E-commerce Failure

Flooz.com

Flooz.com was a dot.com venture, now defunct, based in New York City that went online in February 1999, promoted by comic actress Whoopi Goldberg in a series of television advertisements. Started by iVillage co-founder Robert Levitan, the company attempted to establish a currency unique to internet merchants, somewhat similar in concept to airline frequent flier programs or grocery store stamp books. The name "flooz" was based upon the Arabic word for money. Users accumulated flooz credits either as a promotional bonus given away by some internet businesses or purchased directly from flooz.com which then could be redeemed for merchandise at a variety of participating online stores. Adoption of flooz by both merchants and customers proved limited, and it never established itself as a widely recognized medium of exchange, which hindered both its usefulness and appeal.

Use by Crime Syndicate

In 2001, Flooz.com was notified by the Federal Bureau of Investigation that a Russian organized crime syndicate was using Flooz and stolen credit card numbers as part of a money-laundering scheme, in which stolen credit cards were used to purchase currency and then redeemed. Levitan has stated that fraudulent purchases accounted for 19% of consumer credit card transactions by mid-2001.

Closure

The company announced its closure on August 26, 2001, perceived as an early indicator of the growing dot.com bubble bust. Upon the company's closing, all unused flooz credits became worthless and nonrefundable. Over its short history, flooz.com reportedly exhausted from $35 to $50 million in venture capital.

Boo.com

Boo.com was a British Internet company, founded by Swedes Ernst Malmsten, Kajsa Leander and Patrik Hedelin, which went out of business following the dot-com boom of the late 1990s.

After several highly publicized delays, Boo.com launched in the autumn of 1999 selling branded fashion apparel over the Internet. The company spent $135 million of venture capital in just 18 months, and it was placed into receivership on 18 May 2000 and liquidated.

In June 2008, CNET hailed Boo.com as one of the greatest dot-com busts in history.

Ernst Malmsten wrote about the experience in a book called Boo Hoo: A dot.com Story from Concept to Catastrophe, published in 2001.

Failures Of Boo.com

Timing

Although there were several months of delays prior to launch and problems with the user experience when boo.com first launched, these had been largely cured by the time the company entered receivership. Indeed sales had grown rapidly and were around $500,000 for the fortnight prior to the site being shut down.

The fundamental problem was that the company was following an extremely aggressive growth plan, launching simultaneously in multiple European countries. This plan was founded on the assumption of the ready availability of venture capital money to see the company through the first few years of trading until sales caught up with operating expenses. Such capital ceased to be available for all practical purposes in the second quarter of 2000 following dramatic falls in the NASDAQ presaging the "dot crash" following the Dot-com bubble. Boo was only the first of numerous similar Dot-com company failures over the subsequent two years.

Problems with the user experience

The Boo.com Homepage as it appeared in May 2000.

The boo.com website was widely criticized as poorly designed for its target audience, going against many usability conventions.The site relied heavily on JavaScript and Flash technology to display pseudo-3D views of wares as well as Miss Boo, a sales-assistant-style avatar. The first publicly released version of the site included many large pages; the home page, for example, was several hundred kilobytes which meant that many users had to wait minutes for the site to load, as broadband technologies were not widely available at the time. The site's front page contained the warning, "this site is designed for 56K modems and above".

The complicated design required the site to be displayed in a fixed-size window, which limited the space available to display product information to the customer. Navigation techniques changed as the customer moved around the site. This was done to appeal to those who were visiting to see the website, but frustrated those who simply wanted to buy clothes.

The site's interface was complex and included a hierarchical system that required the user to answer four or five different questions before sometimes revealing that there were no products in stock in a particular sub-section. The same basic questions then had to be answered again until results were found.

History

Pets.com was a short-lived online business that sold pet accessories and supplies direct to consumers over the World Wide Web. It launched in August 1998 and went from anIPO on a major stock exchange (the Nasdaq) to liquidation in 268 days. Other similar business-to-consumer companies from the same period include Webvan (groceries) andBoo.com (branded fashion apparel).

After its start by Greg McLemore, the site and domain was purchased in early 1999 by leading venture capital firm Hummer Winblad and executive Julie Wainwright. Amazon.comwas involved in pets.com's first round of venture funding, purchasing a majority 54% stake in the company.The CEO of Pets.com said of Amazon's investment, "This is a marriage made in heaven".Pets.com bought out one online competitor, Petstore.com, in summer 2000.

The company rolled out a regional advertising campaign using a variety of media (TV, print, radio and eventually a Pets.com magazine). It started with a five-city advertising campaign rollout and then expanded the campaign to 10 cities by Christmas, 1999. The company succeeded wildly in making its mascot, the Pets.com sock puppet, well known. The Pets.com site design was extremely well received, garnering several advertising awards. In January 2000, the company aired its first national commercial as a Super Bowl ad which cost the company $1.2 million and introduced the country to their answer as to why customers should shop at an online pet store: "Because Pets Can't Drive!" That ad was ranked #1 by USA Today's Ad Meter and had the highest recall of any ad that ran during the Super Bowl. The company went public in February 2000; the former Nasdaq stock symbol was IPET.

Pets.com made significant investments in infrastructure such as their warehousing. Pets.com management maintained that the company needed to get to a revenue run rate that supported this infrastructure buildout.They believed that the revenue target was close to $300 million to hit the break even point and that it would take a minimum of four to five years to hit that run rate. This time period was based on growth of Internet shopping and the percentage of pet owners that shopped on the Internet.

Despite its success in building brand recognition, it was uncertain whether a substantial market niche existed for Pets.com. No independent market research preceded the launch of Pets.com.During its first fiscal year (February to September 1999) Pets.com earned revenues of $619,000, yet spent $11.8 million on advertising.Pets.com lacked a workable business plan and lost money on nearly every sale because, even before the cost of advertising, it was selling merchandise for approximately one-third the price it paid to obtain the products.Pets.com tried to build a customer base by offering discounts and free shipping, but it was impossible to turn a profit while absorbing the costs of shipping for heavy bags of cat litter and cans of pet food within a business field whose conventional profit margins are only two to four percent.The company hoped to shift customers into higher margin purchases, but customer purchasing patterns failed to change and during its second fiscal year the company continued to sell merchandise for approximately 27% less than cost, so the dramatic rise in sales during Pets.com's second fiscal year only hastened the firm's demise.

By the fall of 2000, and in light of the venture capital situation after the bursting of the dot-com bubble, the Pets.com management and board realized that they would not be able to raise further capital. They aggressively undertook actions to sell the company. PetSmart offered less than the net cash value of the company, and Pets.com's board turned down that offer. The company announced they were closing their doors on the afternoon of November 6, 2000, mere hours before the 2000 United States presidential election. Pets.com stock had fallen from its IPO price of $11 per share in February 2000 to $0.19 the day of its liquidation announcement. At its peak, the company had 320 employees, of which 250 were employed in the warehouses across the U.S. While the offer from PetSmart was declined, some assets, including its domain, were sold to PetSmart.

The Pets.com management stayed during the liquidation and CEO Julie Wainwright received $235,000 in severance on top of a $225,000 "retention payment" while overseeing the closure. In June 2008, CNET named Pets.com as one of the greatest dot-com disasters in history.

Pets.com

Pets.com was a dot-com enterprise that sold pet supplies to retail customers. It began operations in August 1998 and closed in November 2000. A high-profile marketing campaign gave it a widely recognized public presence, including an appearance in the 1999 Macy's Thanksgiving Day Parade and an advertisement in the 2000 Super Bowl. Its popular sock puppet advertising mascot was interviewed by People magazine and appeared on Good Morning America.

Although sales rose dramatically due to the attention, the company was weak on fundamentals and actually lost money on most of its sales. Its high public profile during its brief existence made it one of the more noteworthy failures of the dot-com bubble of the early 2000s. US$300 million of investment capital vanished with the company's failure. The company was headquartered in San Francisco.

Sock Puppet

Pets.com hired the San Francisco office of TBWA\Chiat\Day to design its advertising campaign. The firm had recently created the popularTaco Bell chihuahua. For Pets.com they designed a doglike sock puppet that carried a microphone in its paw.The puppet, performed byMichael Ian Black (an alumnus of MTV's surrealist comedy sketch show The State), was a simple sock puppet with button eyes, flailing arms and a stick microphone emblazoned with "pets.com".

As the puppet's fame grew through 1999 and 2000, it gained almost cult status and widespread popularity. The puppet made an appearance on ABC's Good Morning America, Nightline, Live with Regis and Kathie Lee, and even had a balloon made in its image for the 1999 Macy's Thanksgiving Day Parade. In addition to the media appearances the Pets.com puppet made, merchandising was also done for the company including clothing, other trinkets, and a retail version of the sock puppet that delivered some of the puppet's famous lines.

The sock puppet toy was the last item available for order on the Pets.com site at the time of its shutdown in 2000.

As Pets.com's recognition began to grow, it attracted the attention of the creator of Triumph the Insult Comic Dog. Representatives fromRobert Smigel sent letters, including a cease and desist demand, to Pets.com claiming that the puppet was based on Triumph. Pets.com responded by suing Smigel in California.

The publicity surrounding the Pets.com puppet, combined with the company's collapse, made it such a symbol of dot-com folly that E-Tradereferred to it in an advertisement during the 2001 Super Bowl.The commercial, which parodies the famous Crying Indian public service advertisement from 1971, shows a chimpanzee riding on horseback through a ruined dot-com landscape. The chimpanzee comes across a company named "e Socks.com" that is being demolished and weeps when a discarded sock puppet lands at his feet.