What happened to Pets.com? Here are the reasons for its failure!

You must have surely heard of the 20th-century dot-com bubble burst? Pets.com was one of the famous online shopping sites of that time. Pets.com sold pet supplies to retail customers. More than the startup itself, its mascot sock puppet grew in fame. Let’s know about their drastic fall.

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Index:

Founder Details:

Greg McLemore and Eva Woodsmall founded pets.com in August 1998. In early 1999, the site and domain were purchased by John Hummer of Hummer Winblad Venture Partners and Julie Wainwright, who was nominated as the CEO. Based in San Francisco, pets.com was an e-commerce retail enterprise for pet supplies.

Revenue Model and sources:

They had no revenue plan to start with. They started off with building a product, then looked for a market to sell it. Besides advertising, they forgot the expenses on shipping retail products, warehouses, and also the competitive market they were entering in. Profit margins of two to four percent which could not cover the expenses.

Moreover, when their competitors cut the prices below the cost of the market, they thought of providing free shipping. Pets.com wanted to be a company of large discounters on retail products, but the plan was lousy from the beginning.

Fundings and Investor Details:

Pets.com received funding from Amazon in the first round of venture funding, where they purchased a majority of 54% of stakes in the company. In March 1999, Amazon with Hummer Winblad Venture Partner and Bowman Capital Management invested $10.5 million. Amazon had a 30% stake in the company by October 2000.

Amazon’s investment into pets.com felt like “marriage made in heaven” to the CEO. In the lust of making pets.com a national brand Wainwright threw everything she had. By everything, we meant spending carefree cash.

In late 2000, the company started seeing its downfall. To make up for the leaky business plan they had its first IPO and were able to raise $82 million. The stocks of the company went as low as 22 cents a share, their famous mascot couldn’t save the company from drowning.

Business Model:

Pets.com was Amazon for pet products, they had the same internet purchasing system where customers can order from the website and the company arranged the deliveries. The company had a great advantage from the start by having the most valuable domain name in the online pet market. Gaining access to Amazon’s powerful database of consumer buying habits gave a huge burst of confidence to the company.

They invested most of the money in warehouses to open distribution centers reducing the distance of shipping.

The rest of the revenue was poured into high-profile advertising followed by intense online, print, television, and radio advertising. Sources said that they spent $1.2 million on a TV commercial with Superbowl. Their branding and advertising was solid with an easily navigable website; helped them in winning a few awards

Their publicity skyrocketed with sock puppet mascot which even made an appearance in the annual Macy’s Thanksgiving Parade. But without realizing they were digging their own well with an unsustainable business model.

Competitor Analysis:

The 1990s had the insanity of Dot-com. The Internet was at a boom, dozens of startups opened every week. Pets.com faced huge competition during that phase. Another pet supply company, PetSmart felt threatened by the pet store website opened by pets.com, so they followed the same league.

Major competitors of Pets.com:

 Petstore.com    

PetStore also had a unique position in the market, they sell the products to pamper your furry, finned, or feathered pet friend. They also provide additional service by providing expert advice on pet care.

PetPlanet.com 

They were the UK’s first pet store for online pet supplies. They claimed to provide the lowest price and rapid delivery of pet products.

PetSmart     

They were an American retail chain in the United States and Canada. They were chains that had it all from food, accessories, furniture to the services of grooming, training, and daycare. They also sold and adopted various species of animals.

Their failed business model and mismanagement made them victims of the Dot-com bubble lead to the brief fame of the company. Eventually, the Pets.com domain was redirected to PetSmart’s website as of 2020.

Failure Analysis:

There were many loopholes in the company. In simple words, the whole model was an anti-business model. In less than 2 years the company burned $300. The loss was not only of the revenue, about 300 people became jobless after the site shut down.

• Product Development Failure:

They created a domain on the assumption that pet owners would love to buy the supplies online. They did not carry out the basic market research to the market needs. Pet supplies have lousy online sales; imagine for yourself why people would order a 50-pound dog found bag online and wait for days to reach them.

• Huge money spent on marketing:

Large revenue does not guarantee the success of a product. They spent a huge sum in a high-profile marketing campaign for wide recognition of their brand. They created a successful sock puppet mascot. It became the face of the company; people were more interested in buying puppet merchandise and toys. Though this brought a little money to the company in the early stage but couldn’t help the company to survive soon after the dot-com craze died down.

• Faced massive competition:

The company went with the flow of the market without a workable revenue model. They lost money on each sale they made. Competitors reduced the price below the market price in order to be best, pets.com did the same. No estimations were made by them of input cost on massive warehousing facilities, offering discounts, and even the free delivery made them dump their own company.

• Aggressive steps taken:

In order to cut costs, they relocated the customer service call center to Indiana. They also tried to shift the customers into higher-margin purchases but eventually failed to change customer purchasing patterns.

Ultimately pets.com lost focus to their goal. They were more obsessed in beating the rivals and creating the best ad- campaigns than on making strategies to earn profit for the company to run.

Possible fixes:

• Simple nature of the AIDA model goes like this: Awareness -> Interest -> Desire -> Action. What they showed was an example of a model starting with massive awareness and stopped at little interest. This proved that there was no valid requirement of pet supplies in the market, people are in no need to buy such supplies online. The idea wasn’t good enough to start off.
• The power of the internet was overestimated in the dot-com bust. They should have looked into making a better decision instead of fighting a war that wasn’t worth fighting. The obsession with beating competitors will not make your business successful. Fame is lost as easily as it comes.
• The basic building block of a business starts with valid market requirements instead of bringing a product then looking for a market to sell it.  A simple survey would have done the deed of knowing the market demands. Simple market research or investigating whether the customer is willing to order online and wait for days to buy dog food instead of walking to the nearest store. Reverse planning and strategizing would have brought better results.
• Keeping in mind the multi-step process for the startup to make its path in the world is segmentation, targeting and positioning, and most importantly financial viability. The infusion of capital won’t last long if you are not gaining profits. The company can’t be run on its early popularity. It requires a continuous flow of money to keep the pace unless they will be wiped off the face of the earth like many during Dot-com mania.

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Also, don’t forget to download our Android app which contains startup case studies and business book insights, verified business concepts, and no bullshit!!

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What was Pets.com?

Pets.com was one of the famous online shopping sites of that time. Pets.com sold pet supplies to retail customers. More than the startup itself, its mascot sock puppet grew in fame.

Who founded Pets.com?

Greg McLemore and Eva Woodsmall founded pets.co in August 1998. In early 1999, the site and domain were purchased by John Hummer of Hummer Winblad Venture Partners and Julie Wainwright, who was nominated as the CEO.