An example of an E-Commerce failure and its causes

Pets.com was an online business that sold pet accessories and supploes direct to consumers over the Web. It was launched in August 1998 and went into liquidation within 9 months. It was also well-known for its wildly popular sock puppet spokesdog.

After its start by Greg McLemore, the site and domain was purchased in early 1999 by leading venture firm, Hummer Windblad, and executive Julie Wainwright. Amazon.com was involved in Pets.com's forst round of venture funding. Pets.com would eventually buy out one online competitor, Petstore.com in June.

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 puppet, performed by Michael Ian Black (alumnus of MTV's surrealist comedy sketch show, The State), was a simple sock puppet with button eyes, flailing arms, a stick microphone emblazoned with 'Pets.com", and a Timex watch around its neck.



Tthe Pets.com 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 you should stop at an online pet store: "Because Pet's Can't Drive!" That as was ranked #1 by the 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. It was the last dot-com to go public before the bubble burst.

Pets.com did make significant investments in infrastructure such as their warehousing; these investments resulted in the company needing critical mass of customers to break even. Pets.com's 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 breakevem point and that it would take a minimum of 4 to 5 years to hit that run rate. This tim period was based on growth of the Internet shopping and the percentage of pet owners that shopped on the Internet.

By fall of 2000, and in light of the venture capital situation after the bursting og 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 State presidential election.

A few of the causes:

1. Unsustainable business model and unachievable expectations. Basically, Pets.com bet everything on the market. It acquired ;arge amounts of funding from venture capitalists without demonstrating any background of achievements or success. Pets.com assumed that the market and its revenues would grow quickly enough before the funding money was used up. This e-tailer may have also overestimated the number of online customer it could gain in the pet market
2. Pets.com went public too soon and spent money too quickly. It spent excessively on marketing and advertising. Pets.com advertised more heavily than any other online pet e-tailer. This excessive advertising did not only benefit Pets.com, rather it helped the entire online pet industry to increase sales. Hence, making its own competition.
3. Pets.com failed to position itself in an effective manner. Pets.com jst offered prodcts that could be more easily obtained at a nearby mall and pet information about health, grooming. beahavior and such did not justify a virtual shopping trip. It also decided to compete with low prices just like its competitors that led to the selling of merchandise at prices below cost for the duration of its operations.