The growth, marketing strategy, and demise of Pets.com : The Indicator from Planet Money The tech bubble of the 90s was a time when companies with weak business models and flashy advertising secured massive investments. This is the story of perhaps the most infamous case study: Pets.com.
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The Lessons Of Pets.com

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The Lessons Of Pets.com

The Lessons Of Pets.com

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UNIDENTIFIED PERSON, BYLINE: NPR.

(SOUNDBITE OF DROP ELECTRIC SONG, "WAKING UP TO THE FIRE")

CARDIFF GARCIA, HOST:

Hey, everyone. It's Cardiff. This is THE INDICATOR FROM PLANET MONEY. And today I am joined by Julia Furlan, the host of the "Go For Broke" podcast from Vox. This is a series all about the late '90s tech bubble.

Julia, hello.

JULIA FURLAN: (Laughter) Hi, Cardiff. This story is all about the rise and fall of pets.com, which is the company everybody thinks of when they remember the dot-com bubble because it was humongous, and then it was over.

GARCIA: Yeah, I remember. It happened so fast. And what I think I remember about pets.com was that it made, like, no money. It was all hype. It lost money.

FURLAN: Yeah. Pets.com was one of those companies that was able to get money from investors, not because they were actually profitable but because they were flashy. It was this time when people could basically, like, put dot-com at the end of any noun, and suddenly...

GARCIA: (Laughter).

FURLAN: They were supposed to be a company. Profits didn't matter. A functional business model was just, like, an afterthought. It was all about marketing and growing really big.

GARCIA: And it helps to have a famous sock puppet. That was the lesson of the '90s. So, Julia, we are going to run a condensed excerpt of "Go For Broke," which is your great new podcast. So today on the show, the wild story of pets.com and how it relates to the tech companies of today. That's right after a quick break.

(SOUNDBITE OF PODCAST, "GO FOR BROKE")

FURLAN: If there's one thing that was true in 1999 and is still true today, people love their pets. We're talking iguana food and cat birthday cards and hamster obstacle courses. The U.S. market for the pet industry was $23 billion in 1999. This was also the point when it started being more common for people to have a computer at home. Given the massive pet market and the potential for people to change the way they shopped, why wouldn't you get in on the ground floor? So pets.com wasn't alone. What everyone understood at the pets.com office was that the company needed to be a category killer - the one brand that dominates the market. And this, kids, is how the sock puppet came to life. Pets went for the big guns at a firm called TBWA\Chiat\Day. In 1999, Rob Smiley was one of their creative directors.

ROBERT SMILEY: We started to create a world where we showed that pets.com understood that pets have lives. They have things they love. They have things that make them sad.

FURLAN: Rob and his colleagues were banking on a simple but revolutionary idea that went against the instincts of basically all of pet advertising that came before it. Pets was going to let the sock puppet be this imperfect individual with wants and needs.

SMILEY: It became this very homemade puppet with a wristwatch for a dog collar, with a button for an eye, with a goofy microphone made out of cardboard, with a pets.com logo stuck on the side, slapdash.

FURLAN: The pets.com execs were nervous because remember - remember; their whole plan for getting customers to visit their website instead of petopia.com or the local supermarket was a comedian riding around in a van doing loose improv with a sock puppet.

(SOUNDBITE OF ARCHIVED RECORDING)

MICHAEL IAN BLACK: (As Sock Puppet) I like your shorts. You're a good-looking fella.

FURLAN: The first TV ads with the sock puppet hit the airwaves in September 1999, and they quickly get some buzz. The ads are funny and memorably weird, but there's a catch here. The whole motivation behind this ad campaign was not simply to get people to log on and buy their dog a new collar. It was to demolish the competition. And by the time the first ad aired, the field of competitors was getting bigger. So what is the No. 1 place you go if you want to be flashy and cool in advertising? Like, what is one of the few moments of every year where people actually talk about ads?

(SOUNDBITE OF ARCHIVED RECORDING)

UNIDENTIFIED ANNOUNCER: It's Super Bowl 34.

FURLAN: So on January 30, 2000, 88.5 million people are glued to their TVs. And in between watching Kurt Warner lead the Rams to victory, that massive audience sees this. The commercial opens with a dog looking really sad while its owner drives away.

(SOUNDBITE OF ARCHIVED RECORDING)

UNIDENTIFIED ACTOR: (As character) OK, Dino, I got to go to a lot of stores to get what you like.

FURLAN: A spotlight comes on, and the pets.com sock puppet appears, singing "If You Leave Me Now" by the band Chicago. One of the folks we spoke to from Chiat/Day told us that the band had never given permission for the song to be used in a commercial before. But their lead singer, Peter Cetera, just loved that damn puppet.

(SOUNDBITE OF ARCHIVED RECORDING)

BLACK: (As Sock Puppet, singing) No, baby, please don't go.

FURLAN: There's a crying turtle, an angry-looking cat, a parakeet and a goldfish.

(SOUNDBITE OF ARCHIVED RECORDING)

BLACK: (As Sock Puppet, singing) I just want you to stay.

FURLAN: The sock puppet is everywhere. People love that little buddy so much that they're dying to get their hands on a sock puppet of their own. Oscar Yuan was an assistant marketing manager at pets.com.

OSCAR YUAN: I remember the customer service was fielding inquiries all the time for people, like, can I get a puppet? Can I get a puppet? When is the puppet going on sale?

FURLAN: So they started churning out sock puppets and selling them for 20 bucks a pop. And honestly, they couldn't keep them in stock they were so popular. But lots of people were just buying the puppet and nothing else.

YUAN: The question arose, like, are we, you know, moving stuff away from what our core business should be?

FURLAN: So number check - pets.com at this point had spent $20 million on the marketing campaign that created the sock puppet. But the problem is they weren't making enough money. Omar Merlo is a professor of marketing at Imperial College London, and he did a case study on the marketing strategy used by pets.com and other pet retail companies in 1999 and 2000.

OMAR MERLO: It's expensive to create something like the sock puppet and ingrain it in the head of every single American. That costs a lot of money. Then eventually, the customer acquisition cost was about $400 per customer. So it takes you 400 bucks to get your customer in.

FURLAN: Look; if you're selling helicopters or yachts, $400 to get your customer in the door is worth it. You'll make that back on your first sale. But when we're talking about Christmas hats for your iguana, it means that the company is spending a ton of money on you in the hopes that you'll spend even more over the long haul. I got to say, those numbers don't really add up, especially because pets.com wasn't necessarily connecting with customers.

MERLO: So one thing is to be known, is to be aware - to have customers that are aware of your brand that is familiar. Another is actually to connect in a meaningful way. And the way you do that is first by building a value proposition that is meaningful, and then advertising kind of comes later to reinforce what you've done. But I think in this case, you know, there was really a rush to grow very quickly.

FURLAN: Turns out Pets was fighting to be the No. 1 pet website, but people were still buying pet supplies the same way that they always had - at the store. And this was one of the many big problems that Pets could never solve. They spent a lot of money making people aware of the company, but they couldn't convince them to buy enough stuff to be profitable. In 1999, there just weren't enough people buying things online. Maybe pets.com could have figured out their business model eventually. But they ran out of money, and they ran out of time.

(SOUNDBITE OF MUSIC)

GARCIA: OK, it's Cardiff again, everybody. And I'm back here with Julia. What a story, Julia. And also, I want to close with a kind of intriguingly positive spin on these tech companies of the '90s that you have...

FURLAN: (Laughter).

GARCIA: ...These companies that did not make any money and crashed spectacularly.

FURLAN: I mean, I don't know if it's posi (ph) vibes in, like, the long term, but I can say one thing for sure. A lot of the dot-com companies were actually great ideas that were just way ahead of their time. So, like, there was a grocery company called webvan.com that delivered groceries to your house like FreshDirect does today. And cosmo.com had a lot of similarities to Instacart. And good old pets.com - Cardiff, what's pets.com today?

GARCIA: I'm thinking it's Chewy.

FURLAN: (Laughter) Exactly. And Chewy just had an IPO that valued the company at $8.7 billion, so here we are again, I guess.

GARCIA: Julia, this is fascinating because it suggests that even though these companies were kind of a joke in hindsight - like, they just flamed out so amazingly - a lot of them actually had pretty good ideas for where the economy would end up heading eventually.

FURLAN: Yeah, and technology and infrastructure had to, like, grow around it, so now is a much better time than then.

GARCIA: Julia, thank you so much. And tell our listeners, please, where they can hear you tell more of these wild tales from the dot-com '90s.

FURLAN: Absolutely. It's the "Go For Broke" podcast from Vox Media and Epic Studios. And you can buy it wherever free podcasts are sold. It's actually free.

GARCIA: (Laughter) Nice. This episode of THE INDICATOR was produced by Brittany Cronin and fact-checked by Sean Saldana. Our editor is Paddy Hirsch, and THE INDICATOR is a production of NPR.

(SOUNDBITE OF MUSIC)

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