The Oil Massage With No Happy Ending
The pub around the corner from Boo.com’s office was packed. The 20-somethings, drinking as usual on the company’s tab, were more boisterous than they had been in weeks, chanting “Boo, boo, boo” and trading high-fives with one another.
Hunched over the bar, trying to remain inconspicuous despite his lanky 6-foot-5-inch frame, Ernst Malmsten, the company’s co-founder and chief executive, nursed a grapefruit and vodka as he surveyed his staff. Make that his former staff.
“The bartender says to me, ‘So what are you celebrating?’ ” Mr. Malmsten recalled about that night in May 2000. “He thought we had won a big account or something,” setting up the punch line. “I told him, ‘We just completed liquidation this morning.’ ”
After burning through $185 million in 18 months, Boo.com ended the way it started: intoxicated by a dot-com pipe dream. Its bankruptcy marked the end of the ultimate parable of the new economy run amok — a tale filled with larger-than-life ambition, loads of hype, luxury living, a penchant for partying and, yes, a seemingly unlimited expense account.
Backed by the deep pockets of Bernard Arnault, the chairman of LVMH-Moët Hennessy Louis Vuitton; the Benetton family; J. P. Morgan; and Goldman Sachs, among others, Boo.com was supposed to be the next — and sexier — Amazon.com. (…)
The story starts in 1992, when Malmsten, a native of Sweden, runs into former kindergarten classmate Kajsa Leander after a night of club hopping in a trendy district of Paris. Leander — a willowy blonde in her early 20s — is pursuing a modeling career. Malmsten, a literary student type, is engrossed in organizing poetry festivals for his university.
Romance ensues, and the two wind up living together in New York. There, Malmsten continues to pursue his old love — Nordic poetry — and convinces Leander to help him organize a poetry festival in the Big Apple.
The festival creates a resounding media splash, and inspires Malmsten and Leander to return to Sweden and start a publishing business. Later, the romance ends, but the two remain business partners. They decide to launch an Internet bookselling business. Not long afterward, they sell it to a Swedish conglomerate for the equivalent of several million dollars.
Not ready to retire, the two charismatic Swedes and an investment banker friend set out in 1998 to drum up support for a new, bigger idea. This time, rather than books, the plan is to sell high-fashion clothes and sportswear over the Internet. The name of the venture: Boo.com.
The plan also calls for establishing the first truly global Web retailer offering service in seven languages and 18 different currencies. Customers could view each product from every angle, zoom in and out and even use a virtual mannequin to try on outfits so they could see how the latest retro Puma sneaker or Fred Perry garment really looked. And unlike almost every other e-commerce business, Boo.com would flaunt its e-snobbery by charging full price for everything. (…)
The trouble was, Mr. Malmsten and Ms. Leander did not know any investors with the cash to finance their capital-intensive concept.
So they did what they knew how to do best: they plopped down their gold American Express cards at the SoHo Grand Hotel in Manhattan and made lunch reservations. Then they faxed their five-page business plan to the major Wall Street banks — with the SoHo Grand’s name and fax number prominently atop — and copies of an article about them in Esquire magazine from 1993, when they started a Nordic poetry festival in New York City, making sure to plug their appearance on the “Today” show on NBC. Not mentioned was that the festival went over budget by about $200,000, as the two later confirmed.
Most of the prestigious banks turned them down, but J. P. Morgan, which had been struggling to build its name as a highflying underwriter of technology companies, took a gamble. J. P. Morgan may not have been experienced in the dot-com world, but its name persuaded some other big names to sign up, too. By February 1999, Mr. Arnault and Luciano Benetton committed to a total of $6.3 million. In all, the first round of financing brought in $12.5 million.
With investors now almost begging to get in on a dot-com business attached to the names Arnault and Benetton, the company raised $12 million more in April, mostly from venture capital funds hoping not to miss out on a blockbuster public offering.
But while Boo.com was being fawned over by investors and the news media — Mr. Malmsten and Ms. Leander adorned the cover of Fortune magazine’s Cool Companies of 1999 — all was not well back in London, where the staff ballooned to more than 200 people from 5. The company also set up offices in Stockholm, Munich, New York and Paris.
“This was not a build-it-in-your-garage kind of company,” a former Boo.com employee said. Many employees said they received a mobile phone, a Palm hand-held device and an American Express card.
Salaries were high for a dot-com on the make. Mr. Malmsten and Ms. Leander were to be paid $150,000 a year, in cash, not stock options, according to their employment contracts. In addition, each got $100,000 to rent an apartment in London and another $100,000 to redecorate it. Patrik Hedelin, a former investment banker and Boo.com’s third, though more removed, co-founder, had the same arrangement. (…)
By the time the site was supposed to go live in May 1999, Boo.com had run up a $600,000 bill from Hill & Knowlton, the company’s public relations firm, mostly for setting up lunches with fashion editors for Mr. Malmsten and Ms. Leander. Hill & Knowlton threatened to stop working for Boo.com because the firm was not paid on time. (Hill & Knowlton was eventually paid, and then summarily fired.)
Ms. Leander, a former Elite model who was also Boo.com’s marketing chief, hired Roman Coppola, Francis Ford Coppola’s son, to direct the company’s TV ads, featuring nerdy young people in urban chic clothing, which were part of a $42 million campaign for the big introduction.
That included $25 million worth of advertising in magazines, newspapers and billboards.
Still, the site did not go up in May. Nor in June, July, August, September or October. (…)
With 420 people on the payroll and ads everywhere for a site that did not exist, Boo.com sat idle. But it did not stop spending. (…)
At 8:59 a.m. on Nov. 3, 1999, as his staff stood cheering, Mr. Malmsten finally pressed the button that would put Boo.com officially online. Six months late, they were finally in business. Sort of.
Only one in four attempts to make a purchase worked, according to company memorandums. Customers with Macintosh computers could not log on because Boo.com was incompatible with them. Without a high-speed connection, surfing the site was extremely slow because the flashy graphics and interactive features took so long to load. Support lines were jammed with angry customers. E-mail messages had subject lines like “Re: Unshoppable.” Gross revenue that week was $64,000.
(you can click on the little deer, bottom right)
The boo.com management team were able to provide revenue forecasts, but were unable to answer fundamental questions for modeling the potential of the business, such as “How many visitors are you aiming for? What kind of conversion rate are you aiming for? How much does each customer have to spend? What’s your customer acquisition cost. And what’s your payback time on customer acquisition cost?”
When these figures were obtained, the analyst found them to be ‘far fetched’ and reputedly ended the meeting with the words “I’m not interested. Sorry for my bluntness, but I think you’re going to be out of business by Christmas.”
{ Dave Chaffey | Boo.com case study }
The biggest loser among boo.com’s investors was Omnia, a fund backed by members of Lebanon’s wealthy Hariri family, which put nearly £20 million into the company. Creditors, most of whom are advertising agencies, are owed around £12 million. Over 400 staff and contractors were made redundant in London and around the world, and many had not been paid for several months.
As late as 2003, Boo.com stickers from their guerrilla marketing campaigns could still be seen on London street furniture, with the slogan “Fashion never dies!”.
{ wikipedia }
related { Ernst’s Malmsten last message to his staff }
images { Boo animals/animation by Genevieve Gauckler | Boo.com screen capture }
