Pets.com (1998-2000)
Why did it fail?
1. An underfunded land-grab strategy:. Like many other dot-coms, Pets.com saw an opportunity and rushed to claim its share of the pet supplies Internet real-estate. According to this "land grab" strategy a business entering a new category should focus on increasing its market share. Once the sales are there they'll find ways to make a profit. Accordingly, many spent millions of dollars trying to get a share of the minds and wallets of the Internet community and some may have succeeded in grabbing the real-estate they were after. But Pets.com's problem is that they seem to have overestimated the real number of active Internet surfers. Many people have "access" to the Internet yet very rarely use it. And among those who do, a little less than half purchase goods on-line.
The "land grab" strategy presupposes that your market is large enough or will grow fast enough so that revenue allows a profit before seed money runs out. Pets.com , as well as many other Internet ventures, did not have a large enough market nor did it have the seed money to wait for its growth.
2. Poor consumer positioning: Pets.com failed to give its prospective customers a reason for its existence. Its tongue in cheek advertising claim ("Because pets don't drive") seemed like an admission of its lack of a reason for being. And, after all, why should one shop for pet supplies (namely cat, dog or bird supplies) in a venue other than that the place where one usually purchases groceries? I am not dismissing the fact that Pets.com offered a lot of information about pet health, grooming, behavior, etc. But these services would not justify another shopping trip, even a virtual one. Of course, supplies for unusual pets with special needs would be the exception, but not a market large enough to make a business.
3. An unsustainable business model: many Internet ventures seem to think they can sell merchandise at unbeatable prices because of their low overhead and superior efficiency. Profits will come from incidentals, such as inflated shipping charges, renting out their customer list and advertising on their website. Yet respect for the customer's intelligence should negate these ploys. Many customers, when they uncover the shipping charges, simply abandon their virtual shopping cart and do not complete the transaction. As to the use of one's customer list to generate profit... it may be a short term palliative: the deluge of junk mail and direct mail will make the consumer wiser and withhold information. Furthermore it is very likely that our legislators will further curtail the practice as they have in several European countries. Lastly there is the issue of "advertising" as a source of profit. There is some revenue potential in banner ads but it is limited in great part by the fact that they aren't really advertising, i.e., communication of a sales message with a lingering branding effect, but promotional tools akin to store coupons which aren't usually distributed for their advertising communication value.
As a conclusion, Pets.com was never able to give pet owners a compelling reason to buy supplies online. After they ordered kitty litter, a customer had to wait a few days to actually get it. And let's face it, when you need kitty litter, you need kitty litter. Moreover, because the company had to undercharge for shipping costs to attract customers, it actually lost money on most of the items it sold. Amazon.com-backed Pets.com raised $82.5 million in an IPO in February 2000 before collapsing nine months later.
Why did it fail?
1. An underfunded land-grab strategy:. Like many other dot-coms, Pets.com saw an opportunity and rushed to claim its share of the pet supplies Internet real-estate. According to this "land grab" strategy a business entering a new category should focus on increasing its market share. Once the sales are there they'll find ways to make a profit. Accordingly, many spent millions of dollars trying to get a share of the minds and wallets of the Internet community and some may have succeeded in grabbing the real-estate they were after. But Pets.com's problem is that they seem to have overestimated the real number of active Internet surfers. Many people have "access" to the Internet yet very rarely use it. And among those who do, a little less than half purchase goods on-line.
The "land grab" strategy presupposes that your market is large enough or will grow fast enough so that revenue allows a profit before seed money runs out. Pets.com , as well as many other Internet ventures, did not have a large enough market nor did it have the seed money to wait for its growth.
2. Poor consumer positioning: Pets.com failed to give its prospective customers a reason for its existence. Its tongue in cheek advertising claim ("Because pets don't drive") seemed like an admission of its lack of a reason for being. And, after all, why should one shop for pet supplies (namely cat, dog or bird supplies) in a venue other than that the place where one usually purchases groceries? I am not dismissing the fact that Pets.com offered a lot of information about pet health, grooming, behavior, etc. But these services would not justify another shopping trip, even a virtual one. Of course, supplies for unusual pets with special needs would be the exception, but not a market large enough to make a business.
3. An unsustainable business model: many Internet ventures seem to think they can sell merchandise at unbeatable prices because of their low overhead and superior efficiency. Profits will come from incidentals, such as inflated shipping charges, renting out their customer list and advertising on their website. Yet respect for the customer's intelligence should negate these ploys. Many customers, when they uncover the shipping charges, simply abandon their virtual shopping cart and do not complete the transaction. As to the use of one's customer list to generate profit... it may be a short term palliative: the deluge of junk mail and direct mail will make the consumer wiser and withhold information. Furthermore it is very likely that our legislators will further curtail the practice as they have in several European countries. Lastly there is the issue of "advertising" as a source of profit. There is some revenue potential in banner ads but it is limited in great part by the fact that they aren't really advertising, i.e., communication of a sales message with a lingering branding effect, but promotional tools akin to store coupons which aren't usually distributed for their advertising communication value.
As a conclusion, Pets.com was never able to give pet owners a compelling reason to buy supplies online. After they ordered kitty litter, a customer had to wait a few days to actually get it. And let's face it, when you need kitty litter, you need kitty litter. Moreover, because the company had to undercharge for shipping costs to attract customers, it actually lost money on most of the items it sold. Amazon.com-backed Pets.com raised $82.5 million in an IPO in February 2000 before collapsing nine months later.
