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By Glenn Rifkin
The business of taking care of man’s best friend has long been one of those recession-proof—and yes, pandemic-proof—industries. There’s evidence some people will spend more money on their furry companions’ health than even their own. But that doesn’t mean all pet firms have thrived—especially one with a famed floppy-eared mascot.
You may remember it—Pets.com. Started in 1998 by an emerging venture-capital star, the firm had all the makings of an online retail winner. The internet-based supplier of pet products targeted what was then a burgeoning $23 billion market. It also had the pedigree of a respected VC—John Hummer, a founding partner of Hummer Winblad Venture Partners—as its major investor, and snared a 50 percent investment from Amazon and Jeff Bezos. As for leadership, Hummer hired a respected CEO. What could go wrong?
The company started humbly enough in 1999, setting its sights on the nascent e-commerce market from an old rubber plant in San Francisco’s warehouse district. Hummer, a former pro basketball player who later got an MBA from Stanford, bought the domain name from a 31-year-old entrepreneur and invested $2 million in the venture. “The guy came to me with a domain name and that’s all he had,” recalls Hummer in a Briefings interview. To run operations, he brought in Silicon Valley veteran Julie Wainwright as the CEO, who in turn hooked Bezos. The start-up was able to attract marketing pros from the likes of Procter & Gamble and Petco, who made Pets.com’s sock-puppet mascot into a pop-culture icon. Indeed, many may recall the brand’s 36-foot-tall balloon at the Macy’s Thanksgiving Day Parade, or the clever, award-winning Super Bowl ad, which, according to many, helped announce the internet era to the world.
Pets.com raised $82.5 million in a February 2000 IPO and raked in sales of nearly $60 million in its first year. But while shares soared to $14, danger loomed ahead. The start-up’s cost structure was faulty. Shipping 40-pound bags of dog food around the country, it turned out, was costly and problematic. Consumers with empty pet dishes didn’t want to wait days, so they continued to shop at brick-and-mortar stores. “Twenty years ago, there were just not enough people ordering stuff online,” Hummer says, adding that most people still used dial-up at the time.
But most critically, Pets.com fell into the muck of a dot-com frenzy that made experts nervous even from the start. Even two years before Pets.com hit the scene, firms with little financial sense were raising millions, prompting then-Federal Reserve Chairman Alan Greenspan to warn about “irrational exuberance.” According to CNN Money, by November 2000 an index of 280 internet stocks had hemorrhaged a whopping $1.75 trillion in market value. Most, including Pets.com, wouldn’t survive. Because of its Amazon investment, remarkable public offering, and high-visibility marketing efforts, Pets.com became the poster child for tech excess. Just 268 days after its IPO, shares tumbled to 19 cents and the company laid off its entire staff, sold its inventory, and shut its doors.
For his part, Hummer has gone on to back many successful ventures with new business concepts, but he sees some of the pet suppliers that are thriving today as a painful reminder of what might have been. “The market tanked, and there was no chance to raise more money,” he says. “I was 20 years too early, meaning I was wrong!”