"OT" but interesting, Stan. Ten Worst Dot-Coms Show How Bad Ideas Fed the Web Bust
Knight Ridder/Tribune Business News - May 18, 2002
Like the classic fairy tale about the emperor who doesn't wear any clothes, the Internet boom was built on imagination and hype.
During the peak of the Internet frenzy, no one wanted to say: "Hey, how is this wacky dot-com company going to make any money?"
Now everybody is asking those questions.
How did hundreds of dot-com companies based on dumb ideas, backed with millions in venture capital and without any products or revenue, sucker so many investors?
"As long as people were having great parties and staying out all night, everyone looked the other way," said Richard Laermer, chief executive officer of RLM Public Relations in New York and author of trendSpotting.
The insanity reached heights never before seen, Laermer said. He worked with Kozmo.com, Modo.net, SportsBrain, E-Candy, Email shows and others during the boom.
Laermer saw excess at the extremes. He knows of the head of a startup dot-com in New York who bought a new Land Rover every time the company closed on a round of financing. The Land Rovers ended up in a bankruptcy auction a few months later.
An executive with Kozmo.com talked for an hour and fifteen minutes on an airplane phone about whether the company should keep one word in its business plan.
The faux work ethic ruled, Laermer said. Everybody worked 30 hour days, but they weren't really doing anything.
"It was always people talking about how much money they were going to make," Laermer said. "Slow growth were dirty words."
"If these companies had paid attention to the customer from the get-go, some of them might have succeeded," Laermer said.
Despite faulty business plans, venture capitalists and investors threw piles of money at companies that didn't have any products, experience or technology, said Philip J. Kaplan, founder of F**kedcompany.com and author of "F'd Companies: Spectacular dot-com flameouts." Kaplan details the spectacular collapse of more than 100 Internet companies in his book.
So who is to blame for the magnificent flameout of so many ideas and companies and so much money?
"I blame the marketers for promoting something they couldn't deliver," Kaplan said.
Trying to come up with the 10 worst Internet ideas is about as difficult as picking the winning lottery numbers. There are just so many to choose from. The ones that follow are among the worst ideas that surfaced during the boom.
WEBVAN: The online grocer raised and blew more than $1 billion. It delivered groceries to customers in Chicago, Los Angeles,
San Francisco, Orange County, San Diego, Seattle and Portland, Ore. The publicly traded company, whose stock once fetched $34 a share, filed for bankruptcy last July. At that time, its stock had sunk to 6 cents a share.
The grocery business operates on razor-thin margins and WebVan didn't have the buying power, infrastructure or demand to compete, Kaplan said. Most people just are not going to order their milk, eggs and bread on the Internet when grocery stores are right around the corner, he said.
PETS.COM: Most people don't want to wait weeks or pay lots of money to ship dog food or kitty litter to their doorstep.
But that didn't stop the hype. Founded in 1998, Pets.com raised $82.5 million in an initial public offering in February 2000. The company attracted high-profile investors like Amazon.com but by November of 2000, it shut down. In the end, Pets.com's sock puppet spokesdog was worth more than the company.
FURNITURE.COM: Furniture.com got off to a rocky start after having spent $2.5 million on its domain name. Then the company ran into trouble because it couldn't find a way to economically ship bulk armoires, couches and beds to customers.
Despite its logistical problems, Furniture.com still managed to raise $75 million in venture capital and try an initial public offering. Furniture.com reported that it lost $46.5 million in 1999 in its IPO filing. It shut down in November of 2000.
THE INDUSTRY STANDARD: The media also helped hype the Internet phenomena. That's why The Industry Standard is now looked at as one of the biggest dot-com flops. Founded in 1997, The Industry Standard chronicled the rise and fall of
dot-com companies. During the height of the boom, it grew to 300 pages or more and was as big as a telephone book. When the
bust came, it shrank down to 80 pages. In January 2000, The Industry Standard raised $30 million in venture
capital with plans eventually to go public. At its most successful, the magazine hosted weekly rooftop parties at its headquarters that attracted hundreds of industry insiders. But the party couldn't last forever and by August 2001, The Industry Standard had stopped publishing and filed for bankruptcy.
BOO.COM: One of the early Internet failures, Boo.com burned through more than $30 million a month during its six-month life span including $38 million in advertising. The fashion clothes site was based in the United Kingdom with its U.S. headquarters in New York. It raised more than $135 million and filed for bankruptcy in May 2000.
THEGLOBE.COM: One of the first dot-coms to go public in November of 1998, TheGlobe.com promised to change the world and built a multibillion-dollar business by selling ads on its Web sites. Created by two 23-year-olds, the company got a "multibillion-dollar market cap despite not making or doing anything that generated revenue," according to
Kaplan. When TheGlobe.com went public its stock shot from $9 a share to $97 a share, making it one of the largest first-day gains of any IPO in history. TheGlobe.com shut down last August.
KOZMO.COM: Kozmo.com promised to deliver movies, snacks and more to consumers' doorsteps in one hour with no delivery charge. The errand service blew threw $280 million in capital before shutting down last August.
FLOOZ.COM: "Since the day they received funding, Flooz was my example of how people would invest in the stupidest of ideas, so long as it involved the Internet," Kaplan wrote. Investors pumped $51.5 million into Flooz. The company paid Whoopi Goldberg handsomely to promote the company's alternative currency for people to use on the Internet. The only problem was few retailers accepted Flooz and Russian hackers used stolen credit cards to load up on thousands of dollars worth of Flooz. Flooz filed for Chapter 7 bankruptcy last August.
ETOYS.COM: One of the best known brands on the Internet, eToys.com had a huge operation with more than 1,000 employees. But it still managed to burn through more than $200 million in financing. Etoys.com filed for bankruptcy last year. Established toy retailer Kay-Bee Toy Stores ended up buying the domain name and launched a new eToys.com in late 2001.
DIGISCENTS: Digiscents created a product called iSmell. It was a peripheral that plugged into a computer and allowed the user to smell Web sites and other computer programs. The device contained a palette of 128 different scented oils. When triggered, iSmell would internally combine selected smells and expel a puff of scent. The company raised $20 million but they never got around to releasing a product. This was a classic product that customers didn't want, Kaplan said.
"The thing that is so astounding is just how little can be learned from all of this," Kaplan said. "It's basic business. Buy low and sell high. Don't sell products that you can't make a profit on."
(c) 2002, San Antonio Express-News. Distributed by Knight Ridder/Tribune
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