Case Study; Boo.com: Poster Child for Dot.com Failure? Boo.com arrived on the Internet scene promising its investors and on-line shoppers the treat of a profitable Web site offering high-quality, stylish, designer sportswear that could be purchased easily from the office or home. Thanks to advanced widespread publicity, Boo.com became, perhaps, the most eagerly awaited Internet IPO (initial public offering of stock) of its time. However, the company declared bankruptcy only six months after its Web site had been launched and before the company could ever undertake an IPO. Investors lost an estimated $185 million, while shoppers faced a system too difficult for most to use. Many people are still wondering how it could have all gone so wrong so swiftly. The idea for Boo.com came from two 28-year-old Swedish friends, Ernst Malmsten and Kajsa Leander, who had already established and later sold Bokus.com, which is the worlds third-largest on-line bookstore after Amazon.com and Barnes&Noble.com. The two were joined by Patrik Hedelin, an investment banker at HSBC Holdings. Boo.com planned to sell trendy fashion products over the Web, offering such brands as North Face, Adidas, Fila, Vans, Cosmic Girl, and Donna Karan. The Boo.com business model differed from other Internet start-ups in that its products would be sold at full retail price rather than at a discount. Malmsten labeled his target group as cash-rich, time-poor. The Boo Web site enabled shoppers to view every product in full-color, three-dimensional images. Visitors could zoom in on individual products, rotating them 360 degrees to view them from any angle. The sites advanced search engine allowed customers to search for items by color, brand, price, style, and even sport. The site featured a universal sizing system based on size variations among brands and countries. Visitors were able to question Miss Boo, an animated figure offering fashion advice based on locale or on a specific activity (such as trekking in Nepal). Boo.com also made available a telephone customer service advice line. In addition Boo was to feature an independently run fashion magazine to report on global fashion trends. Those who purchased products from Boo.com earned loyalty points, which they could use to obtain discounts on future purchases. The company offered free delivery within one week and also free returns for dissatisfied customers. The Web site was fluent in seven languages (two of which were American and British English). Local currencies were accepted from 18 countries, and in those countries national taxes were also calculated and collected. Boo.com will revolutionize the way we shop. . . . Its a completely new lifestyle proposition, Ms. Leander proclaimed. The founders planned to advertise its site broadly both prior to and after launching. We are building a very strong brand name for Boo.com, stated Malmsten. We want to be the style editors for people with the best selection of products. We decided from day one that we would want to create a global brand name. Although many important financial firms rejected investment in Boo.com, J. P. Morgan & Co., an old-line investment bank, decided to back the project even though it had done no startups for many decades. According to the New York Times, Morgan liked the concept because Boo wouldnt undercut traditional retailers with cut-rate pricing as many e-retailers do. The Morgan bankers were also impressed by the two founders who had previously successfully launched an Internet company (Bokus.com). They also were impressed by promised rewards of 55 percent gross margins and profitability within two years, according to the Times. Morgan found other early-stage investors, including Alessandro Benetton (son of the CEO of Benetton), Bain Capital (a Boston high-tech venture capital company), Bernard Arnault (who has made a fortune in luxury goods), Goldman Sachs, and the very wealthy Hariri family of Lebanon. With start-up funds in hand, Malmsten and Leander set a target date of May 1999 for launching the Web site. Boo planned to develop both its complex Internet platform and customer-fulfillment systems from scratch. Management originally planned to launch in the United States and five European countries simultaneously but soon expanded the number of countries to 18. It also wanted a system that would handle 100 million Web visitors at once. When the launch date began to loom close, management committed $25 million to an advertising budget, a huge sum for a start-up. The company chose to advertise in expensive but trendy fashion magazines such as Vanity Fair as well as on cable television and the Internet. Malmsten and Leander even managed to appear on the cover of Fortune magazine before the Web site was launched. With so much technical development to be accomplished, the company moved the target date back to June 21. As June approached management decided to open satellite offices in Munich, Paris, New York, and Amsterdam. Several hundred people were hired to take orders from these offices once the site went live. However, the launch date had to be postponed again because of incomplete Web site development, and so many of the staff sat idle for months. With all those trophy offices, Boo looked more like a 1950s multinational than an Internet start-up, claimed Marina Galanti, a Boo marketing director. By September the company had spent $70 million, and Boo undertook more fund-raising. With the prelaunch advertising campaign completed months earlier, the Web site was finally launched in early November. The promised mass marketing blitz never materialized. With the original advertising campaign long over, observers commented that raising peoples interest while delaying the opening resulted in many disappointed and alienated potential customers. Moreover, the site reviews were terrible. At launch time, 40 percent of the sites visitors could not even gain access. The site was full of errors, even causing visitors computers to freeze. The site design, which had been advertised as revolutionary, was slow and very difficult to use. Only one in four attempts to make a purchase worked. Users of Macintosh computers could not even log on because Boo.com was incompatible with them. Users without high-speed Internet connections found that navigating the site was painfully slow, because the flashy graphics and interactive features took so long to load. Angry customers jammed Boo.coms customer support lines. Sales in the first three months amounted to only about $880,000, and expenses heavily topped $1 million per month. The Boo plan quickly began unraveling. In December, J. P. Morgans representative on Boo.coms board of directors resigned, leaving no one from Morgan to advise the company. In late December with sales lagging badly

Case Study Questions (For this case study, answer the questions outlined below.)

• What were the problems as to why this company failed?
• What wave of E-Commerce evolution does the case fall under? Explain
• Explain how the changes made from other waves led to the current state of E-Commerce evolution.
• Research two or more dot.com failures and the reasons why they failed.

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