F'd Companies: Spectacular Dot-COM Flameoutsby Philip J. Kaplan
Not long ago, the world was awash with venture capital in search of the next Yahoo! or Amazon.com. No product, no experience, no technology, no business plan -- no problem. You could still get $40 million from investors to start up your dot-com. And you could get people to work around the clock for stock options and the promise of millions. Then, around April 2000, it all came crashing down.
Smart investors, esteemed analysts, and the business press found themselves asking:
- Who knew people wouldn't rush out to trade in their U.S. dollars for a virtual currency called Flooz?
- Who knew people wouldn't blow all their Flooz on a used car from the guys at iMotors.com?
- And who needed a used car from iMotors.com when they could just sit at home and have 40-lb. bags of dog food delivered to them by a sock puppet?
F'd Companies captures the waste, greed, and human stupidity of more than 100 dot-com companies. Written in Philip J. Kaplan's popular, cynical style, these profiles are filled with colorful anecdotes, factoids, and information unavailable anywhere else. Together they form a gleeful encyclopedia of how not to run a business. They also capture a truly remarkable period of history.
F'd Companies is required reading for everyone involved in the "new economy" -- assuming your severance check can cover the cost.
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Read an Excerpt
So a bunch of Internet companies went bust...You may think I'm pretty arrogant for claiming to know what their problems were without knowing the first thing about them. And you're probably right. Honestly, I made all this shit up...Okay book over stop reading now.
Still, hindsight is 20-20, right?
I mean, who could have guessed that people wouldn't pay big money to read amateur investment advice from complete strangers? (See iExchange.com)
Who could have known that we wouldn't rush to trade in our U.S. currency for Flooz?
Who knew that consumers wouldn't put a $500 device called "evil" in their kitchens? (See E Villa)
And incubators? (See CampSix)
Why'd They Fail?
Ask an ex-employee and he'll probably blame management.
Ask management and they'll likely blame the economy.
The economy? MORE VENTURE CAPITAL WAS GIVEN OUT DURING THE FEW YEARS IN WHICH THESE COMPANIES WERE FOUNDED THAN IN THE ENTIRE HISTORY OF AMERICA. BUSINESSES AND CONSUMERS WERE SPENDING RECORD AMOUNTS AND INTERNET USAGE SURPASSED ALMOST ALL PREDICTIONS.
Sure the economy got all fucked up (I'm a financial whiz as you can tell...). But it wasn't due to something that happened -- rather, it was due to a lot of things that didn't happen. We didn't turn off our radios. We didn't abandon our TVs. We still go outside to shop most of the time (except me -- i don't wear pants).
We laughed at Flooz.
We thought the sock puppet was annoying.
So Then, Why'd They Fail (Part II)?
If run properly, many of these companies could have made it as small, successful businesses. Thing is, "small" wasn't in their vocabulary. You'll find specifics in the rest of this book.
But in general......
Too early, too late, too expensive, too cheap, too big, too much competition, too much supply, not enough demand...and okay maybe a bit because of management...twenty-something Banana-Republic-khaki-pant-wearing Gap-blue-shirt-sporting Stanford-MBA-having Boxster-driving day-trading choad-smoking secretary-ass-palming CEOs.
But we won't discuss them. Nope. I really just wrote that cuz I wanted to use the word "ass-palming."
What Is Ass-Palming?
Far as I can tell, it's like "palming" a basketball -- gripping it firmly with one hand. But with ass.
Who Is This Dipshit?
I'm not an analyst, I'm not an investor, I'm not an executive. I'm a computer programmer. I'm that dude at your office in the dark cubicle who nobody listens or pays attention to (especially the hotties in marketing).
On the Internet (yeah I'm cool like that), I go by "Pud." I was thinking about making Pud the official author of this book but then I remembered my main motivation for writing it -- hanging out in the bookstore picking up chicks.
"Hey waddaya know, they have MY BOOK here. Yes, I wrote it. Uh huh it's true. Now come home with me you MINX."
So now I'm "Philip J. Kaplan." I put the middle initial in there not only cuz I'm a huge Family Ties fan, but also because there's apparently some dude who writes World War II novels named Philip Kaplan.
...although come to think of it, he prolly scores tons of ass with that stuff...oh well too late to change now (as I write this, this book is already for sale on Amazon -- it even says how many pages it's gonna be. Miss Cleo must work there.)
Wha? oh yeah.
In May of 2000 I built a website called Fuckedcompany.com. That was just around the time when tech markets started to go south. One month earlier, April 2000, is the month generally associated with being the start of the dot-com shit-storm.
Fuckedcompany.com was my attempt at a "bad news only" site about dot-com companies...but to keep it stupid (I like stupid. So do you, as evidenced by the book you're now holding in your sticky little fingers), I made it like a "celebrity dead-pool." But instead of betting on celebrity deaths, users bet on the demise of selected companies.
Anyway...the site started out pretty much as a joke. I used to read a lot of the tech-news sites, scouring for bad dot-com news. Not cuz I'm morbid or anything, but because I'd been waiting for it. I'd been waiting for something.
Allow me to explain.
To many people, including myself, the whole dot-com thing was like a murder mystery. You think you know who dunnit, but either way, the suspense builds up until you reach the finale. The suspense of watching millions upon millions of dollars being POURED into these startup businesses was gripping -- they didn't make any money, so what would happen as the cash started to run out?
Well I'd write a book about it, that's what would happen of course.
And so here I am JACKASS.
When did I get so cynical? A question I've been asked a few times...what follows is the short version. If you don't give a fuck (if I were you I probably wouldn't), feel free to skip this section.
Bearded Clam: The BBS Days
In 1989 I was a freshman in high school. Interested in building games and graphics, I'd taught myself a fair amount of computer programming. To fuel my "research," I pulled an extension from my dad's fax line into my bedroom and launched The Bearded Clam (TBC) -- a bulletin board system (BBS) on a state-of-the-art Hyundai 386sx computer with 2400 baud modem.
Yeah, Hyundai made PCs at that point. They pretty much sucked as bad as the cars -- but were just as cheap.
So if you don't really know what a BBS is, think of it as a website -- but instead of dialing into your Internet service provider (ISP) and then connecting to the website through your browser, you instead dial directly into the website.
Each BBS had a different phone number, and very few BBSs were networked to anything. Kids generally frequented BBSs in their local area code, as to avoid long-distance charges. For that reason, there was demand for similar BBSs in different area codes (wake up -- that was foreshadowing...). In other words, a BBS in California wasn't competition for a website in New York, even if they were identical.
Like a website, most BBSs allowed users to send email (to other users on that BBS), participate in message boards, chat, play text-based games, and trade files.
Also like websites, most BBSs had a specialty. Gaming, community, porn...My BBS specialized in pirated software -- specifically, games. As the system operator (SysOp -- pretty much equivalent to webmaster), I provided none of the files, but simply kept the server running as users traded files and information.
Fast-forward four years. As a freshman at Syracuse University in 1993, a friend of mine was telling me about this new thing called Mosaic. Developed by Netscape's Marc Andreesen (who later bombed out with LoudCloud; see Xuma.com), Mosaic was the first graphical web browser to achieve any sort of popularity.
The First Thing I Said...
...when I saw a web browser for the first time, no lie, was "Wow! It's like a BBS -- but instead of needing, say, a gaming BBS in each area code, you only need ONE gaming BBS for the whole thing!!"
Because I could access websites all over the world by just dialing a local ISP's phone number, the logical conclusion was "BBSs will disappear, to be replaced by a very small number of popular websites."
Look I'm not claiming to be a hotshot or whatever. Just the contrary -- I'm an idiot dork. Anyone in my position would have come up with the exact same conclusion. The long-distance barrier was the main obstacle in BBS-land, and now it was GONE! Major consolidation needed.
So you know what happened next...? Ten online pet supply sites, scores of online bookstores, so many sites doing the same fucking thing. The audience was huge but fickle -- one mouse click and a new site would load.
New York City
Fast-forward five more years. After an eleven-month stint in Virginia as a twenty-one-year-old consultant with stodgy consultancy Booz Allen & Hamilton, I decided one weekend, on a whim, to move to New York City and find work as a programmer.
Well actually that's a lie -- I moved to NYC cuz I wanted to be (and still intend to be) A FAMOUS HEAVY-METAL ROCK-STAR DRUMMER. Yeah I know there haven't been any of those since the mid-eighties, but we're about due.
"Uhh, Grandma [who lives in NYC's Upper West Side], mind if I stay with you for, I dunno, MONTHS [rent is fucking expensive here]?"
So yeah, I moved from Maryland to NYC when I was twenty-two. I scored a job working for Think New Ideas, a "hip" web shop founded in part by ex-MTV VJ Adam Curry, a childhood hero of mine. Adam not only hosted Headbanger's Ball, but he was also the defendant in the first big domain-name dispute, as the original owner of MTV.com.
I took the job at Think because the title had the word "manager" in it -- specifically, I was the scrub known as "technical project manager." All of my other offers had been for programming positions, but this one just sounded cooler.
The "Real World"
At Think we did great work. Clients loved us, we loved each other, things were good. The only weird part was that WE WERE CHARGING SO MUCH FUCKING MONEY.
I remember writing a cost estimate for $2,000 and having my manager tell me that the price was too low and to stick another zero on it. Walla -- like that I just brought in $18,000 more dollars. Then $40,000. Then $100,000. We once charged about $1 million to a client for about four months' worth of work for four guys.
I think I was making around $55,000 a year at the time -- the other guys on the project were probably making about the same. So how four of us charged $1 million for four months' work, I've no idea -- but we did.
I remember feeling both guilty and confused. Guilty because I knew the shit we were doing was easier than the marketing folks would allow the client to know. Confused cuz I had no fucking clue where all this money was coming from, or where it was gonna go.
The "Real" Real World
If what I was doing at Think New Ideas was so goddam valuable, what the hell was I doing making only $55,000 a year for? -- which of course is nothing to complain about -- unless you live in Manhattan, in which case you're eating ramen noodles and drinking Tab. But it wasn't about the money (honest!) -- rather, I felt taken advantage of. What the hell.
Which leads me to one of my favorite little screw-fests. When I was first hired by Think New Ideas, I wanted stock options. Why? No clue, but everyone seemed to be getting rich off the buggers. And hell, all the Internet companies were offering them, so why not ask. So anyway, the response from management was "You will receive stock options after one year of employment with this company."
That's clear enough, right? So I waited patiently and worked hard. As my eleventh month of employment rolled around, I went up to the manager who had originally promised my stock options. I explained to him that it had almost been a year since I'd started work there, and that I'd like to "get the ball rolling" on those options.
"What stock options?" the manager asked me.
"Uhh, the options that YOU said I would receive after working here for one year," I replied.
"Oh, right, those options."
"So...where are they? How do we do this?"
"Well you're not getting them yet," that fuckroast had the nerve to say.
"But you promised."
"No I didn't."
"Yes you did."
"I said you'd get options 'AFTER one year.' That could mean one year, two years...ten years..."
And so I turned in my resignation and started freelance programming. My goal was to start a small business by bootstrapping it and eventually hiring four-or-so people to build those "$1 million" websites for, say, 200 grand. We'd make more money, the client would save money, everyone would be happy. And we were, as PK Interactive became a reality, a successful little "Internet boutique."
Fast-forward about one year.
Fuckedcompany.com (Part II)
May 26, 2000. Memorial Day weekend. My consultancy, PK Interactive, was rockin' and rollin'. I had five employees and we were working on projects for Mead Paper, Toyota, and some other companies, large and small. Most of our clients weren't dot-com "pure-plays," but rather were companies using the Internet to expand their existing, offline businesses.
So Memorial Day weekend is a big travel weekend for New Yorkers -- but I of course had no plans. Pretty much everyone I knew was out of town and I was bored, home alone, with nothing to do for four days.
Wouldn't that be the perfect time to make that newsy dead-pool site about dot-com companies? Why not.
When it came time to choose a name, the first thing that popped into my head was the magazine Fast Company. Fast Company was pretty much the opposite of a dot-com dead-pool -- it worshiped that whole "new economy" thing -- my site was their blasphemy.
Fast Company? Fuckedcompany.com, there it was. Being a programmer -- not a graphic designer -- the first version of the website was really ugly (okay fine...it's still ugly). The original logo was a parody of Fast Company's logo (which the magazine later asked me to change, and being as I didn't much care for the logo in the first place, I complied). The site's background was dark red, to be all evil and bloodlike. As for content, I just copied shit from other news sites on the Internet (shhhh, don't tell anyone).
Three days later, the site was done. Thing was, the day after I finished, I had a trip planned to go to Brazil for a week with some friends. So I showed one of my employees how to update the site while I was gone.
I emailed my new site's address to six friends and took off for Rio, in search of the Girl from Ipanema.
Three days into my trip, I got a message that a reporter from online magazine Salon.com was trying to contact me for an interview about the site.
I got back from Brazil to find that over 20,000 people had signed up to play the dead-pool game. I had thousands of emails from dot-com employees informing me of the goings on in their companies. I received email from laid-off dot-commers on the brink of depression, thanking me for the site, explaining that it was therapeutic -- one read and they knew they weren't alone and they weren't to blame.
And just a few "cease and desist" letters.
As of this writing, over a year later, about 4 million people visit Fuckedcompany.com each month. Rolling Stone picked it as "Hot Site," Yahoo! Internet Life deemed it "Site of the Year," and Time magazine even picked it as #6 in their "Best of 2000" issue (damn that Napster kid).
Thousands of premium subscriptions, as well as T-shirts, mouse pads, mugs, and other crap, have been sold through the site. "Per head, it's probably the most profitable company in the history of Silicon Alley," wrote Joseph Gallivan, some crazy Brit, for the New York Post. Pip pip! Let's snog.
Terms and Conditions
- What follows is a collection of fucked Internet companies, most of which are out of business. You might notice that some of these sites still seem to exist. Sometimes that's because they're still conducting business, but for the most part, new companies have purchased the domain names of the deceased and have sprouted up in their place -- much like how a new store might move into a bankrupt store's previous location and keep the old name. Additionally, the assets of many of these companies have been sold (for pennies on the dollar) and have been reopened under new, hopefully brighter, management.
- The opinions herein incorporate my own, as well as ideas and discussions with former employees and executives in both real life as well as from various online message boards (including but not exclusively Fuckedcompany's Happy Fun Slander Corner).
- Philip J. Kaplan (a.k.a. Pud) is an idiot.
If you agree,
CLICK HERE TO CONTINUE
Copyright © 2002 by PK Interactive, LLC
Chapter One: Tough Ship
I'm out of dog food and my cat's box needs new litter. I know what I'll do: I'll order Dog Chow and Fresh Step online from a sock puppet and then I'll watch the dog starve and the cat shit all over the house while I wait for it to be delivered!
Waiting was just part of the problem. Pets.com assumed, probably correctly, that many potential customers would be turned away by high shipping costs. So...they only charged $5 shipping for a standard 40-lb. bag of pet food, when actual shipping costs were at least twice that. Similarly, small items like a $2.50 dog bone weren't worth shipping.
Amazon.com, one of Pets.com's major backers, thought they could use their muscle to make Pets.com succeed. Instead, they managed to blow through over $100 million with the help of brilliant purchases such as a $2 million Super Bowl ad and a float in the Macy's Thanksgiving Day Parade. Other investors included the infamous venture capital firms Idealab and Hummer Winblad -- the same butt-plugs who brought us Rivals.com, Gazoontite.com, and TheKnot.com.
They should have sold actual pets and shipped them UPS -- better margins...
Look, I'm the laziest fucker on Earth. I buy tons of shit online, but I still go to the supermarket to buy my food. Although there have been times when I've fantasized about ordering from Webvan just to watch some poor sap unload my groceries while I sit there, watching TV and drinking a beer...
Uhh...okay so raising and burning through more than $1 BILLION (that's billion with a "B"), the online grocer Webvan gained notoriety as being one of the biggest dot-com failures of 'em all.
The grocery business is a penny operation. Margins are razor thin. The most successful grocery retailers are big chains that buy in bulk, sometimes directly from the manufacturer. Webvan just didn't have the buying power, infrastructure, or demand to compete.
Simply put, Webvan was a classic example of PAYING more for products than they were SELLING them for. There's really not much more to it.
One of the more interesting chapters in the Webvan story has to do with their president, George Shaheen. Shaheen was CEO of Andersen Consulting until the end of October 1999. At the time, companies like Andersen Consulting (now known as Accenture, pronounced "Ass-ENTER") had serious problems with employees leaving in droves to go work for COOL HIP Internet-dot-com-cyber-virtual-e-companies.
So...after trying to convince Andersen employees that it was a bad idea to leave and that dot-coms are stupid, THEIR OWN FUCKIN CEO QUITS to join Webvan. About eighteen months later, after realizing Webvan's bleak future (you didn't need a crystal ball...), he quit.
Kozmo.com, king of the single-movie-rental-messengered-to-your-door-with-no-tipping, decided a little too late to require a minimum order.
If Kozmo were really such a good idea in the first place, Domino's would have been a $500 billion company ten years ago...Pizza delivery places make money cuz they make a pizza for $1 and sell it for $12. Hand-delivering pints of Ben & Jerry's just ain't the same.
Eventually Kozmo did instate a $10 minimum charge, but then they couldn't find enough customers who wanted 10 bucks' worth of Snickers and Fight Club...New York rival UrbanFetch.com died for pretty much the same reason -- and incidentally didn't have as good a porn selection.
Funny thing is that pretty much EVERY FUCKING STORE in New York City manages to accomplish home delivery without burning through $250 million.
Kozmo's investors included Amazon.com, venture capital firm Flatiron Partners, and evil Starbucks.
After spending $2.5 million on their domain name, Furniture.com discovered that UPS wouldn't ship bulky items like sofas and tables, and they were forced to use more expensive shipping alternatives.
"There were many cases when we would get an order for a $200 end table and then spend $300 to ship it. We never could figure it out," one former Furniture.com engineer told CNET's News.com.
Another problem that hit Furniture.com was that some of the small furniture manufacturers they used couldn't keep up with the volume of orders, causing long shipping delays.
The Better Business Bureau in Worcester, Massachusetts, received over forty complaints about the furniture retailer in just two months. "This is an extraordinary number of complaints," said Barbara Sinnott, president of the local BBB, to The Boston Globe. "It makes me alarmed."
In total, $75 million was invested into this company. $27 million of it was last-minute venture capital reportedly swindled from investors by taking them on a tour of the facilities while having accountants and engineers pose as busy customer-service representatives, talking to imaginary customers on dead phone lines.
According to Furniture.com's IPO filing -- a public offering that never happened -- they lost $46.5 million in 1999 alone.
Copyright © 2002 by PK Interactive, LLC
Meet the Author
In May 2000, having nothing better to do with his Memorial Day weekend, Philip J. Kaplan created Fuckedcompany.com to track the layoffs, the bankruptcies, and the generally bad behavior of dot-com companies. The site became an immediate success and has grown into one of the most well-read news sources on the Web, attracting more than 4 million visitors a month. Fuckedcompany.com was named "Site of the Year" by Rolling Stone, Time, and Yahoo!, among others. Kaplan is also the president of PK Interactive, an e-commerce solutions firm. He lives in New York City and can be seen playing drums in smoky heavy metal clubs around town.
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