Agencies and brands alike tend to accentuate positive aspects of online marketing. But it is equally important to learn from failure. In the earlier days of digital marketing, organisations did not know how to counter marketing challenges and this triggered business losses and failures. Here are the classic cases of early internet marketing companies from Pathwwway Ltd. that failed to make it and what can be learned from this, as far as digital strategies are concerned.
- Boo.com Goes Bust
Boo.com is one of the earliest online marketing companies out there that offers insights into why digital marketing strategies fail and what one can do to avoid this. It is counted as one of the biggest and costliest digital business failures in marketing history. Boo.com became the first international brand to sell sports apparel and designer wear online. The business launched in over eighteen countries in the autumn of 1999. Spending £125 million in six months on marketing and PR efforts, Boo sought to cover it’s spiralling costs by approaching corporates for funding.
Unfortunately, the company did not have clarity on conversion rates, customer acquisition costs and required traffic. Boo also had a weak marketing strategy. This is because they did not focus on crucial marketing metrics and ecommerce/online retail levers like customer lifetime value and customer acquisition cost. They also lacked the conversion and traffic sources, causing Boo to be slow to expand and control an incredible burn rate.
Lessons from this failed internet marketing company include hiring the right people, understanding the importance of timing launch campaigns right and opt for cost-effective marketing. It is important to ensure the website works, and metrics are in place, so publicity works both ways. Running a business based on projections is bound to fail, so businesses need to work on not spreading themselves too thin.
- Pets.com Fizzles Out
Pets.com is another massive internet marketing failure. This online marketing company was launched in August in the year 1998, and in the year that followed, Amazon took on a 54% share of the company. While lavish Superbowl ad campaigns were unleashed and the company spend a fortune on warehousing and infrastructure, no market research was conducted prior to the launch. Despite the success in building brand recognition, they had an unsustainable business model.
Selling products for less than cost, Pets spent $11.8 million on ads despite earning revenue of $619K. Significant venture capital infusions apart, the group leveraged too much of that on the idea that the market would grow fast enough to generate profit before financing ran out. The size of the market was overestimated and the ability to generate profit in the marketplace was not correctly anticipated. Demand was not as high as estimated.
Their marketing campaign generated awareness and interest, but not sufficient desire and not enough action. Pets.com lacked a compelling value proposition. In desperation, Pets.com even offered free delivery, which meant further losses. Sales did rise due to massive marketing spend and aggressive pricing, but moves like these ensured Pets lost most of its cash on most sales. The model was unsustainable. In the year 2000, Pets.com folded after burning through $300 million in just over 2 years.
- Joost Gets Junked!
Joost seemed to be a great idea at the outset. It was set up by the same people who had set up Skype. But this is where the similarities ended. While Skype was sold for billions, Joost raised $45 million in funding from Viacom. It hit a market that YouTube could not reach thereby cashing in on an early mover advantage. Soon after an impressive launch, 250K people downloaded their beta software and when problems hit, they were slow to react and the buzz turned negative.
Joost was not quick enough to realise client-based video service it specialised in would lose out to browser-based service providers like Hulu and Netflix. Despite support from CBS and Viacom, it could not secure exclusive broadcast content. Hulu received exclusive content from Fox and NBC and pushed ahead to enable users to sign up. Hulu now has 10% of the online traffic, while Joost is just a holding page.
The problem with Joost was that it hired too many people too quickly and was geographically spread out, lacking in focus. Creating a buzz too soon, it was slow to fix its technology-based problems. Clients versus browsers played out very badly for this internet marketing brand. Joost needed content owners to partner with it, but the media disconnect it faced was massive. It also lacked SEO strategies that worked.
- Ecomom Ends Up Failing
Ecomom was an online marketing company that showed lessons from the dot.com era need to be learned even after the debacles that resulted. Ecomom was an ecommerce retail portal startup selling eco-friendly mother and maternity products including products like food, toys, and other baby related items. Headquartered in Las Vegas and San Francisco, and a third-party fulfilment in LA, any volume could be shipped within 24 hours. Founded in 2007, by 2011, it had a turnover of $1 million only. Fundamental errors made this business failure inevitable.
The company had a contribution margin of -48% in 2011. For every additional $60 average order shipped, the variable cost was $89 and the company lost $29. This was caused due to heavy discounting with a common deployment of half-price discounts on daily deal sites like Groupon. Further, discounts were meant to be one-time only. Every discounted order had a 50% reduction irrespective of whether they were from new or existing companies. The dangers of over-reliance on sales promotion and discounting as a sales tactic is also shown the vital importance of having a balanced managed team with different experiences and skills.
Increased sales did not mean losses would be stemmed. This was all because of the heavy discounting model followed. No significant changes were made to the business strategy and starting from $4.8 million capital in August of the year of its formation to December of that year, the company lost $1.1 million post variable cost. Steadily and surely, the online marketing company headed towards a financial meltdown with only $1 million in its bank accounts within just a couple of years of operations.