Volume 4, Number 5
What A Dog Fight! TKO: Pets.com
Erika Matulich, University of Tampa
Karen Squires, University of Tampa
The case covers the startup of Pets.com, an online retailer of pet supplies. Pets.com made its entry into a heavily competitive but potentially lucrative market. Despite heavy capital funding and a number of high-profile strategic initiatives, the company closed its doors in November, 2000. The demise of Pets.com is considered to be one of the highest-profile dotcom failures.
Keywords: SWOT analysis, pro forma financial statements, IPO, initial public offering, strategic analysis.
BIRTH OF A BUSINESS
ack in 1994, Greg McLemore, a 31-year old California entrepreneur, registered the Pets.com web address and launched an online community for pet owners. The site lingered on until its potential was noticed by several entrepreneurs and investors. By 1998, Pets.com added e-commerce capabilities and brought web-veteran Julie Wainright to the helm. Her first act was to offer a 50-percent stake in the business to the formidable Amazon.com. Jeff Bezos, Amazon’s CEO, who took the opportunity in his effort to move from books, videos, and CDs into offering consumers “anything they might want to find online.” i Along with Amazon, blue-chip venture capitalists Hummer Winblad Partners, Bowman Capital, and Catalyst Investments LLC raised nearly $110 million in four rounds of private-placement funding by December, 1999. This capital allowed Pets.com to invest in the necessary hardware and human resources to run a true e-commerce site.
At this time, Julie Wainright put the new mission statement on the website:
“Pets.com is committed to serving pets and their owners with the best care possible through, products, information, and service. Pets.com is an online retailer of pet products, information, and resources. Offering a broad product selection and expert advise from a staff of pet-industry experts and veterinarians, Pets.com believes that it gives consumers the confidence that they are providing their pets with the best possible care.” A COMPETITIVE RACE
Amazon’s stake in Pets.com directly challenged the leaders in the brick-and-mortar retail pet industry
(those with physical stores). In response to the online threat of Pets.com, PetSmart immediately launched its petstore website to compete with the already existing dot-com independents Petstore.com and Petopia.com (later bought by
Petco). Pets.com’s Ms. Wainright continued her high-powered strategy by luring executives from Procter & Gamble and Petco and beginning a high-visibility television campaign that ranked seventh among all e-commerce companies in advertising volume and first by far among all the Internet pet stores for the 1999 holiday season. ii Pets.com was the first dot-com company in the Macy’s Thanksgiving Day Parade, which featured the famous sock-dog
“spokespuppet.” The company also spent an estimated $2.2 million to feature the sock puppet in the 2000 Super
Bowl XXXIV advertising event (the ad was voted the fifth most popular spot). iii The puppet used in the ad later was auctioned for $20,100 on Amazon.com.
Journal of Business Case Studies – May 2008
Volume 4, Number 5
THE PET SUPPLY MARKET
Why all the fuss about selling pet supplies online? Almost two-thirds of all American households have at least one pet, and that translates into an estimated $23 billion a year in pet expenditures in the U.S. alone.
Worldwide estimates run about $51 billion, and growing at a rate of about 15 percent a year. By the end of 2004, online pet-product sales alone should total more than $4.5 billion. iv Pets.com targets time-strapped pet owners with its slogan, “because pets can’t drive.” In this potentially lucrative growth market, the stakes are high and the competition is hot.
PETS.COM STRIVES FOR DIFFERENTIATION
In this highly competitive market, Ms.Wainright and Pets.com executives took several strategic