There have been many failed enterprises in the Internet’s comparatively brief existence. There are countless firms that started tiny and quietly folded for every massively public explosion (we’re looking at you, Pets.com). Fail Proof Online Business Concepts However, to suggest that the list you’re about to read is a compilation of poor business ideas would be unfair. Sure, in some circumstances, the company’s premise was so ludicrous and out of touch that it was doomed to failure. However, many of the ideas were excellent; the firm, however, did not succeed.
Many of these deceased enterprises suffered from the same issues as traditional businesses. However, online enterprises, particularly in the 1990s and early 2000s, appeared to have an extra dosage of a fatal combination: unsustainable business models, fragile organisational structures, and out-of-control expenditures. A surprising number of these concepts were workable, but the timing was off – whether the technological infrastructure wasn’t ready, or the audience wasn’t ready. Many of these concepts reappeared years later, either with improved execution or when the general public could finally grasp the notion. Let’s take a trip down Internet failure memory lane.
Virtual Currency (Flooz, Beenz)
Many early Internet firms made the mistake of building a business strategy around fixing an issue that didn’t exist. One example of this phenomenon is online currency companies, which were founded on the notion that individuals wanted an alternative to using their credit cards for online purchases. That assumption turned out to be incorrect. Consumers were less comfortable with internet buying than they are now, but most people were OK with the status quo. Merchants were also uninterested in using internet cash.
In the category, there were a few well-known flops. They were both based on the idea of collecting rewards in the form of virtual currency for becoming loyal consumers of participating merchants. Flooz had a lot of major investors and a glitzy ad campaign starring Whoopi Goldberg, but it shut down after only two years in business in 2001, leaving customers with worthless “flooz.” Around the same time, Beenz was wasting millions in venture cash and calling it quits after only three years.
Bitcoin has so far proven to be the most promising and long-lasting internet currency, but it has yet to achieve general adoption. Perhaps this demonstrates that building a market with no interest is not the ideal business strategy.
WebVan
In the initial wave of Internet failures, GovWorks was another high-profile failure. One of the elements that contributed to its failure was a familiar one to many on our list: youthful, often egotistical founders who ended up squabbling and bringing the firm down with them. Lack of management experience, out-of-control growth, site development troubles, a hasty launch, and an ill-advised advertising campaign were all present, but the feuding creators didn’t help matters. They developed a bad reputation among government officials, advertising firms, and venture capitalists, which was difficult to overcome [source: Adler].
The concept behind GovWorks was sound: it was an internet forum for citizens to communicate with their local governments. It was a facility where you could pay taxes, get tickets and permits, renew licences, and do everything else that you’d spent hours standing in line for. However, a fresh version of the GovWorks concept has yet to surface. Local governments have mostly taken it upon themselves to provide those services, so a centralised portal would have no meaningful audience. It appears to be something we no longer require.
Pets.com
Kozmo, like many of the other defunct businesses on our list, was all the rage in 1998. It was almost too good to be true: a service that would deliver nearly everything, for free, within an hour, and with no minimum order, almost everywhere (well, within the confines of nine certain cities). It was a slacker’s fantasy come true.
Yes, it’s a slacker’s dream, but it’s a corporate nightmare. One of Kozmo’s declared aims was to compete with UPS and FedEx in the future, but it was evident that this would not happen. The attractive shipping agreement attracted a large number of clients, but the free delivery and low prices made it impossible for Kozmo to make a profit. Despite receiving a reported $280 million in venture financing and lucrative collaborations with Amazon and Starbucks, Kozmo swiftly went bankrupt, losing $26 million in 1999, cancelling an IPO in 2000, and closing its doors in 2001 [source: CNN].
GovWorks
Kozmo, like many of the other defunct businesses on our list, was all the rage in 1998. It was almost too good to be true: a service that would deliver nearly everything, for free, within an hour, and with no minimum order, almost everywhere (well, within the confines of nine certain cities). It was a slacker’s fantasy come true.
Yes, it’s a slacker’s dream, but it’s a corporate nightmare. One of Kozmo’s declared aims was to compete with UPS and FedEx in the future, but it was evident that this would not happen. The attractive shipping agreement attracted a large number of clients, but the free delivery and low prices made it impossible for Kozmo to make a profit. Despite receiving a reported $280 million in venture financing and lucrative collaborations with Amazon and Starbucks, Kozmo swiftly went bankrupt, losing $26 million in 1999, cancelling an IPO in 2000, and closing its doors in 2001 [source: CNN].Except in a few urban markets, rapid delivery services fell away after that – it was an unsurprisingly risky business strategy. Same-day delivery has since made a comeback, but giant corporations like Amazon are leading the charge. And, while the prices are reasonable, we are no longer receiving our delivery for free.
Engines of Search (AltaVista, Lycos, GeoCities)
Search engines and Web portals are obviously good ideas; without them, the Internet as we know it would not exist. For years, Google has appeared to have an unbreakable hold on the sector in the United States, but there was once competition in this space. To be considered a serious participant in the late 1990s, it felt like a company had to launch a search engine or some form of Web portal. There was a stampede of competing Web portals seeking for a piece of the online pie. AOL and Yahoo! dominated in the early days, but Lycos, AltaVista, MSN, GeoCities, and Excite were also involved at some point.But then Google came along and crushed them all. Bing is a latecomer to the market that is still attempting to erode Google’s supremacy, but has yet to succeed.
Most early search engines and Web sites never achieved their full potential for a variety of reasons. Much of it was due to technological and algorithmic issues, but some of it was due to the same issues that affected the other companies on this list. This isn’t to claim that Web portals have vanished completely. They’ve simply become more concentrated. Web portals are becoming increasingly niche-specific rather than trying to appeal to the broader Internet.
Network for Digital Entertainment
The Internet video industry, like the search engine category, was previously wide open. It’s hard to believe, but YouTube, the current king of the internet, didn’t even exist until 2005. Previously, multiple companies battled for market share. The Digital Entertainment Network was one of the most promising competitors (DEN).
DEN sought to become the MTV of the Internet by developing original material, primarily short streaming videos and online shows, for 18-to-24-year-olds. Great idea, but there are a number of red flags here. Three founders with little managerial expertise and a penchant for overspending? Check. No source of income? Check. Exorbitant executive compensation? Check. Sexting among minors? Regrettably, that is also a check.
Although many investors were suspicious about DEN, the business managed to raise $75 million in venture finance before the founders abruptly resigned and moved to Europe in 1999 [source: Tynan]. The scheduled IPO of DEN was cancelled, and the fugitive trio was apprehended in Spain two years later for possession of child pornography. In 2004, CEO Marc Collins-Rector was extradited to the US and given a slap on the wrist. He hasn’t been seen in public since 2007, and he is said to be hiding in Belgium.
eToys
The eToys story is just another cautionary tale about the risks of bad financial management and unbridled ambition. The company was formed in 1997 with the intention of becoming the largest online toy retailer. For a brief moment, it appeared to be working: revenues soared over the first holiday season, and the company went public in 1999. However, during the 1999 holiday season, eToys was unable to meet the high demand, and everything began to fall apart. The company lost $74.5 million in the fourth quarter of 2000, and it was $247 million in debt when it filed for bankruptcy in 2001 [source: Gentile].
Executives at eToys made a series of poor decisions, but unfortunate timing played a role as well. By the year 2000, many formerly gung-ho venture investors had been burnt one too many times by dazzling firms that swiftly failed, so they were tightening their purse strings and becoming more wary about investing. Retail markets also deteriorated, which might not have been as disastrous for eToys if its executives had anticipated it.
Of course, you can still buy toys from eToys and its numerous competitors on the Internet today. Although it is no longer the market leader it once was, Toys R Us has owned the firm since 2009.
38 Studios
“MMORPG” stands for “massively multiplayer online role-playing game,” a large-scale computer game that may be played concurrently by individuals all over the world. Tens of millions of people subscribe to the most popular games, which allow them to carry out complicated role-playing scenarios in complex fantasy worlds. Curt Schilling, the legendary major league baseball pitcher, is a great MMO lover who started 38 Studios in 2006 to realise a lifetime desire of creating the biggest, finest one ever.
It didn’t work out. 38 Studios has experienced every type of startup failure imaginable. Schilling went big from first, focusing only on creating a massive game from the ground up rather than warming up with smaller projects. Schilling had to spend millions of his own money because the company never found a large backer. The management staff was often bickering and in flux. The state of Rhode Island eventually provided a $75 million loan to entice the corporation to relocate, but it was never repaid, resulting in a protracted court dispute with the state. 38 Studios entered bankruptcy in 2012, owing $151 million [source: Schwartz].
Touch Payment
Pay by Touch, a company that promoted “biometric authentication technology” that allowed customers to access their private accounts with the touch of a finger, may be unfamiliar to you. It appears to have slipped beneath the radar, unlike many of the high-profile companies on this list. It debuted in 2002, shortly after the big wave of online failures — there was probably a bit of startup weariness by that point, so the public and the media weren’t as enthusiastic about every new “big thing.” And there’s a good chance you’ve never used Pay by Touch. Many folks did not.
Pay by Touch was a viable concept that may resurface in the future. The company, on the other hand, was destroyed by the hysteria around its CEO, who blew vast sums of money and was accused of domestic abuse, drug possession, and embezzlement of company finances, among other things. Pay by Touch only survived six years, which is roughly twice as long as some of the other firms on this list, but its demise was no less dramatic. According to lawsuits (of which there were many), the corporation once burned through $8 million each month, squandering $340 million in venture cash [source: Williams].
