Hindsight is 20/20. Sure, it's easy to make fun of the Mars CEO who said "no" to Steven Spielberg when offered to feature M&Ms in the movie "E.T." And it's tempting to wonder how Blockbuster could have passed on the chance to buy Netflix for a bargain and then stubbornly refuse to go digital.
But who could have predicted that "E.T." would become one of the most popular movies of all time? (Um, Spielberg had only made "Jaws" five years earlier.) And why would anyone have thought that moviegoers would abandon video rental stores for the convenience of online streaming? (Well, because it makes complete sense.)
On second thought, let's stop apologizing for our enviable position in the present and just rip into the following 10 companies for making the worst business decisions ever. Who's up first?
The AOL-Time Warner Merger
It's hard to imagine now, but AOL was once the biggest name on the Internet, the Google of its day. In the age of dial-up Internet connections — Beeep! Whirrrr! Shhhhh! — AOL was the portal through which most Americans went online, with as many as 35 million subscribers at its peak in 2002 [source: Rosenwald]. AOL was a Wall Street darling, flush with investor cash and looking for a prestige purchase.
AOL Inc. CEO Steve Case met Time Warner CEO Gerald Levin in 1999 and the two men immediately began daydreaming about a merger between the biggest names in old and new media. After months of private talks, the corporate marriage was announced on Jan. 10, 2000, to ecstatic media coverage. At $350 billion, it was the largest merger in the history of the business world [source: Arango].
But even after gaining Federal Trade Commission approval, the deal had its skeptics. AOL was the majority shareholder, and for the financials to add up, AOL would have to continue making bundles of money in advertising revenue. Before the ink was even dry on the deal, the dot-com bubble had burst, Internet stocks plummeted, and the bottom fell out of the online advertising market. To make matters worse, increased availability of high-speed Internet access cut deeply into AOL's dial-up revenue [source: Arango].
The merger proved poisonous for both companies and downright deadly for investors. About $100 billion in stock value was wiped out [source: Arango]. In 2009, Time Warner spun AOL off as its own company. Today, the AOL-Time Warner marriage is the standard business school case study for the worst merger ever.
Kodak Sits on Digital
Say cheese! For over 100 years, Kodak was synonymous with photographs. Founded in 1880, the New York-based company commanded 90 percent of the film market by the late 1970s, 85 percent of the camera market, and it employed over 60,000 people [source: Gustin].
In 1974, during Kodak's corporate dominance, one of its engineers, Steve Sasson, started fiddling with a gadget called a charge-coupled device, or CCD. In time, he figured out how to use the CCD to translate light into the digital language of 1s and 0s. A year later, he successfully built the world's first digital camera, a clunky box that could produce a 100,000-pixel image, the equivalent of 0.01 megapixels [source: Cheung].
Kodak instantly recognized the potential of the device to revolutionize photography and invested billions in its development, but conservative forces within the company stalled the release of a digital camera, afraid to abandon the film-and-paper product line that had brought it untold riches [source: Gustin]. By the time Kodak finally shifted to digital in the late 1990s, the megapixel revolution had long passed it by.
After laying off more than 50,000 employees, Kodak filed for Chapter 11 bankruptcy protection in 2012 and announced that it was dropping its failed digital camera line entirely. It now concentrates on printer cartridges and film for motion pictures [source: Daneman].
Blockbuster Rejects Netflix for $50 Million
"Make it a Blockbuster night!" If you came of age in the 1980s, you spent way too many Friday nights at your local Blockbuster browsing the "new release" shelves or raiding the return bin for the hottest titles. At the top of its game, Blockbuster ran 9,904 stores worldwide with revenue topping $5.9 billion a year [source: Douglas].
The secret to Blockbuster's early success was using computers to make sure that every store was stocked with the most popular movies. But once Blockbuster nailed its winning formula — charging half a billion dollars in late fees per year — it failed to adapt to the changing tastes of American consumers.
In the late 1990s, an Internet upstart named Netflix began offering a DVD-by-mail service. The subscription service exploded in popularity, and Netflix executives flew down to Texas in 2000 to make an offer to Blockbuster CEO John Antioco. For $50 million, Netflix would join forces with Blockbuster and help it launch its own online and DVD-by-mail service [source: Graser]. Antioco laughed Netflix out of the office, seeing it as a niche player.
Who's laughing now? As of April 2020, Netflix is valued at $194 billion, according to Forbes. And Blockbuster — which filed for bankruptcy in 2010 — closed its last retail stores and canceled its copycat DVD-by-mail service in 2013 [source: Mauk].
Coke Introduces 'New Coke'
For soda fans, the flavor of Coke is the unchanging standard by which all other sweet fizzy beverages are judged. But the original formula, whipped up Atlanta pharmacist John Pemberton in 1886, was almost ditched in the 1980s when Coke began losing market share to its archrival Pepsi [source: Coca-Cola].
Coke executives worried that "kids these days" were drawn to the syrupy-sweet kick of Pepsi, so they began tinkering with the recipe. For two years, Coke's flavor engineers mixed up experimental batches and tested them extensively on the soda-drinking public [source: Saffir]. The verdict was unanimous: New Coke tastes better than old Coke.
On April 23, 1985, American consumers popped open their first cans of New Coke. Within days, hundreds of letters and phone calls poured in to Coke's Atlanta headquarters demanding a return to the old formula. People began hording cases of old Coke and selling them on the black market. Apparently, throughout its meticulous product testing, Coke failed to ask the real question: do Coke drinkers even want a new Coke [source: Ross]? Author Malcolm Gladwell in his book "Blink" adds that the taste test was the problem – people might prefer a sip of a sweeter drink but not necessarily want to drink a whole can of it.
On July 11, less than three months after its debut, New Coke was pulled from the shelves and replaced with Coca-Cola Classic (now just called Coca-Cola)[source: Ross]. In retrospect, the failed launch of New Coke had the unintended consequence of strengthening the appeal of its original brand. Its bottom line certainly hasn't suffered. As of May 2020, Coca-Cola is worth more than $230 billion.
J.C. Penney Drops 'Fake Prices'
In 2012, newly hired J.C. Penney CEO Ron Johnson made some refreshingly honest comments about the pricing tactics of clothing retailers. The former Apple executive admitted that stores like J.C. Penney try to attract customers with a near-constant barrage of sales and "fake prices" [source: Tuttle]. If J.C. Penney wants to sell a shirt for $10, it tags it at $20, and then marks it down 50 percent during a weekend blowout sale.
Johnson was hired to mix things up at the 110-year-old company, which had been losing market share for decades to bigger fish like Wal-Mart. His strategy was to stop looking "desperate" by clamoring after shoppers with coupons and promotions and drastic markdowns and replace that with "everyday low prices" and fewer sales [source: Clifford]. He also redesigned the drab stores to have a younger, more stylish feel.
Instead of embracing the new "fair-and-square" price system, loyal shoppers missed their coupons and sales and hit the Internet to complain. Psychology might be to blame. When a shopper sees a $12 shirt, she assumes it's low quality. But if the same shirt is marked down from $35, it's now a high-quality shirt being sold for a steal [source: Ehrenberg].
Either way, CEO Johnson was fired after only 17 months on the job and J.C. Penney quickly brought back the sales and phony jacked-up prices. In a fateful twist, the man who was hired to rehab the brand was Sergio Zyman, the former Coca-Cola advertising executive who saved Coke by slapping the word "Classic" on its old cans [source: Townsend].
Western Union Hangs Up on the Telephone
Today we know Western Union as a fast way to send money around the world, but the company first gained its fortunes in the 19th century with its telegram service. Before telephones, a Western Union telegram — transmitted by telegraphs using Morse code — was the fastest way to send a message across cities, states and even countries.
When Alexander Graham Bell patented the first telephone in 1876, he wanted to cash in on his revolutionary invention by selling it to communications king Western Union. Bell asked for $100,000, a fortune at the time, and the company didn't bite [source: The Guardian]. Western Union execs couldn't envision a world in which people would ditch the handy telegram for expensive, grainy sounding telephones that didn't work over long distances [source: Telecommunications Virtual Museum].
Oops. When Bell's telephone caught fire with the public, Western Union hired rival inventors, including Thomas Edison, to design a better version [source: The Guardian]. Bell sued Western Union for patent infringement and won, forcing the telegram giant to ditch its designs on the telephone. Bell Telephone went on to rule American telecommunications for a century.
Excite Passes on Google for $750,000
Physicists argue that time travel is impossible, but if you want to be transported instantly back to 1999, simply visit excite.com. This is what the Internet used to look like. Without an accurate search engine like Google, Web portals like AOL and Excite categorized the early Internet by subject and posted the day's news and weather. Incredibly, this is exactly what Excite is still doing.
Imagine, then, how different life would be for Excite — and for all of us — if Excite had bought Google back in 1999 for the bargain basement price of $750,000 [source: Siegler]. Google co-founders Larry Page and Sergey Brin first offered to sell their fledgling search technology to Excite for $1 million, but dropped the price further when Excite showed no interest.
To Excite's credit, Google was just an unproven bundle of algorithms back in 1999, not the world-dominating technology goliath it is today. Still, to think that Excite could now be worth billions, instead of sputtering along as a subsidiary of IAC, is fairly mind-blowing.
E.T. Could Have Been Eating M&Ms
A movie named "E.T.: The Extra-Terrestrial" doesn't exactly scream "box office gold." Maybe that's what Mars candy executives were thinking back in 1980 when they passed on Universal Studios' offer to feature M&Ms in their new alien flick. Sure, Steven Spielberg was directing — he already received Oscar nominations for both "Jaws" and "Close Encounters of the Third Kind" — but his latest film "1941" had been a flop. Worse, Universal wouldn't show Mars a script. Thanks, but no thanks.
As the story goes, Steven Spielberg's son was a fan of Reese's Pieces, a new chocolate-covered peanut butter candy released by Hershey in 1980. Sales were sluggish, so Hershey CEO Jack Dowd decided to take a risk on this movie about a boy and his alien buddy. He signed a deal with Universal to spend $1 million promoting "E.T." in return for the right to use the "E.T." name and characters on its products [source: Brenner].
Released in 1982, "E.T." won four Oscars and remains the ninth highest-grossing film in U.S. box office history [source: Box Office Mojo]. Within two weeks of release, sales of Reese's Pieces had tripled; distributors scrambled to keep up with the flood of demand [source: Brenner]. Hershey's bet proved to be an act of marketing genius and left Mars executives crying in their M&Ms.
Rupert Murdoch Buys, Nearly Kills MySpace
Before Facebook, Twitter, LinkedIn and even YouTube, there was MySpace. MySpace was the first social network to go mainstream back in 2004, signing up 1 million users just one month after its launch [source: Stenovec]. Everybody from rock stars to bored teenagers created MySpace profile pages and started "friending" each other like crazy. By 2005, MySpace was the fifth most-viewed Internet domain in America [source: BBC].
And then Rupert Murdoch came along. The News Corp billionaire bought MySpace's parent company in 2005 for $580 million [source: Stenovec]. According to MySpace co-founder and former CEO Chris DeWolfe, Murdoch squandered the social network's incredible popularity by trying to make MySpace profitable too quickly. Murdoch promised huge revenues to Wall Street and crowded the site with ads that eventually alienated users, who flocked to ad-free Facebook [source: Rushton].
MySpace traffic peaked in 2008 with 75.9 million unique visitors, but the site couldn't fight the onslaught of Facebook. Murdoch sold MySpace in 2011 for a piddling $35 million, and admitted via Twitter that "we screwed up in every way possible, learned lots of valuable expensive lessons" [source: Ngak].
NBC and CBS Get Sacked by 'Monday Night Football'
In the 1960s, sports entertainment was nothing close to the 24-hour juggernaut it is today. There was no such thing as cable TV and sports coverage on the major broadcast networks was confined to local teams, magazine programs like "The Wide World of Sports," and the occasional World Series. That's why it seemed like such a risky proposition 45 years ago to broadcast a football game nationally on a Monday night in primetime.
When the National Football League approached NBC and CBS with the idea of "Monday Night Football," the networks didn't want to risk losing their audiences for the "Doris Day Show" and "Laugh-In" [source: ABC Sports Online]. The president of ABC Sports, however, saw the potential of turning a conventional football game into a primetime spectacle. Roone Arledge doubled the amount of cameras used during games, produced flashy graphics and created the first three-man broadcasting "team," which included the legendary Howard Cosell [source: ABC Sports Online].
"Monday Night Football" premiered in 1970, and is the longest-running series on American television. More importantly for ABC, it's also one of the highest-rated TV series on the air, especially with young male viewers, a key demographic for advertisers. ABC moved the show to sister network ESPN in 2006, where it continues to bring in record audiences every week. "Monday Night Football" tallied six of the 10 biggest cable TV audiences in 2013 [source: Hofheimer].
For lots more lists of both successful and sorry businesses, check out the related HowStuffWorks links on the next page.
Last editorial update on May 26, 2020 03:21:13 pm.
The Kaizen philosophy of continuous improvement has been adopted by many big companies around the world. So, how did it start and how does it differ from Six Sigma?
Author's Note: 10 Worst Business Decisions Ever Made
Part of me feels bad playing the armchair quarterback and making fun of these companies for making what turned out to be colossally bad business decisions. And then I remember that few of these companies or individual CEOs are exactly struggling financially. Sure, Excite is looking pretty rough, but it's almost cute in a throwback kind of way. I'm sure none of these executives lose sleep over their lost billions. They're too busy buying real estate in the south of France. Bottom line: Rich people are fair game for ridicule because they can afford not to care. As for me, please be nice.
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