Middlebury College 2002 Digital Bridges Conference

1
Middlebury College2002 Digital Bridges Conference

• January 26, 2002
• Pieter J. Schiller 60
• Advanced Technology Ventures

2
The PetStore.Com Story

• Rationale
• History
• Results
• Lessons Learned

3
The PetStore Rationale

• Large Market Pet food and supplies - 30 Billion
  
• 59 of US households have pets
• Family spends over 380/year
• Decision making demographics 70 women
• Buyers demonstrate brand and channel loyalty
• Consumers in 1999 are seeking convenience, POP a
  factor

4
PetStores Beginnings

• Founded April 1999
• Raised 10 million in venture funding
• Strong management team with pet supplies and
  internet commerce experience
• Launched in June 1999
• One of four players in the space

5
The PetStore Model

• Above average gross margins for this category
• Key is add-on purchases to pet food staple items
• Repeat customers critical
• Rapidly declining customer acquisition cost
• Extensive collaboration for branding, marketing
  and customer acquisition

6
On-Line Pet Supplies Early Performance

• Partnerships are the way to go
• Competition lines up with pet supply superstores
  and POP powerhouses
• PetStore signs up premier veterinarian channel,
  Lycos, and Discovery Channel
• 1999 The year for e-tailing to prove itself
• All players spend heavily on advertising and
  promotion for Holiday sales
• PetStore ends 1999 with revenues at 15 million
  run rate
• Pets.com and PetStore.com get best recognition,
  but sales disappoint
• Major investment banker signs on to lead first
  quarter 2000 IPO.

7
The Year 2000 Reality Checks!

• Public and private financing dry up for all POP
  plays, eliminating the critical source of cash
• Discovery Channel fails to honor sponsorship and
  financing commitments to PetStore.com
• Consolidation begins PetStore agrees to merge
  with Pets.com
• Pets.com stock also crashes, eliminating
  financing options, so deal never closes.
• All of the POP pet supply plays close down.

8
Lessons Learned

• Time to market is critical, even more so with
  competitors in segment
• Marketing and promotional costs outstripped
  ability to fund
• Convenience is hard to define, harder to address
• POP makes price shopping a critical element
• No substitute for quality partners

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Are There Success Stories in Pure Online Plays?

• Yes, but far fewer than anticipated
• Amazon.com and E-Bay are the real survival
  stories to date.
• Hybrids have become a better model POP plus
  bricks and mortar

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Success Criteria for Pure Online Plays

• Convenience
• Selection
• Confidence
• Value