Boo.com's spectactular bankruptcy
They want to create the world's largest e-commerce site for fashion and sportswear. But with no profit made Boo.com quickly goes bankrupt and turns into a symbolic name for the IT bubble bursting.
On November 3, 1999 the champagne has been poured at the Boo.com head office in London. Employees are gathered around a computer screen counting down from ten to zero. One of the founders, Ernst Malmsten, pushes a key on the keyboard and the web site finally goes live on the screen in front of them. The expectations are sky high for this hyped-up company which went from concept to global launch in just six months. But the success doesn't happen. At three pm that afternoon no more than 80 orders have been placed.
Boo.com's founders Kajsa Leander and Ernst Malmsten make success early in the new digital economy with the online book store Bokus.com, which is sold in 1998 and makes them multimillionaires. They want to repeat the success and they start thinking about what to do next, they want to go larger. They decide on online clothes shopping, and in particular a shop for exclusive fashion brands normally only accessible in major cities. This might not sound like anything special today, but at that time there were no companies offering this – printed catalogues with mail ordering is the only way to shop for clothes outside stores.
The bring in Patrik Hedelin, an investment banker, and together they fly all over the world to secure financing for their idea. The three young entrepreneurs manage to convince several major players of their vision, among others the investment bank J.P. Morgan and the Benetton family, securing billions for their venture.
Why do they need this enormous capital to start an online store for clothes? Well, according to the business logic of the day you have to establish globally from the start, to secure "first mover advantage". The idea being that if you are first to market you will automatically dominate, and if you're second to launch you will be knocked out right away. Offices are therefore opened quickly in eight different countries and Boo.com goes from 40 to 400 employees.
Money is also spent on new technical innovations. By using three-dimensional mannequins users can twist and turn the clothes online, zooming in and out on the materials. Huge resources are spent on marketing and a successful PR blitz. Before launch Boo.com is already very much the hype. The valuation of the company rushes and before launch over 350.000 people have signed up to be notified when the web site opens.
But it just doesn't fly. It turns out neither customers nor technology is ready for online clothes shopping. The slow modem connections of the time makes it impossible for most users to even load the Boo.com web site. Not long after the launch the Nasdaq stock market crashes and internet companies find it next to impossible to raise new money. Boo.com goes bankrupt only seven months later.