When Boo.Com was launched last November there were high expectations that it would become a successful seller of sporty upscale designer clothing. When it collapsed yesterday under a mountain of accumulated debts, it sent shock waves through the dot com community concerning the solvency of other on-line ventures.
Boo was initially capitalized with $120 million, and its backers included very savvy investors: Italy’s Benneton family, LVMH’s Bernard Arnault and investment banks J.P. Morgan and Goldman Sachs, as well as a number of wealthy investors from the Middle East.
Unfortunately it spent over $135 million since the first of the year mainly on publicity and lavish entertainment. While this isn’t highly unusual in the always fickle fashion industry, Boo’s failure to attract and maintain a large enough customer base, led investors to the conclusion that more funds weren’t justified.
Analysts attributed the failure of Boo to a variety of causes, but generally agreed that its website, while very sophisticated, was also too difficult for most people to use. When first launched most computers didn’t have the software to handle it properly, and it wouldn’t run at all on Macintosh.
The salutary lesson seemed to be – make it simple, make it fast, make it easy to use, or people will not be attracted to the site.
The problems Boo experienced are by no means unique. A study by the accounting firm PricewaterhouseCoopers estimated that one out of four Internet retailers were in danger of running out of cash within the next six months.
Thus even well financed sites suffer from what is called “cash burn,”i.e. the costs of technology and marketing eat up the funds available long before the company reaches the break even point.
E-commerce it turns out is still very much in its infancy, and poses perils for the unwary, both investors and professionals.
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