Stupid Dotcom Tricks

In retrospect it all seems so clear: Don’t spend millions on Super Bowl ads when you can’t promise the customer anything more than he can get at the local pet store. Don’t offer to deliver candy bars for free. Don’t alienate your middlemen if you don’t have to (see "Make Friends with the Middleman," Page 94). Don’t weaken your brand by separating business channels. In other words, don’t follow silly business models.

Pets.com spent $180 per head in customer acquisition costs, according to Stern, Stewart & Co.’s Varma. For fiscal 1999, the year before Pets.com folded, the e-tailer had expenses?including whopping advertising and marketing budgets?that were 9.2 times its annual revenue of $5.4 million. In the end, the exercise of mailing 10-pound bags of dog food across the country was expensive, and the dotcom spent far too much on its promotion given the number of customers who wanted the service in the first place. Pets.com also failed to differentiate itself from physical pet stores, Varma says, relying exclusively on price instead of offering special services or an unusual selection. (See "Some Bark, Others Whimper," this page.) Now, the dotcom’s iconic mascot, the sock puppet, which it brought to rock star status with its $2 million Super Bowl ads, has become an emblem for fatuous failure and can be found for sale on Amazon.com for $8.96, marked down from a list price of $19.99.

Kozmo.com, the New York City-based company that delivered everything from Snickers to DVD players to customers’ doors, said it was close to profitability in certain markets when it was forced to shut down in April. In the end, however, profit margins were too thin and investors lost confidence. "The problem with Kozmo’s business model was that they could break even only when people made large orders frequently and people weren’t ready for that," Varma says. Kozmo officials blamed the dotcom’s demise on heavy spending on expansion early on when it should have carved out a smaller niche and focused on fewer cities. "The Web can’t make a poor business model successful," says Larry Perlstein, vice president and research area director for Gartner in San Jose, Calif.

But of course. Everyone knows that...now.