In the relatively short history of the Internet, there have been a lot of failed businesses. For every spectacularly public bomb (we're looking at you, Pets.com), there are untold numbers of companies that started small and folded quietly. But it might be unfair to say that the list you're about to read is a collection of bad business ideas. In some cases, sure, the concept behind the company was so ridiculous and out of touch that the company was doomed to failure. But plenty of the ideas were perfectly good — the business just didn't make it.
Many of these defunct companies had the same problems that traditional businesses do. But online businesses, particularly the first explosion of them in the 1990s and early 2000s, seemed to more frequently have an extra dose of a deadly combination: unsustainable business model, shaky corporate structure and out-of-control spending. A surprising number of these ideas were viable, but the timing just wasn't right — maybe the technological infrastructure wasn't up to par, or the audience wasn't ready for it. Many of these ideas ended up reappearing years later with better execution, or when the public could finally handle the concept. Let's take a walk down memory lane of Internet failures.
Online Currency (Flooz, Beenz)
Building a business model around solving a nonexistent problem was a common blunder of many early Internet startups. Online currency companies are but one example of this phenomenon — they were based on the assumption that people wanted an alternative to using their credit cards for online purchases. Turns out that wasn't the best assumption. Although consumers weren't quite as comfortable with online shopping as they are now, most people were just fine with the status quo. Merchants weren't all that interested in online currency, either.
There were a couple of well-known flops in the category. They both centered on the concept of earning rewards in the form of online currency for being loyal customers of participating merchants. Flooz had plenty of big investors and a flashy ad campaign featuring Whoopi Goldberg but closed up shop in a hurry in 2001 after only two years in business, leaving customers stranded with worthless "flooz." At about the same time, Beenz was squandering millions in venture capital and calling it a day after only three years.
Bitcoin has been the most promising and long-lasting online currency business thus far, but it hasn't been able to gain widespread acceptance. Perhaps this goes to show that creating a market where there's no interest might not be the best business idea.
Online grocery delivery is an idea whose time has come — but unfortunately, no one has been able to pull it off successfully (yet?). Try as they might, no company has become a clear, across-the-board leader in this market. WebVan was one of the first in a long line of businesses to attempt it and fail miserably.
WebVan's missteps could have been cut and pasted from any laundry list of business catastrophes of the time. Misguided spending was a major one: The company famously invested $1 billion in infrastructure before it had a fraction of the customer demand and orders to justify it. Management had almost no supermarket experience. The grocery business operates on notoriously tiny margins, and WebVan burned through its capital in a flash trying to expand into too many markets. In less than two years WebVan went from 4,500 employees to liquidation [source: Kingsbery].
Online grocery delivery services have been successful for years in very specific markets like Manhattan, with its extremely dense population, a large portion of which does not own a car. The rest of us will just have to wait patiently for the long-anticipated market savior to arrive.
GovWorks was another extremely high-profile bust in the first wave of Internet flameouts. One of the factors in its demise was a familiar one to many on this list: young, often ego-tripping founders who ended up feuding and taking the whole company down with them. The usual signs of disaster also applied (lack of management experience, out-of-control growth, site development issues, a rushed launch, an ill-advised advertising campaign), but the clashing creators didn't help matters. They acquired a terrible reputation among government officials, advertising agencies and venture capitalists that was hard to shake [source: Adler].
The idea behind GovWorks was a totally sensible one: It was an online portal where people could interact with their local governments. It was a place to pay taxes, tickets and permits, renew licenses, all the things you've wasted endless hours standing in line for. But a new version of the GovWorks concept hasn't yet reappeared. Local governments, for the most part, have taken it upon themselves to provide those services, so there's no real audience for a centralized site. Apparently it isn't something we really need anymore.
Pets.com is an easy target when the topic of discussion turns to infamous online business disasters. It's a classic example of so many of the disasters that could and did happen in those early days. Massive overspending on advertising, unsustainable business model, shockingly rapid descent (only nine months from IPO to closure in 2000). But it should also be included in the "ahead of its time" category. Pet owners back then were resistant to buying supplies online, and in fact the whole online pet-supply market did seem to implode around that same time.
It came back, though — witness the dozens of successful pet-supply businesses online today. The audience needed time to change its habits, but perhaps Pets.com needed to die so that future CEOs could learn from its mistakes. The example of Pets.com, we hope, will serve as a warning not to sink millions into Super Bowl ads when your business has serious difficulty fulfilling orders in a timely fashion.
And although Pets.com crashed and burned, many of us still remember its dog sock-puppet mascot more than a decade later. The one with the microphone? That's worth something, right?
Along with many of the dearly departed companies on this list, Kozmo was all the rage back in 1998. It was almost too good to be true: a service that would deliver almost anything, anywhere (well, within the boundaries of nine certain cities), for free, within an hour, with no minimum order. It was a slacker's dream.
A slacker's dream, yes, but a business nightmare. One of Kozmo's stated goals was to eventually compete with UPS and FedEx, but it soon became clear that wasn't going to happen. The sweet delivery deal earned Kozmo plenty of customers, but the free delivery and cheap prices made it impossible to turn a profit. Even though the company received a reported $280 million in venture capital and had lucrative partnerships with Amazon and Starbucks, things unraveled pretty quickly: Kozmo lost $26 million in 1999, canceled a planned IPO in 2000 and shut its doors in 2001 [source: CNN]. Rapid delivery services kind of faded away after that, other than in a few urban markets — it was an understandably daunting business model. Same-day delivery has since made a comeback, but the charge is being led by behemoth companies like Amazon. And although the fees may be low, we're certainly not getting our deliveries for free anymore.
Search Engines (AltaVista, Lycos, GeoCities)
Obviously, search engines and Web portals are pretty decent ideas — the Internet as we know it wouldn't exist without them. In the United States, Google has had a seemingly unbreakable lock on the category for years, but once upon a time there was competition in this arena. In the late '90s, it seemed like a company had to start a search engine or some sort of Web portal to be considered a serious player. There was a mad rush of rival Web portals, all vying for their piece of the online pie. AOL and Yahoo! had early periods of dominance, but Lycos, AltaVista, MSN, GeoCities and Excite were all in the game at one point or another. But then Google arrived and steamrolled all of them. Bing is a relative latecomer to the market that's still trying to chip away at Google's dominance, but it hasn't yet succeeded.
There were all sorts of reasons that most of the early search engines and Web portals never reached their potential. Much of it was technology- and algorithm-related, but some were done in by the same problems that plagued the rest of the companies on this list. And this isn't to say that Web portals have disappeared — far from it. They've just gotten more focused. Instead of trying to appeal to the entire Internet, Web portals are now more niche-specific.
Digital Entertainment Network
Just as the search-engine category was once wide-open, so was the Internet video field. It's hard to believe, but current throne-holder YouTube didn't even exist until 2005. Before that, several companies competed for market dominance. One of the most promising contestants was the Digital Entertainment Network (DEN).
DEN targeted 18-to-24-year-olds and aimed to become the MTV of the Internet by creating original content: mostly short streaming videos and online series. Great idea, but here come the red flags — and there are a lot of them. Three founders with little management experience and extravagant spending habits? Check. No revenue stream? Check. Outrageous executive salaries? Check. Underage sex scandal? Unfortunately, that's also a check.
Many investors were understandably wary of DEN, but the company managed to gobble up $75 million in venture capital before the founders suddenly quit and fled to Europe in 1999 [source: Tynan]. DEN's upcoming IPO was canceled, and the fugitive trio was arrested in Spain two years later for child-porn possession. CEO Marc Collins-Rector was extradited to the United States in 2004 and received a slap on the wrist. He reportedly hasn't been seen in public since 2007, and lives in obscurity in Belgium.
The story of eToys is yet another cautionary tale of the dangers of poor financial management and unchecked ambition. The company was founded in 1997 with a goal of dominating the online toy market. It looked for a moment like it was going to work — sales were through the roof in its first holiday season, and a big IPO followed in 1999. But eToys couldn't keep up with massive demand during the 1999 holidays, and things went downhill after that. The company lost $74.5 million just in the fourth quarter of 2000, and by the time eToys filed for bankruptcy in 2001 it was $247 million in debt [source: Gentile].
Executives at eToys made a slew of unwise decisions, but bad timing was also partially to blame. By 2000, many formerly gung-ho venture capitalists had been burned one too many times by flashy startups that quickly went down the tubes, so they were definitely tightening the purse strings and starting to become more hesitant about investing. Retail markets also took a turn for the worse, which might not have been so devastating for eToys if its higher-ups had adjusted for it.
Of course, you can still buy toys on the Internet today — from eToys and any one of its many competitors. It's nowhere close to the market dominator it briefly was, but the company has been owned by Toys R Us since 2009.
For those not in the know, "MMORPG" stands for "massively multiplayer online role-playing game," a large-scale computer game that people all over the world can play simultaneously. The most popular games have tens of millions of subscribers devoted to playing out elaborate role-playing scenarios in complex fantasy worlds. Legendary major league baseball pitcher Curt Schilling is a huge MMO fan, and in 2006 he founded 38 Studios to fulfill a lifelong dream of building the biggest, best one ever.
It didn't go well. You name the startup disaster, it happened to 38 Studios. Schilling went big right out of the gate, focusing solely on creating an enormous game from scratch instead of warming up with smaller projects. The company never got a major investor, forcing Schilling to spend millions of his own dollars. The management team was constantly feuding and in flux. Eventually, the state of Rhode Island came through with a $75 million loan to get the company to move there, but it was never repaid, leading to a drawn-out legal battle with the state. In 2012, 38 Studios declared bankruptcy with $151 million in debt [source: Schwartz].
Oh, and the game? Code-named "Copernicus," it was reportedly spectacular, but it was never completed.
Pay by Touch
You might not have heard of Pay by Touch, a company that marketed "biometric authentication technology" that allowed consumers to access their private accounts with the swipe of a finger. Unlike many of the high-profile companies on this list, it seems to have flown under the public radar. It arrived on the scene in 2002, just after the big wave of online failures — there was probably a bit of startup fatigue by that point, so the public and the media were no longer excited about every next "big thing." And chances are you never had the opportunity to use Pay by Touch. Not many people did.
Pay by Touch's concept was a viable one that may, in time, see a resurgence. But the company itself was done in by the sheer amount of drama that surrounded its CEO, who squandered an incredible amount of money and was accused of domestic abuse, drug possession and misappropriation of company funds, among other things. Pay by Touch lasted six years — about twice as long as some of the other companies on this list — but its collapse was no less spectacular. According to lawsuits (of which there were many), the company burned through $8 million a month at one point, eventually wasting $340 million in venture capital [source: Williams]. It also pulled another classic move in 2008 — closing so abruptly that many of its customers were left in the lurch.
Starting a bank requires a good business plan, raising capital and going through a complex regulatory process.
Author's Note: 10 Online Business Ideas That Never Took Off
I worked for a failed online business in the first heyday of Internet startups. I was 24, my bosses were 29, we were in New York, and it was awesome. There was certainly no shortage of lax management policies and questionable decisions, though. I was an English major with zero financial experience who was put in charge of the accounting department. (It was a department of one, but still — not the best idea.) One of my daily duties was to walk down the street to the bank (in a fairly shady neighborhood) to deposit hundreds of thousands of dollars in checks. Sometimes I would take the stack of checks home for the weekend if the bank was closed. But the bubble burst, and it was all gone eventually. Ah, youth.
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