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Dot-Com Cash Crash

Online Shopping & Cash

After the dot-com bubble burst in 2000, Jeff Bezos’ letter to shareholders began with: “Ouch. It’s been a brutal year for many in the capital markets and certainly for shareholders. As of this writing, our shares are down more than 80% from when I wrote you last year.” How did Amazon survive? One word: cash. 


The bubble was created by frenzied investors who gave huge sums of money (cash) to the likes of and – companies with zero profits. These same investors and speculators told these dot-coms to use their startup capital (cash) to “get big fast” – and they did.  In January 2000, there were 17 dot-com Super Bowl commercials, each costing $2 million for a 30 second spot – that’s a lot of money (cash). But the spending went way beyond Super Bowl Sunday, and when the cash ran out, the bubble burst. Game over. (1) (1).jpg

Down Boy became a publicly traded company on Valentines Day 2000 — and they called it puppy love. Overnight it raised $82.5 million – that’s some serious cash. In its prospectus, it listed 7 keys to its strategic success and over 30 risks. But who really cared about risks in 2000? In short, its strategy was very similar to most dot-coms of the day: spend a lot of cash to gain a massive customer base. If you weren’t in diapers at the turn of the century, you probably remember’s ubiquitous sock puppet mascot. The sock puppet appeared everywhere from the Macy’s Thanksgiving Day Parade to primetime TV. While’s award-winning ad campaign was incredibly successful, it wasn’t free. In its first full quarter after becoming a public company, spent $17 million on sales and marketing — making its sock puppet its highest paid pooch. It spent another $10.6 million buying its largest competitor,, continued to sell products for less than what it bought them for, and offered free shipping. Imagine that, steep discounts at checkout, and free delivery of heavy bags of Puppy Chow.  Customers were barking for more, but in that same quarter, only reported $8.8 million in revenue* and investors were sick as a dog.  


As its cash ran out, went begging for more, but Internet startups were in the dog house. On Election Day, just 268 days after’s IPO, George W. Bush would become the 43rd President of the United States and would go out of business having spent all of its $82.5 million. That’s like losing just over $307 thousand a day. Fortunately, all sock puppets go to heaven. (1) (1).jpg

I Wouldn't Bed on That was founded in 1998 and launched its site in July 1999. The company’s strategic partners (aka frenzied investors) included Benchmark Capital, Austin Ventures, Comdisco Ventures, Pivotal Asset Management, and GE Capital. Even Starbucks, the folks who sell lattes, wanted in on the house party investing $20 million. In all, attracted about $70 million to start an online home furnishings store.’s experience was one of inexperience when it came to selling furniture. But who really cared about experience in 2000? In its rush to get off the couch and gain a massive customer base, did the unthinkable; it bought a brick and mortar store in the heart of North Carolina’s furniture belt. Shaw Furniture Galleries had been in business for more than fifty years when knocked on its door promising everything but the kitchen sink. The dot-com startup paid more than $5 million to gain access to Shaw’s established customer base and manufacturing relationships. 


The buy-out proved to be even more costly. Only a handful of Shaw’s furniture manufacturers were willing to partner with the newcomers from out of town, thirty percent of shipments were returned mostly due to damage (that’s nearly a third of its business!), and scratch and dent inventory began to pile up. spent $40 million in its first 18 months and another $40 million in its last six trying to fix problems. The company filed for bankruptcy on August 15, 2000, pulling the welcome mat out from underneath employees, customers, and Shaw. 

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Welcome to the Jungle

Jeff Bezos wasn’t under any delusion that his business model, like all first generation dot-coms, wasn’t a risk. However, it was a risk he believed in. Amazon was actually a significant shareholder in both and, but it underestimated how key its own head start was in making e-commerce viable. As Bezos explained in his letter to shareholders in 2000, “With a long enough financing runway, and may have been able to acquire enough customers to achieve the needed scale [to be profitable].” and came up short, but Amazon survived because by the time the dot-com bubble burst, it had been in business since 1995 and a public company since 1997, giving it a long financing runway on which to build scale. Further, as other dot-coms suffocated as they ran out of cash and couldn’t get more, Amazon fortuitously acquired overseas capital just a month before the crash – giving it just enough ($672 million) oxygen to survive. Without Amazon’s head start and without that infusion of cash, Amazon could have very well been the biggest dot-com bust of them all. 


Cash gave Amazon the runway it needed to survive and ultimately take off. Today, Amazon is one of the most successful companies in the world, and Warren Buffett calls Jeff Bezos, “The most remarkable business person of our age.” In every letter to Amazon shareholders Bezos includes a copy of his original letter from 1997, “We believe that a fundamental measure of our success will be the shareholder value we create over the long term.” If you would have invested $5,000 in Amazon’s stock when it first went public it would be worth at least $2.4 million today – that’s a lot of cash.

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