Ten Years Ago This Week: A Requiem for Petopia

In honor of this week's 10th anniversary of the dotcom stock market peak, NetworkWorld's Paul McNamara rounds up some entertaining contemporary coverage of a market bust that seemed impressive at the time but now stands in relation to the real estate bust as the Great War stands to World War II: 

A few of the names live on as poster children for failure, of course: Pets.com, Kozmo.com, MVP.com and Go.com…

[T]here were remarkable and enduring successes during this period -- Amazon, eBay, Craigslist, Yahoo, Google -- even if it would be insulting to call them dot-coms and their real fortunes had so many chasing empty dreams.

Highlights include this CNet obituary for one celebrity-enabled digital cash site:

Flooz.com was a perfect example of a "what the heck were they thinking?" business. Pushed by Jumping Jack Flash star and perennial Hollywood Squares center square Whoopi Goldberg, Flooz was meant to be online currency that would serve as an alternative to credit cards. After buying a certain amount of Flooz, you could then use it at a number of retail partners. While the concept is similar to a merchant's gift card, at least gift cards are tangible items that are backed by the merchant and not a third party. It boggles the mind why anyone would rather use an "online currency" than an actual credit card, but that didn't stop Flooz from raising a staggering $35 million from investors and signing up retail giants such as Tower Records, Barnes & Noble, and Restoration Hardware.

Funny that. Tower Records is now out of business. Revolution Restoration Hardware was picked up for a song in 2008. And is anybody placing bets on the existence of a Barnes & Noble in 2015? Yet a scant decade ago they were all "retail giants." Et in Arcadia did Ozymandias a stately pleasure dome decree!

I'm old enough to get heartsick when I realize my memories of  King Philip's War no longer have currency with today's youth, so reading McNamara's piece I was relieved to find it all seemed so long ago. Yet I still feel a need to defend my cohort of superannuated punks (like aged hippies, but even less pleasant to be around). To wit:

A few lucky tweaks in the business plan and we would all be talking about Flooz and the revolutionary approach to e-commerce that made it a perennial leader over Paypal. In a comment, reader Mike FM gives a pretty good theoretical defense of the Flooz model, and raises a metaphysical question about digital currency that will, I'm sure, be answered on the Last Day. You know the real reason Flooz failed? Because most human endeavors fail, and Flooz happened to be part of that majority. (If there are any Flooz vets out there, please give me a FuckedCompany-style correction in the comments.)

And that's assuming a static business model. The cavalcade of all-stars cited above includes one company (Yahoo!) that has drilled through more new models than Tiger Woods at the Everglades Club, and another (Amazon) that has spent much of its life trying to escape from its original business plan of selling books. Both have enriched us with their innovations: Amazon's Kindle is as likely a candidate as any to supplant the paper book for good and all. And I know there's something Yahoo!'s still good at, but I'm becoming forgetful in my seasons. Yet both companies endured because they did what the losers get mocked for trying to do: They made an early drive to control a big chunk of what some geezers still call "web real estate."

In fact, I'm going to say Pets.com and other dreamers were actually smarter than the snarking lurkers who make fun of them with hindsight. Even the dumbest dotcommer knew by 2001 that controlling real estate is a liability once the real estate becomes worth nothing. It took the rest of America until 2006 to learn that lesson. (Some took even longer than that.)

So light a candle for Petopia. And revisit those days of hype and glory with Heather Havrilesky, James Poniewozik and illustrations from the immortal Terry Colon.

Comments

[mr simple]

I claim this space of web real estate as my own.

[T]

Good for you! It's worth as much as a mortgage-backed security.

[Net Nutrality]

All your web real estate are belong to us.

[rctl]

Sorry Mr Simple but I have made an eminent domain claim on your real estate. Move your sweet ass along;-)

[Alan Vanneman]

"Revolution" Hardware or "Restoration" Hardware? When you were born, Tim? During the revolution or the restoration? Frankly, I've forgotten.*

*But I am proud to say that I've never bought a damn thing at either store.

[Tim Cavanaugh]

Thank you, Alan. Of course if they were called Revolution Hardware they'd be bigger than Pottery Barn by now.

[JD]

Firstly: "Revolution Hardware"? I know we're revolutionary and all, but...

I'm also not a fan of the argument "it failed 'cause sometimes stuff is just like that", because that completely fails to enlighten us about why anything fails or succeeds. Hell, you're almost sounding like some kind of liberal arguing that success or failure in the market is purely random...

I also don't think Mike FM's comment explains much either. Sure, I can see how it would be handy for merchants. How is it handy for me, J. Random Websurfer? The market pays for value added, and I fail to see how signing up for Flooz would have added any value for me, especially seeing as how it wasn't directly convertible to cash, and carried a substantial risk of suddenly becoming worthless...which is exactly what did happen.

[Tim Cavanaugh]

You would presumably benefit by having retailers make you offers you wouldn't get as a non-initiate, thus making your Flooz bucks more valuable in one transaction than an equal number of dollars. If there are enough people interested in enough participating retailers, it could work. But this is a tough world, even for Randian supermen powered by pure rationality, such as ourselves.

[Kevin]

*Powered by pure rationality and miraculous atmospheric static engines.

[Kool]

Randian supermen powered by pure rationality

I've found my new motto! And it will annoy my wife, too. Win/Win!!

[Kool]

Kozmo was the best, if only a little ahead of its time. Not many people had instant-on high speed access at the time. And therefore, who is going to dial-in, surf/shop (slowly) and then...

Now, people order pizza hut online, Kozmo would be a hit!

We would get a movie, a PS2 video game, a dozen Krispy Kreme's a gallon of milk, and depending on how high we were, Ben & Jerry's.

Fucking great way to spend a still-hungover-from-Friday-night Saturday night.

[Pilt Down Man]

They never made any money. Kozmo delivered all that shit at a loss.

[Tim Cavanaugh]

But they had a plan to make it up in volume.

[Crusader Rabbit]

Guy came to my office ca. 1999 with a business plan for some dotcom project.  It showed negative net worth for 15 years.

I pointed this out to him and he said (very proudly), "This is a CASH FLOW play, man, not an EQUITY play!"

And thus endeth the Great Dotcom Bubble.

[Episiarch]

I ordered a Playstation 2 from Kozmo and had it in an hour. I saved myself the 4 block walk to the game store!

Kozmo's problem was their delivery system used bike couriers, who as we all know--especially if you've seen Quicksilver--are the lowest form of life on Earth. They were always late, had the wrong movie (that wasn't their fault, but damn, man, get my replacement fast), and were surly and ill-mannered.

[Kool]

PDM, no doubt, hence the failure.

Epi, the DC delivery was always in a car to me, and if it was only for a game you could call me lazy, sure. However the combination of stoner-pleasing goodness (I was in my mid-20's) was infinitely fantastic.

Tim, that's always the best excuse!

"We're losing money for every transaction."
"Then let's do more transactions!"

How that never entered in to people's brains as "more lost money" is beyond me. Unless, of course they were actually losing less and less for every additional customer... Which leads back to my OP of the fact that there wasn't enough high speed at the time.

If it came back now, with a (probably) narrower scope of products, they could make it work.

But, I doubt I'd invest in it.

(Also, it could just be a warm, fuzzy, hazy and not-entirely-correct memory of my mid-20's living in a condo nicknamed the Clubhouse by my friends and doing whatever we wanted...)

[R C Dean]

"We're losing money for every transaction."
"Then let's do more transactions!"

Well, it depends on how much of your costs are fixed costs. To oversimplify:

If you have $300 in fixed costs and $1 in marginal costs, you sell three doo-dads, and charge $5 per doo-dad, your loss on each doo-dad is $96.

If you sell 1,000 doo-dads, your profit on each doo-dad is $3.70.

[Kool]

Correct, hence: Unless, of course they were actually losing less and less for every additional customer...

[Kool]

Damn stray mouse click.

You're correct, that if they were losing less and less for each additional customer, then mathmatically there would be a point in which they stepped from the red to the black.

Now, if they were simply losing $x per transaction, no matter what, then that is the worst business model ever.

[Episiarch]

I was in NYC, Kool, so it was of course the filthy scavenger bike messenger there. I'm not entirely joking; I became disillusioned with Kozmo, after using it a lot for a while, because they were always fucking late, had the wrong movie frequently, and were totally unapologetic (the delivery biker, that is).

[Kool]

Epi, no worries, if that were my experience, I'd become disillusioned too. But, I'd probably call it sheer undying hatred.

"I'm sorry, I don't speak incompetant bitch."

NOW, WHERE'S MY FUCKING MOVIE?!

[joshua corning]

I was in NYC, Kool, so it was of course the filthy scavenger bike messenger there

This was another huge mistake Kozmo made. It got caught up with the bike messenger crowd who were always bitching and causing trouble. They didn't like the uniforms they were always "cheated" in their pay checks, they would not deliver porno, they wanted a union and the routes were always unfair. When I was part of dispatch and a delivery had to make it I and other dispatchers would always go for the ex-pizza delivery people and the ex-taxi drivers. Kozmo would have done itself a huge favor if it had stolen all the dominoes employees in a city given them a buck raise.

Bike messengers are the whiniest bitches in the world.

[Rob McMillin]

Hard to remember in these heady days when money has, somehow, become even less real than it was back in the go-go 90's, but Pink Dot has survived them all. At least until recently -- their website appears to be on the fritz. My understanding is they were the favored method for alcoholic Hollywood Hills shut-ins to get a case of scotch without the neighbors being any the wiser.

[joshua corning]

I worked at Kozmo. The big mistake was trying to deliver to suburbia. Looking at the bottom line they only made money in high density areas.

When they got out of New York and expanded into Atlanta and Portland then expanded their coverage area to all the suburbs and killed themselves.

Plus they bled money like Jezebels weekly period on things that did nothing to improve the bottom line. The Portland spoke spent 50k on painting the interior of the warehouse. With all the mid day employees standing around they should have spent 2k on brushes and white paint and made the bikers paint it sans the green and orange designer stripe.

Oh yeah and the internal software for tracking deliveries and inventory sucked ass. The Web site was nice though.

[Mark]

Yahoo is easily the best option for fantasy sports. They seem to do a lot of other things too but I'm not sure anyone actually uses those other services.

[Dan Lavatan]

I think B&N will be around in 2015. e-books can't really take off until they are DRM free and even then publishers will want amazon to have some competition.

[ClubMedSux]

Et in Arcadia did Ozymandias a stately pleasure dome decree!

Okay, who the fuck really wrote this post? Thomas Pynchon?

[Josh M]

I dropped down into the comments to ask the same thing. What do Arcadia, Ozymandias, and Kubla Khan's pleasure dome have to do with a) each other, or b) Flooz?

[John Thacker]

I thought it was pretty obvious.

Xanadu, Ozymandias's works and empire, and Arcadia (Et in Arcadia ego) are all used to invoke memento mori and the idea of the inevitable downfall of utopias and empires.

[Carl Carlson]

Let's make litter out of these literati!

[Brett L]

Glad I dumped all that dot-bomb stock in late January Y2K and bought Enron.

[Handsome Dan]

The cavalcade of all-stars cited above includes one company (Yahoo!) that has drilled through more new models than Tiger Woods at the Everglades Club...

You wrote this whole post just so you could use this line, didn't you? Be honest!

[John Thacker]

No, Tim wrote the whole post so that he could:

1) Use that line
2) Use the line with the triple reference to "Et in Arcadia ego," Shelley's "Ozymandias," and Coleridge's "Kubla Khan," and
3) Including a graphic reminding everyone of Suck, which this post partially serves as an apologia for.

[Shannon Love]

Most Dot-coms failed because they were experimental and most experiments will fail. If they didn't, they wouldn't be called experiments, they would be called, let's-do-that-thing-we-already-knows-works-iments.

I am a student of technological history and the dot-com boom/bust followed a pattern that has reoccured since the at the least the beginning of the Industrial Revolution.

(1) When a new technology reaches a certain level of development, it becomes universally recognized as a game changer. E.g trains circa 1850, cars circa 1920, aircraft circa 1930, plastics circa 1955 computers circa 1985, the internet circa 1998.

(2) A boom happens as venture capitalist and established businesses pile into the new technology like the Three Stooges trying to get through a door at the same time. In the great aircraft boom of the late 20s-1939 everyone from shipwrights, to car makers to furniture makers all tried their hand at building aircraft. Ford was the largest single producer of aircraft in America till the end of WWII.

(3) This period results in an explosion of diverse variations on the central technology. The majority of them are in hindsight just plain silly. Look at a Byte Magazine circa 1984 and just see how many hundreds of computer hardware platforms there were. Now we have two with a few variations.

(4) After the boom, there comes a bust. The bust is caused by the results of market selection winnowing down all the variations to a handful of optimal forms. Most of the companies in the market go out of business or are absorbed by larger and more successful companies.

(5) We all get treated to endless moralizing by everyone from minsters to economist about how the bust demonstrates human folly and how we all need either God or the Government to save us from ourselves.

(6) While the moralizing goes on, the supposedly busted technology sector becomes a dominant economic player of such magnitude that no one can image the world without it.

(7) Some new tech comes along and the circle repeats itself. Right now, I would say were just at the Three Stooges-versus-the-door stage of the mobile computing device boom.

Far from being a moralistic tale of human greed and economic hubris, the boom and bust of new technologies is part of the creative evolution. As much as it pains our egos to admit it, the only way that we even know is something will work or not is to try it and see. Technology booms are the economic version of the scientific method.

We should venerate all those idiots at Pet.com, Flooze.com, Koop.com etc as the sacred fools of an empirical market economy. Thanks to them, we know what does and does not work.

No boom, no bust, no progress.

[Paul]

We should venerate all those idiots at Pet.com, Flooze.com, Koop.com etc as the sacred fools of an empirical market economy. Thanks to them, we know what does and does not work.

Shannon, while your overall point is well made, there were a few of us that knew these things couldn't work before they failed.

And really, they weren't doing anything different or experimental-- beyond the taking of any particular shelf-segment in a grocery store or retail outlet, and turning into a .COM.

Some of these ventures were almost like me starting up #15metricsockets.com with the tagline "All #15 sockets, all the time".

What still amazes me is... very wealthy people were willing to give large amounts of money to these ideas. That's what I want to venerate these people for. How do you go into a business meeting, start your speech with "Ok, run with this, an entire web presence that will specialize in #15 Metric sockets", and walk out with $40 million dollars. That's a skill I'm willing to venerate.

[Shannon Love]

What you say is true but such patterns are also part of technological boom/bust cycles. It's just that history tends to forget failures of the past. There was a lot of silliness in the aircraft industry of the 30s which you would only know about if you go out of your way to research the history of things such as mid-ocean seaplane ports.

The Dot-Com boom might have had more silliness because (1) internet companies had a strange ethereal quality to them and (2) the scaling possibilities in cyberspace (the rate at which a successful company could grow) was unprecedented. That seemed to cause many people to throw common sense out the door.

In one locally famous event during the boom, a local radio talk-show host was interviewing one of the executive of Koop.com (which was affiliated with the former attorney general.) He asked the executive how Koop.com would make money. The executive couldn't answer. When pressed he talked about attracting investors. It turned out they didn't have business plan that had a line in it somewhere that read, "And then people will pay us money for doing X"

But again, not unprecedented. You also see a history of significant outright scams during Tech Booms.

[Paul]

My brush with fame: I worked for the company that was the worst performing IPO of 2000, until it was edged out by Pets.com: Vantagemed.

Yep, a company so bad, a company so mediocre, that it couldn't even claim it was the worst at anything. It was meta-fail.

[heller]

Things fail for a reason. They fail because they suck.

[ClubMedSux]

Unless your name is Jay Leno. Then you only fail at 10pm; at 11:35 you're somehow immune from the Laws of Suckage.

[ed]

anybody placing bets on the existence of a Barnes & Noble in 2015? Yet a scant decade ago they were all "retail giants."

Heh heh. Remember when small, quaint (i.e. failing) book stores bemoaned the evil behemoths and sought government help in suppressing them? And how this conflict spawned execrable movies (You've Got Mail)? Bad times.

[rctl]

Execrable? Ed you don't have a romantic bone in your body. I love that movie.

[rho]

I actually used some Flooz to buy something. As I recall the transaction, it went smoothly and simply, which was quite something for the mid- to late-90s Internet ecommerce.

I can see a couple of reasons why Flooz wouldn't have been as successful as PayPal. One, obviously, was the number of participating stores. If one has Flooz and cannot spend it on something one wants, one gets quite annoyed.

Second is tied to the first. The realm of CGI during this time was incredibly fragmented. Some Perl, some PHP, some ColdFusion, some ASP--none of which had anything like standards or best practices, and most of which was ad-hoc stuff. Oh, and no access to cheap and reliable databases, unless you spent big dollars on Oracle.

x.com got around this by saying, "No, you send them to our server," which was a lot simpler for the ordinary merchant. Still is, really.

[ed]

E-money that sounds like ejaculate. What could possibly go wrong?

[BH]

I have an 12-year-old yahoomail account and whenever sketchy persons and/or websites want an email address I give them that one. It's fun to watch the junk fly in the inbox from places like thestreet.com that I haven't visited for half a decade.

So, uh, there's something to do with Yahoo.

[joshua corning]

Even the dumbest dotcommer knew by 2001 that controlling real estate is a liability once the real estate becomes worth nothing.

It is not hard to find website names of common words for sale. I don't know if the poeple who own them and are selling them are making any money...but people still are selling web site URLs and it is 2010.

[joshua corning]

What the fuck does Yahoo do?

[Bless me father for I love to]

"light a candle for Petopia" once a catholic always a catholic.