Catshanghai

I have just finished reading Boo Hoo, which is Ernst Malmsten’s frank and entertaining account about the dramatic rise and fall of the fashion e-tailer called Boo.com.

Boo was started by three young Swedish entrepreneurs in 1998 (Ernst Malmsten, Kajsa Leander, Patrik Hedelin). They devised a lofty project to build a stylish and global E-commerce site selling sportswear and high fashion over the Internet. They convinced a number of investors including LVMH and Bennetton to hand over $135 million to start a complex operation involving 400 young and talented employees in offices throughout the US and Europe. For a short period in the heady days of the first dot com boom they drummed up plenty of hype and media interest suggesting they were well on their way to establishing a global brand. They also played a major part in dragging the fashion industry on to the Internet as the likes of DKNY and New Balance became suppliers. Malmsteen captures the giddy excitement that pervaded the early days of the Internet when anyone with any sort of half baked notion could raise millions of dollars in startup capital simply by waving a can of dogfood at a web browser.

After 18 months Boo collapsed. Basically, the venture was far too ambitious. They wanted to become as big as Amazon.com overnight, but they had to support this concept with a very complex order processing and delivery system. This was very difficult and expensive to achieve in the timeframe they envisaged. One big issue was that the front end website did not work very well, because it was bogged down with 3D Flash graphics and slow, buggy javascript. The site worked very slowly unless you had a modern non Mac computer with a fast Internet connection. Remember this was in the late nineties when most people in Europe were still using dial up web access. Then there were the spiralling costs. Being stylish is expensive. They setup an expensive headquarters in London’s Carnaby Street and hired all sorts of managers, directors, consultants, designers and assistants before they had even earned a penny in revenue. The website launch kept being delayed due to technical problems (It didn’t work). When the website was eventually launched, the planned avalanche of business failed to materialise. A business burning through $10 million a month can hardly stay in business if it is only generating tens of thousands in sales. Boo was far too optimistic when it made its income projections. In the late nineties, E-commerce was still very immature and the only profitable European online retail operation at that time was Tesco.com who succeeded because they charged for delivery and already had an established logistics network to deal with stock handling and deliveries. The flood of business towards the Internet simply did not materialise during the first Internet goldrush. It is only now that online retailers are really starting to grab market share across Europe and the US.

Anyway, Boo’s investors lost confidence and stopped providing funds, which meant Boo could not afford to pay its bills, which forced it out of business. It was not all Boo’s fault. By 2000, the market began to wake upto the reality that technology companies with no earning potential were ridiculously overvalued. Technology share prices plummeted and investment capital dried up. Boo may have survived a funding crisis if it had happened a year earlier.

This is a great case study for anyone interested in the history of the Internet and speculative folly. It is to Malmsten’s credit that he is so upfront with all the problems that were largely created by his own grandiose delusions. He does go into a lot of mundane detail about his designer clothes and jet set lifestyle. It does read a little bit like the endless brandlists you see in American Psycho, which suggests Malmsten and his partner Kajsa Leander were full of style and no substance. Nevertheless, you can’t help think that they were very nice people with lots of energy and imagination, but were just a bit naive and inexperienced like many of their peers in the dot com boom and bust. I fear this case study may still be relevant in the web 2.0 era, because the market has gone mad again. New websites and services like Digg, Riya, Eyespot and Odeo may not be burning as much cash as Boo, but they are mostly offering something for nothing. Unless Google or Yahoo buy them out soon, they may end up broke, just like Boo.

I wonder what Ernst is upto now.