Thursday, March 8, 2012

Pets.com 2.0?


I haven't admitted this to many people -- but, I was a Pets.com customer.

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Back in the late 1990s, I was traveling a lot for work.  Often, when I arrived home from my travels, the kitchen cupboards would be almost bare, and the family -- including our two huge Old English Sheepdogs -- would have to survive on Wheaties until I could get to the grocery store.  Pets.com helped solve at least one of my problems.  No matter where I was in the world I could order dog food and have it delivered to our doorstep.  Our delivery man became our dogs' new best friend.

As we all know and have studied in class, Pets.com closed after spending millions in VC money and never earning a profit in its three-year run (1998 to 2000).  But, it has lived on to become an example of both a noteworthy failure of the dot.com era and of a faulty business model.

Fast-forward a decade:  now PetFlow.com -- another VC-backed online pet food startup -- has started selling heavy bags of dog food online.  The Wall Street Journal did an interesting story this week contrasting PetFlow.com and Pets.com to show how the economics of Internet commerce have changed.

The cost of starting an ecommerce site has dropped dramatically -- instead of millions of dollars, it now costs thousands of dollars.   (It cost Pets.com "between $7 million and $10 million to get Pets.com running, before acquiring inventory.")   The article details how the cost of almost every "aspect of starting an online-retail business has plummeted."  Today most infrastructure-related things can be done more economically by outsourcing, including IT equipment and IT support, inventory warehousing, "pick-pack-ship" vendors, and call centers.

Also marketing costs are lower.  PetFlow.com spends about $200,000 to $250,000 a month on marketing and Internet search ads, whereas "Pets.com spent more than $25 million on advertising, including a Super Bowl commercial and banner ads..."

With its "Pet food for life" slogan, PetFlow.com is looking to create a business of repeat customers interested in scheduling regular deliveries of premium-branded dog food; brands that offer PetFlow.com higher margins.

There are still naysayers for selling dog food online.  According to "Michael Rubin, CEO of Kynetic... the three pillars of a good online-retail business, are 'high margin, high price and low weight.'  The pet-supply industry meets none of the criteria, he said."

This WSJ article is a good read.

(In case you are wondering: along with the many pounds of dog food, I did order a Pets.com sock puppet.)

1 comment:

  1. The original P.c might have worked as a subscription program, although not with the advertising $$ they were spending, probably. The new one seems to have a better idea--higher margins! The pet meds sites seem to support the idea that it can work.

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