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DQ News: 5 Spectacular Internet Flops

The flops of dot-com enterprises are largely due to a lack of expertise among CEOs and investors, as well as inadequate management, usually made up of people fresh out of a marketing degree. However, several dot-com companies have failed as a result of poor business models, a lack of target audiences, and rapid business growth in excess of consumer demands.

Even Internet companies structured on the basis of consumer predictions, aggressive marketing strategies and solid investment capital have ended up suffering devastating financial losses and creative failures. Here are some of the more famous ones.

1) Webvan

Webvan’s business model was based on delivery of groceries to consumers’ homes within a 30-minute window of time. Webvan took significant risks in its strategy of rapid expansion, despite decreased consumer orders. The company’s initial investors included several venture capital groups, as well as Yahoo.com. However critical judgment errors resulted due to the company’s lack of experience in the supermarket industry, and in June 2008, CNET named Webvan one of the greatest dot-com fails in history, its stock prices peaking at $30 and within a few months bottoming out at 6 cents apiece.

2) Pets.com

As an online retailer of pet products and accessories, Pets.com was initially backed with $50 million in investment capital from venture capital groups and Amazon.com. Despite its creative marketing campaign, the company managed to lose $147 million during the first nine months of operation. When Pets.com went public in Feb. 2000, stock shares were sold at $11.00 before plummeting to $0.19 by the time the company folded in Nov. 2000. Remembered for its innovative sock puppet and Super Bowl advertising campaign at a cost of $1.2 million, the ultimate lesson may be that clever and creative advertising cannot save a poorly-managed company. As for the sock puppet, he was bought for $120,000 by Barnone.com in 2002 and is still working the television advertising circuit.

3) Kozmo.com

Founded by investment bankers Joseph Park and Yong Kang in Mar. 1998, Kozmo.com promised one-hour delivery of small items, such as Starbucks coffee, free of charge. Delivery modes included bicycles, cars and public transportation. Kozmo, one of the exemplars of the dot-com boom, soon became synonymous with dot-com flop. It was questionable from the beginning that Kozmo would be able to make a profit by refusing to charge delivery fees. Kozmo entered into a five-year co-marketing agreement with Starbucks in 2000, which required that Kozmo would pay Starbucks $150 million to promote its services inside coffee shops. Kozmo had to sever its relationship with Starbucks in Mar. 2001, after paying only $15 million. According to documents filed with the Securities and Exchange Commission, Kozmo reported revenues of $3.5 million, with a net loss of $26.3 million.

4) Boo.com

Boo.com, a British company, was developed for the purpose of selling brand name fashion apparel and accessories online. The founders spent in excess of $165 million in an attempt to market the company as a global retailer. Although the advertising campaigns were cute, the company was burdened by financial problems and mismanagement, forcing it into receivership in May 2000. Inadequate website design caused consumer frustration, resulting in a notable lack of interest. Sales were well below expectations and were compounded with high customer return rates. Perhaps the final nail in its eventual coffin was that the company insisted on paying all shipping costs, including returns, which inevitably resulted in significant financial losses. Whereas companies today like Zappos have managed to pull this off, Boo.com lost an estimated $150 million before its demise in 2000.

5) Flooz.com

Founded by iVillage co-founder Robert Levitan, Flooz began business in February 1999, structured on the development of an online currency that would enable customers to make purchases without the use of credit cards. Customers could accumulate Flooz credits through promotional programs offered by Internet retailers or purchase coupons directly from Flooz. Despite online marketing saturation and advertising campaigns featuring actor and comic Whoopi Goldberg, the concept never became a recognizable medium of currency exchange. As well, it was reported in 2001 that a Russian organized crime syndicate had infiltrated the website, and was using Flooz coupons and stolen credit card numbers in a sophisticated money laundering scheme.

Flooz coupons were purchased by stolen credit card numbers then redeemed for online purchases, and Levitan reported that fraudulent purchases accounted for approximately 19 percent of consumer credit card transactions on Flooz by mid-2001. Due to consumers choosing the built-in safety of credit card transactions over the newfangled and untrustworthy online currency, Flooz filed bankruptcy at the end of that year with a reported loss of $35 million.

Closing Thoughts

In the competitive global market for online businesses, fierce competition, lack of business acumen, poor management, and skyrocketing advertising costs have forced many dot-com companies into bankruptcy. As with any business, it is important to develop a cohesive business plan, adhere to strict financial projections, and limit expansion until profits have been realized. Rapid growth without significant financial stability can ultimately lead to failure.

About the Author: Andy Wallner is a freelance writer and web developer that specializes in providing information to students considering a marketing degree, or interested in online and offline marketing information. In his free time, Andy enjoys kayaking, playing trombone in a local jazz band, and learning CSS.

Photo Credit: jmayer1129

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