Duds and Delights of ‘Dot-Coms’ This Year

SAN FRANCISCO —  The “dot-com” fairy tale turned into a macabre farce this year as one e-commerce company after another flopped and business bystanders clucked about the stupidity of it all.

But it wasn’t so long ago that plenty of smart people thought selling dog food, plush sofas and barbecue grills over the Internet were good ideas.

Today’s prevailing consensus about the absurdity of these e-commerce concepts illustrates how much the dot-com landscape has changed in the last 12 months. The Young Turks of the new economy, once hailed as inspired visionaries, now widely are derided as shortsighted buffoons.

“There always have been dumb ideas in business, but you don’t usually see so many of them at one time,” said Philip Kaplan, who runs a Web site with a profane name that features a satirical dot-com dead pool for Internet failures.

Marc Benioff, a former Oracle Corp. executive who is chairman of San Francisco-based Salesforce.com, said he couldn’t believe some of the business decisions made at other dot-com companies during the year.

“A lot of these guys were writing Harvard Business School case studies, but they weren’t writing them on how to build a business,” Benioff said. “They were writing them on how to torch a business.”

Amid all the dot-com detritus, a few clever--and even potentially revolutionary--ideas emerged this year too. Here, then, is a look at some of the year’s dot-com duds and delights.

Super Dumb: Super Bowl XXXIV was billed as a coming-out party for the 13 dot-com companies that shelled out an average of $2.2 million for 30-second commercials aired during the game.

The ads were plenty slick, but they didn’t accomplish much--they mostly attracted customers who discovered that the featured sites were more about style than substance.

“A lot of these companies forgot that good advertising only makes a bad product fail faster,” said Clark Wood, vice president of marketing for AutoTrader.com, one of the few e-commerce Super Bowl advertisers that didn’t regret spending all that money.

At least two of the Super Bowl dot-com advertisers--Pets.com and Epidemic.com--have since closed their doors, and several others are struggling to survive.

Doggone Dumb: Online pet stores seemed to multiply faster than rabbits until fickle financial markets performed their form of euthanasia.

When the year began, there were five major online pet e-tailers--Pets.com, Petstore.com, Petopia.com, Petsmart.com and PetPlanet.com. Together, they raised about $400 million from venture capitalists and the stock market.

As the year ends, just two of the five, Petopia.com and Petsmart.com, are still peddling dog food over the Internet.

If it weren’t for all those stupid pet tricks, online furniture stores might have been e-tailing’s biggest debacle of the year.

As it was, three high-profile furniture e-tailers--UrbanDesign.com, Living.com and Furniture.com--wound up taking a bench seat this year. Turns out most people want to sit on a sofa or recliner before they buy it. And apparently someone forgot shipping all that heavy stuff to people’s homes costs a whole lot of money.

Dumbfounding: AllAdvantage.com was financially disadvantaged from the get-go. The Hayward, Calif.-based company built its entire business around the idea of paying its members to surf the Web. The company promised to pay anyone 53 cents per surfing hour as long as they used an AllAdvantage browser that kept an advertising bar on their screen at all times.

It didn’t quite work out the way AllAdvantage envisioned. The company budgeted for just 30,000 members in its first four months. Instead, millions signed up for the service, costing AllAdvantage $33 million in its first three months alone.

Last month, AllAdvantage laid off 35% of its work force--about 150 employees--and promised to develop a new business strategy.

Then there was San Francisco-based BBQ.com, which thought it could cook up an online business from the $18-billion-a-year industry for barbecue grills and all their fixings. The company got skewered instead.

And Flake.com sounded like a plot out of an old Seinfeld episode. The site aimed to become the world’s leading breakfast cereal portal. In June, it became a site about nothing.

On the upside: PayPal.com, a fast-growing online payment network, might emerge as the year’s most significant breakthrough in e-commerce. The Palo Alto, Calif.-based service and its holding company, X.com, allow merchants and consumers to set up online financial accounts and then send digital cash payments through e-mail.

Founded by Peter Thiel and Elon Musk in late 1999, PayPal opened more than 5 million online accounts this year and is adding about 600,000 members each month.

Now comes the hard part: making money. After offering the service for free at first, PayPal began imposing a service fee on its heaviest users.

In another sign of how a simple idea can turn into something big on the Net, IWon.com established itself as one of the Web’s most popular destinations with a familiar promotion: a sweepstakes. The site offers cash prizes to its visitors every day. The more frequently surfers click on IWon’s site, the better their chances of winning.

The result: IWon boasts one of the Web’s most loyal constituencies--precisely the kind of traffic that appeals to the advertisers that ultimately pay IWon’s bills.

The Irvington, N.Y.-based site’s sweepstakes system, conceived by co-founders Bill Daugherty and Jonas Steinman, isn’t cheap, but it’s not as expensive as it might look.

The company awards $27 million in prizes per year, including a $1-million monthly prize and a $10-million jackpot on tax day, but because the money is paid out over 25 years, IWon actually spends about $17 million annually.

IWon’s pockets are deep. It has raised $205 million so far, and its investors include media giant Viacom Inc.