Trailblazing Failures of the Dot-Com Bubble

Go directly to Trailblazing Failures of the Dot-Com Bubble!You’ve probably heard of the term “economic bubble.” One occurs when a part of the economy grows very fast and then abruptly crashes. Most commonly, we think of housing bubbles like the US housing bubble that burst at the beginning of 2007. But bubbles can happen to anything that’s bought and sold. In fact, one of the most famous economic bubbles was with tulip bulbs in the Netherlands during the first half of the 17th century.

Yes, tulip bulbs: the things that grow into flowers.

Since then, tulip prices have remained mercifully low. But that was hardly the end of economic bubbles. And in recent years, few bubbles have combined massive investment with profitless ideas quite so poignantly as the dot-com bubble (and burst!) in the late 1990s.

Driven by the newfound notion that you could make money using the internet, the dot-com bubble saw countless tech startups flourish and flop. They raised millions through IPOs but often with no clear plan to profitability. Rapid expansion and growth was fueled by “irrationally exuberant” investors. This resulted in huge ad campaigns, massive hiring sprees, cool offices, and other needless costs. One company paid $8 million for an ad campaign featuring Whoopi Goldberg. Another bought a float in the Macy’s Thanksgiving Day parade. As a group, they expanded at an incredible rate.

Eventually, of course, it came to a sudden stop.

Starting in the early 2000s, company after company fell as investors became more and more skeptical of these companies — some of which never made any money. Some companies saw their shares lose 99% of their value inside of a year. For example, Webvan.com was valued at $1.2 billion at its peak. Eighteen months later, it declared bankruptcy.

Fortunately, it wasn’t all bad. Lots of the ideas from back then have come to fruition since, like online food delivery and digital currencies. But looking back on these companies can be fun and informative. It can also be more than a little cringe-inducing.

So whether as a bit of silly history or an edifying reminder, we present trailblazing failures of the dot-com bubble.

Trailblazing Failures of the Dot-Com Bubble

Trailblazing Failures of the Dot-Com Bubble

The phrase “irrational exuberance” was coined to describe what was going on in the tech world of the late 1990s. Investors were putting huge amounts of money into startups that had no plan for becoming profitable. It all crashed eventually, leaving us only some humorous and horrible stories.

Dot-Com Bubble

In an economic sense, a bubble is a period of fast growth, followed by a short and dramatic period of loss.

The analogy is to a soap bubble that grows larger and larger and pops. The Dot-Com Bubble was a period during the late 1990s when investors discovered that money could made on the world wide web.

They were right that there was money to be made: Online sales are expected to be over $400 billion by 2018
But they vastly overvalued the market of that time.

Pets.com

  • Sold pet supplies, but was mostly known for its marketing campaign
  • Featured a dog sock puppet working as a roving reporter
  • The puppet was an icon during the dot-com era
  • They had so much investment capital they were able to buy:
    • A Super Bowl commercial
    • A balloon in the Macy’s Thanksgiving Day parade
  • Stock went public in February 2000
    • Started at $11 a share
    • Rose to $14 a share
    • Quickly fell to less than $1
  • Within 8 months of going public, they had lost $147 million
    • Company closed in November 2000, laying off 300 employees
  • The mascot survived
  • Bar None, an auto loan company, bought rights to the puppet in 2002 for $125,000

Netpliance

  • Produced low-cost web-only computers
  • Sold its I-Opener internet appliance for $99
  • Had 49,400 internet subscriptions in September, 2000
  • Went public in March 2000
    • Started at $18 a share
    • Reached $26 a share
    • Declined to 34¢ a share by December 2000
  • Moved to network security devices
    • Ceased producing internet appliances as of February 2001
    • Cut 93 jobs — 38% of its workforce
  • Changed name to Tipping Point Technologies in 2001
  • Acquired by 3Com for $430 million in 2004
    • Finally became part of Hewlett-Packard in 2009

Boo.com

  • Ecommerce sports clothing company
    • Sold branded fashion lines
    • Operated out of London
    • It was founded in 1998 by three experienced Swedish entrepreneurs
    • They spent $135 million within 2 years
  • They saw little revenue
  • After less than 7 months from the site’s official launch:
    • CEO Ernst Malmsten made a plea to investors for “$20 million by midnight” for the company to survive
    • Only half was raised
    • The company closed the next day
  • Failure due to:
    • Delayed launch
    • Poor user experience
    • Questionable timing for the market

Webvan.com

  • Online grocery store
    • Founded in 1999
    • Raised $375 million at its November 1999 IPO
  • Attracted major investors
    • Goldman Sachs
    • Benchmark
    • Yahoo!
  • At its height in late 1999:
    • Valued at $1.2 billion
    • Employed 4,500 people
  • Throughout 2000, Webvan expanded rapidly
    • Spent $800 million
    • Extended into 8 cities in 18 months
    • Planned to extend into 26 more cities in 2001
  • Acquired its competitor HomeGrocer
  • The company expanded too fast
  • In July 2001, it filed for bankruptcy
    • Laid off 2,000 employees
    • Shares dropped to only 6¢
    • According to CNN Money, it was the most costly dot-com failure
  • Amazon resurrected Webvan as AmazonFresh
    • Originally started in Seattle suburbs of Medina and Mercer Island
    • Slowly expanded:
      • Los Angeles
      • San Francisco
      • San Diego
      • New York City
      • Philadelphia
      • And continuing…

Flooz.com

  • Online payment platform
  • Participating stores took Flooz online currency
    • Barnes & Noble
    • Tower Records
    • Restoration Hardware
    • Outpost.com
  • Corporate partners used Flooz online currency for corporate gifts
    • Cisco
    • Delta Airlines
  • Founded in 1999
  • Raised $35 million through investors
    • Within 18 months, had sales of $30 million
    • Spent $8 million on a single ad campaign featuring Whoopi Goldberg
  • The Russian mob discovered Flooz
  • They started laundering money with stolen credit card numbers
  • This led the company to shut down in August 2001
    • Went from profitability to owing $4 million in 2 months
    • Historic bankruptcy
    • Largest in terms of creditors: 325,000
    • First time email was used as legal communication
  • Incident led to the 3-digit security codes on the back of credit cards to be required for online transactions

eXcite

  • Early search engine eXcite had the chance to buy Google
    • It was originally offered for one million dollars
    • The offered was later lowered to $750,000
    • The offers were declined because they were “too much”
    • Google’s founders, Sergey Brin and Larry Page, wanted to sell Google because they were concerned it was
    • taking too much time from their research
  • At Google’s roughly $560 billion market value in 2016, eXcite would have made a 75 million percent ROI over 15 years
  • In 1999, eXcite was merged into @Home for $6.7 billion
    • @Home went bankrupt in 2001
  • In March 2004, eXcite was acquired by Ask.com
    • Joe Kraus, eXcite’s founder, now works as an investor with Google Ventures

The experiences, triumphs, and failures of the dot-com bubble led the way for today’s big tech companies to  flourish. From their successful ads to costly expansion and unintentional mob connections, these companies have fascinating stories to tell.

Sources: cnn.com, latimes.com, businessinsider.com, cnet.com, bizjournals.com, theregister.co.uk, wsj.com, thenextweb.com, smartinsights.com, reuters.com, internetretailer.com, qz.com, sfgate.com

Sources

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