the site traffic grows.

Its going to much easier to get people to buy electronic goods if they went to the site intially to buy a car. If there are buyers, the sellers will follow. The problem with these small TM competitors is that you try them once and half the categories are empty. It looks shabby, and so you leave.

who knows. I take my hat off to anyone who figures it out