Okay, so I want you to close your eyes for a
second. We're going back in time. Uh -oh. Where
are we going? It's the late 90s. Let's say it's
1999. You're sitting in front of a computer monitor
that's roughly the size and weight of a microwave
oven. I remember those. The beige boxes. The
beige boxes, exactly. And you're listening to
that screeching, clicking sound of a 56K modem
trying to connect to the internet. A sound that
an entire generation will never experience. It's
probably for the best. Probably. And everywhere
you look on that painfully slow -loading webpage,
on your television, on a billboard on your way
to work, you see him. Oh, I know who you're talking
about. The sock. The sock. It's just a plain
white athletic tube sock. It has two completely
mismatched button eyes, a little felt watch wrapped
around its neck like a collar. And the microphone.
You can't forget the microphone. A little stick
microphone just sort of taped to its side. And
it's flailing around, interviewing people on
the street, making these frantic, high -pitched
jokes. You literally could not escape this thing.
No, you couldn't. It really was a phenomenon.
I think for anyone who... didn't live through
that very specific window of time, it's hard
to communicate just how pervasive that puppet
was. Pervasive is the right word. It wasn't just
a mascot for a company. It became a kind of B
-list celebrity in its own right. B -list? I
would argue it was A -list for a minute there.
I mean, it was on Good Morning America. It was
in the Macy's Thanksgiving Day Parade. And we
were talking, of course, about the icon, the
legend, the disaster that was Pets .com. Disaster
is the key word there, I think. Right. Because
I feel like today, if you mention Pets .com to
someone, it's basically just a punchline. It's
shorthand. It's shorthand for... dumb .com failure.
You say tets .com, people kind of chuckle, they
think about the sock puppet, and that's it. The
conversation's over. Yeah, the story gets flattened.
Exactly. And that's why I wanted to do this deep
dive, because I feel like we are missing the
actual story, the real meat of it. You are absolutely
right. The puppet is the memory that everyone
holds on to, but the reality is a much darker,
much more complex story. It's about capital,
it's about hubris, and a fundamental misunderstanding
of, like, Business physics. Business physics.
I like that. This isn't just a story about a
funny ad campaign that went wrong. It's a case
study in how you can incinerate $300 million
of investment capital in just about 24 months.
$300 million. That number. It's still just so
hard to wrap your head around. It's a staggering
amount of money, especially in 1999 dollars.
And that's what we're going to do today. We're
going to unpack how that happened. We are going
to talk about lawsuits with insult comic dogs.
That's a story in itself. We're going to talk
about 21 tons of dog food being airlifted to
Alaska. And we're going to try to answer that
fundamental question. How do you spend $11 million
on advertising to make $600 ,000 back? The math
is truly the most terrifying and I think the
most instructive part of this whole saga. So
let's get into it. Our main source for this is
the Wikipedia entry for Pets .com, accessed this
year, 2026. But before we get to the sock puppet
and the Super Bowl ad, we have to start at the
beginning. Because Pets .com didn't actually
begin with the puppet, did it? No, it didn't.
And this is a part of the history that usually
gets glossed over in the, you know, the punchline
version of the story. Right. It started... Like
so many things in the mid -90s with a domain
name. The digital real estate rush. People were
just snapping up URLs. Exactly. We're talking
about November 1994. The web is barely a toddler
at this point. There's an entrepreneur named
Greg McLemore. And he's looking at the internet
and he sees the potential for these category
killers. The category killer. The idea that you
could have a single online destination for a
very specific interest. Toys .com. Cars .com.
So he goes out and he registers the domain. ThePets
.com. Which, I mean, honestly, that's a home
run of a domain name. It's short. It's descriptive.
It's easy to spell. In 1994, getting that is
like buying a plot of land in Manhattan before
any of the skyscrapers went up. It was prime
digital real estate. Absolutely. But for a long
time, that's all it was. It was just real estate,
a concept. It eventually launched in late 1998
as a spinoff of a company called WebMagic. Okay.
But it was small. It was quiet. It wasn't making
any waves. ThePets .com that we all remember.
the monster that ate the world that really didn't
start until early 1999. And that's when Julie
Wainwright comes into the picture. That's right.
Julie Wainwright takes over as CEO in early 1999.
And her vision was not to have a small niche
website for pet enthusiasts. Her vision was,
for all intents and purposes, global domination
of the pet supply category. Ambitious. Very.
And to do that, she knew she needed fuel. A lot
of it. Rocket fuel. And this is where the story
takes a turn that I think a lot of people just
completely forget or maybe never even knew. Because
when I think of Pets .com, I think of this scrappy
kind of stupid startup operating out of a garage
somewhere. Right. But they weren't alone, were
they? They had the biggest big brother you could
possibly have in the e -commerce playground.
They certainly did. And this is absolutely crucial
for understanding why investors went so crazy
for this company. Amazon .com was involved. And
not just as a casual observer or a fan. Wait,
Amazon? As in Jeff Bezos, we're going to sell
everything? Amazon? The one and only. In the
very first round of venture funding, which was
in March of 1999, Amazon didn't just toss in
a few bucks for goodwill. What did they do? They
purchased a 54 % majority stake in Pets .com.
Hold on. 54%. So Amazon owned more than half
of the company. Effectively, yes. They were the
majority owner right out of the gate. I had no
idea. Most people don't. And along with some
other big name venture capital firms, Hummer,
Winblad, Bowman Capital Management, they poured
in an initial $10 .5 million. But the money,
in a way, was almost secondary to the signal
it sent. What do you mean? You have to remember
the atmosphere of 1999. Amazon was the kingmaker.
If Jeff Bezos pointed his finger at a company
in the e -commerce space and said, this is the
one, the market treated it as gospel. So it's
like a seal of approval. It's a massive shortcut
for all the other investors. It's more than a
seal of approval. It's a coronation. It says.
Amazon thinks this is the future, so it must
be the future. Don't waste your money betting
on anyone else. Wow. In fact, Julie Wainwright
herself, the CEO, she called the partnership,
and this is a direct quote, a marriage made in
heaven. A marriage made in heaven. And from a
narrative and fundraising standpoint, it was.
It gave Pets .com instant unassailable credibility.
It told the entire world, this is the winner.
And even after later funding rounds diluted their
stake, by October 2000, Amazon still held 30
percent of the company. They were in it for the
long haul. Or so they thought. Or so they thought.
So, OK, they have the cash. They have the backing
of the biggest player in the game. They have
this marriage made in heaven. What was the strategy?
Was it just, you know, sell dog food online?
The strategy was the mantra of the entire era.
Get big fast. Get big fat. This was not about
building a sustainable. profitable business slowly
and carefully. This was a land grab. It was about
achieving market dominance at any cost. So they
took that venture capital and they immediately
started pouring it into massive infrastructure.
When you say infrastructure, what are we talking
about? Like servers and coders? Servers and coders,
yes, but physical infrastructure, too. We're
talking about massive, sprawling warehouses.
They were setting up state -of -the -art distribution
centers all across the United States. So they
were building a physical footprint. A huge one.
They were building their own shipment network.
They were trying to replicate Amazon's model
but for a single category and do it overnight.
They even went out and just bought their biggest
online competitor, a site called PetStore .com,
in June of 2000. How much did that cost? $10
.6 million. They just wrote a check for $10 million
to eliminate the competition. That was the Get
Big Fast playbook. Consolidate the market. Be
the only game in town. The idea was to build
the skeleton of a giant retail empire literally
overnight. Okay, so you build the warehouse,
you buy the trucks, you buy the competition,
but now you have a bunch of enormous empty warehouses.
You need people to actually, you know, buy the
kibble. And that brings us to the most famous
and certainly the most expensive part of the
entire story, the marketing machine. The puppet.
The puppet. So where did this thing even come
from? Because it's such a weird, almost daddiest
concept. We sell pet food, and to communicate
that, here is a sock. It came from the ad agency
TBWA Shia Day. Now, you have to understand, these
weren't amateurs. These were the same creative
minds who had just given the world the Taco Bell
Chihuahua. Yo quiero Taco Bell. I can still hear
it in my head. They knew how to create what we
would now call a viral sensation, even before
social media really existed. They were masters
of creating these cultural earworms. Annoying
but memorable mascots seemed to be their specialty.
Annoying but memorable was absolutely their specialty.
And they designed the puppet to be deceptively
simple. Just a sock, the button eyes, the flailing
arms. But the genius of it, or maybe the madness
of it, was in the performance. Right. Who was
the voice? It was voiced and operated by the
comedian Michael Ian Black. Oh, I love Michael
Ian Black. From the state. I had no idea that
was him. It was him. And he gave it that manic,
slightly desperate, high -pitched energy. The
puppet debuted in August of 1999, and the goal
was brutally simple. Make sure that every single
human being in America knows the name Pets .com.
And I have to say, looking back at it, it works.
I mean, here we are talking about it almost 30
years later. In terms of pure brand awareness,
it was an absolute masterpiece of advertising.
The source material we're looking at notes that
the puppet achieved cultural dominance in a matter
of months. How dominant are we talking? Well,
it was interviewed by People magazine. It got
feature articles in Time and Entertainment Weekly.
It appeared on Good Morning America, Nightline,
and Live with Regis and Kathie Lee. Wait, it
was doing the talk show circuit? A piece of fabric
was sitting on a couch next to Regis Philbin?
It was. It transcended being an ad and became
a legitimate cultural character. And the absolute
peak of this cultural insanity has to be the
Macy's Thanksgiving Day Parade in 1999. Oh, I've
heard about this. This is where it gets really
crazy. They commissioned something called a falloon.
A falloon? What on earth is a falloon? It's a
portmanteau. It's half float, half balloon. It
was a 36 -foot -tall version of the sock puppet.
36 feet? 36 feet. So why don't you just imagine
a three -story building made of nylon, shaped
like a sock, just floating down 6th Avenue in
New York City on Thanksgiving morning. That is
both horrifying and majestic at the same time.
It really was the perfect symbol of the bubble.
Just this massive, hollow, inflated object taking
up all the air in the room. And they didn't stop
there. They started merchandising the puppet
itself. They sold the actual puppet. They sold
a replica of the sock puppet. And it sold like
crazy. 10 ,000 of them flew off the shelves in
the first week. By July of 2000, they had sold
35 ,000 of them. So people were paying money
to own a company's advertisement. Yes. And it
even had an autobiography. You are kidding me.
A book? A book. It was titled Me by Me. And it
was this sort of coffee cable book filled with
photos and witty observations from the sock puppet.
I just, I cannot grapple with the layers of absurdity
here. They are an e -commerce company for pet
supplies, but they are making money selling a
book supposedly written by their sock puppet
mascot. Well, making money is a very generous
term. They were generating revenue, certainly.
But the cost to achieve this level of fame was
absolutely astronomical. And the pinnacle of
that spending came in January of 2000. The Super
Bowl? The Super Bowl. The absolute height of
the dot -com mania. Pets .com buys a national
advertising slot during the biggest television
event of the year. And Super Bowl ads are famously
not cheap. This one cost $1 .2 million for 30
seconds. $1 .2 million for half a minute of television.
And culturally, again, it was a smash hit. USA
Today's ad meter, which is the big ranking system
for these things, it ranked the Pets .com ad
as number five for the whole game. People loved
it. It was funny. It had a catchy song. It was
memorable. Okay, but this is where the disconnect
begins, right? This is where we have to put on
our business analyst hats. This is exactly the
moment. Because having a famous mascot is great.
It's wonderful for brand recognition. But does
a famous mascot actually make people buy a 40
-pound bag of dog food from your website? That
is the $300 million question, isn't it? It is.
There is a profound and often fatal difference
between being famous and being a viable business.
Everyone in America knew the puppet. But did
everyone in America trust the puppet to deliver
their pet supplies reliably and cheaply? Before
we get into the answer to that, there is one
more story from this marketing mania phase that
I think we just have to tell because it so perfectly
encapsulates the mindset of the company at the
time. The lawsuit. Yeah, yes. The Triumph incident.
This is almost Shakespearean in its pettiness
and absurdity. So for anyone listening who doesn't
know, there's another famous dog puppet from
that era, Triumph the insult comic dog. A cultural
icon. A cultural icon. He's a Rottweiler puppet.
He smokes a cigar. He's incredibly rude to celebrities.
He was a staple on Conan O 'Brien's late night
show. Right. Created and performed by a brilliant
comedy writer named Robert Smigel. Now, Smigel
sees the Pets .com puppet, which, let's be honest,
is a dog -like sock puppet holding a microphone.
And he thinks, hey, this looks a little too much
like my act. So he sends a cease and desist letter,
which is pretty standard stuff in Hollywood,
right? Very standard. A rational company, a company
focused on its core operations, might have called
him up, maybe worked out a small settlement,
or more likely just ignored it, knowing that
the characters were different enough. But Pets
.com was not a rational company. Pets .com went
nuclear. In April of 2000, they filed a lawsuit
against Robert Smigel in U .S. District Court.
They sued him. They sued him for $20 million.
$20 million? For what? For defamation and trade
libel. Their argument was that by claiming the
Pets .com puppet was a ripoff, Smigel had damaged
their brand and their business. That is insane.
The CEO. Julie Wainwright gave this amazing quote
to the press. She said, we were surprised we
received the letter because there's obviously
no relation between the Pets .com sock puppet
and Triumph. I mean, OK, she has a point. One
is a grumpy Rottweiler and one is a manic sock.
But to sue a comedian for $20 million while you're
trying to build a startup. It just speaks to
the hubris of the moment. They felt they were
untouchable. They were just a pet store anymore.
In their minds, they were a media empire. They
were fighting these PR battles and legal battles,
spending enormous amounts of money on lawyers.
At a time when, as we were about to see, their
actual business was bleeding to death. Precisely.
The lawsuit, by the way, was eventually dismissed
in February 2001. But by then, the company was
already gone. It was a complete and utter waste
of time, energy, and money. Okay, so we've painted
the picture. We have the Amazon backing, the
warehouses, the famous puppet, the ridiculous
lawsuits. Now let's lift the hood and look at
the actual business model. Because you threw
out a number earlier that just made my jaw drop.
$11 million in ads to make $600 ,000 in revenue.
It is staggering when you see it written down.
So let's look at their first fiscal year, which
ran from February to September of 1999. In those
nine months, Pets .com brought in a total of
$619 ,000 in revenue. That's total sales. $619
,000. I mean, that's not nothing, but that's
like the annual revenue of a decent neighborhood
pizza place. It's a very small number for a company
with this much hype. Yeah. But here's the kicker.
To get that $619 ,000 in sales, they spent $11
.8 million on advertising. So let me do the math
here. For every $1 in sales they brought in,
they spent nearly $20 just shouting, hey, look
at us. That's right. A 20 to 1 ratio of ad spend
to revenue. And that is just advertising. That
doesn't count the cost of the goods they sold,
the warehouses, the executive salaries, the legal
fees for suing comedians. How does anyone on
the planet look at that spreadsheet and say,
yes, this is a company that is ready to go public?
Well, welcome to the year 2000. Despite those
numbers, which were public, they launched their
IPO, their initial public offering, in February
2000, right after that big Super Bowl ad. They
went on the stock market. They listed on the
Nasdaq -U stock exchange under the symbol IPET.
And they successfully raised $82 .5 million.
The stock opened at $11 a share. So the market
looked at this machine that was literally designed
to burn cash and said, here, have another $82
million to burn. Why? I mean, were investors
just stupid? Stupid is a harsh word. I would
say they were intoxicated. They were high on
the narrative. The theory at the time, which
now sounds insane, was customer acquisition at
all costs. Get the customer now. Worry about
profit later. Exactly. The belief was that if
you grab the customer, if you got their email
address, you could figure out how to make profit
off them sometime in the distant future. It was
a land grab, but there were fundamental structural
flaws in the pets .com business model that no
amount of time or customers would have ever fixed.
Okay, let's break those down. What was flaw number
one? Flaw number one, no market research. Come
on, none. Zero. The source material is explicit
about this. There was no independent market research
conducted before the launch. They never actually
asked the fundamental question, do people want
to buy heavy bags of pet food online and have
them shipped to their house? They just assumed
they would. That feels like the first slide in
any business 101 presentation. Is there a market
for your product? You would think so. But flaw
number two was the real killer. And this is where
we need to talk about a concept called unit economics.
OK, break that down for me. What are unit economics?
Unit economics is the most basic building block
of a business. It's the question. On a single
transaction, do you make or lose money? So how
much does it cost me to sell one unit of my product?
And do I make a profit on that specific sale?
And Pets .com was? Pets .com was failing this
test catastrophically. The data shows they were
selling their merchandise for approximately one
-third the price they paid a distributor to obtain
it. Wait, wait, wait. Let me get this straight.
If they bought a squeaky toy from a supplier
for $3... They were turning around and selling
it to you for $1. Why in God's name would you
do that? Aggressive customer acquisition. They
were trying to undercut all the local pet stores.
They thought, if we give them a deal that's too
good to be true, they'll become loyal customers
for life. But even in their second fiscal year,
after they'd been around for a bit, they were...
still selling goods at about 27 % below their
cost. So they were personally subsidizing every
single dog bone and cat toy that left their warehouse?
Exactly. And this creates what economists call
a death spiral. Usually in a healthy business,
when your sales go up, your financial situation
improves. More sales, more profit. Right. But
for Pets .com, because they lost a significant
amount of money on every single item they sold,
the dramatic rise in their sales only hastened
their demise. The more they sold, the faster
they went bankrupt. So success was actually accelerating
their failure. Precisely. And then, on top of
all that, there's the shipping problem. The shipping
problem. This is the business physics you were
talking about. This is the physics. It's inescapable.
What is the most common, most frequently purchased
item a pet owner buys? Food and cat litter. Right.
And what are the defining physical properties
of a big bag of dog food and a tub of cat litter?
They're heavy and they're bulky. They are extremely
heavy and dense. A 40 -pound bag of cat litter
is 40 pounds of what is essentially sand and
clay. Shipping 40 pounds of clay across the country
via FedEx or UPS is incredibly expensive. And
Pets .com, to attract customers, was offering
free or heavily discounted shipping. They often
did. They ran promotions for free shipping or
charged a very low flat rate. But the profit
margin on pet food itself is already razor thin.
Best case, a retailer makes maybe 2 to 4 percent.
OK, so let's do the math on that. I go to Pets
.com. I buy a $20 bag of dog food. The actual
profit for Pets .com on the food itself is what?
Maybe 50 or 80 cents. Best case scenario, yes.
Maybe a dollar if they're lucky. But then they
have to turn around and pay UPS 10 or 15 dollars
to ship that heavy bag to your front door. So
on that one transaction, they have instantly
lost somewhere between nine and 14 dollars. I
have to assume the grand plan was, well, OK,
we'll lose money on the food, but they'll also
throw in a diamond studded collar with a huge
90 percent profit margin. That was the dream.
That was the entire thesis of the company. They
believed the food and litter were loss leaders
that would get you in the door to buy the high
-margin items like toys, accessories, and gourmet
treats. That's not what happened, is it? Consumer
behavior did not cooperate. People are smart.
They took the cheap, heavy food with the subsidized
shipping, said thank you very much, and they
didn't buy the expensive, spooky toys. The purchasing
patterns never shifted to high -margin goods.
So they built this incredibly complex, incredibly
expensive machine that was perfectly designed
to lose money. They built a very efficient, very
high -tech incinerator for venture capital. It's
just amazing because when you lay it all out
like that, it seems so painfully obvious. Shipping
sand is a bad business model. Selling dollar
bills for 70 cents is a bad business model. Why
didn't anyone with any power step in and stop
them? Because of a concept from behavioral finance
called the fantastic object. The what? The fantastic
objects. It's a term used to describe an investment
that becomes so exciting, so hype, so seemingly
revolutionary that it stops being analyzed as
a business and becomes a screen onto which people
project their fantasies. So it's not a company.
It's a dream. It's a dream. It was the future
of retail. It was the Amazon of pet supplies.
When you have a fantastic object. People, investors,
journalists, even the employees, they stop looking
at the profit and loss statement and they start
looking at the giant balloon in the Macy's parade.
They get caught up in the story. So the sock
puppet was almost like a magician's trick. Look
at the funny sock over here. Don't look at the
giant burning pile of money in our warehouse.
It was the perfect distraction. It distracted
everyone, possibly including the executives themselves,
from the cold, hard, terrifying reality of their
own numbers. So let's talk about when reality
finally crashed the party. Because for a company
that rose so incredibly fast, the fall was. I
mean, it was blink and you miss it fast. It was
incredibly rapid. The velocity of the collapse
is one of the most remarkable parts of the story.
Remember, the IPO was in February of 2000. By
September 2000, that's just seven months later,
the walls were already closing in. The cash from
the IPO was almost gone. Did they try to make
any changes to stop the bleeding? They flailed.
In September, they made this big announcement
that they were moving their customer service
call center from San Francisco to Greenwood,
Indiana. Why Indiana? Cost cutting. Yeah. It's
much cheaper to run a call center and pay salaries
in Indiana than it is in the Bay Area. But that's
like, it's like rearranging the deck chairs on
the Titanic. It saved them a few bucks, but the
ship had a hole in the hull the size of a blue
whale. Did they try to find a buyer? Surely someone
wanted that brand recognition, the customer list.
They did. They went, cap in hand, to PetSmart,
the big brick -and -mortar giant they had been
trying to destroy. Yeah. And they asked for a
buyout. That must have been a humbling conversation.
I imagine so. PetSmart looked at their books,
saw the disaster, and made an offer. Was it a
good offer? It was a deeply insulting offer.
PetSmart offered to buy the company for less
than the net cash value Pets .com had in the
bank. What does that mean? I mean, it means PetSmart
basically said, we will take your company, but
we're going to pay you less than the actual money
you currently have. We're essentially charging
you to take this disaster off your hands. Wow.
And the board said no. The board refused. Pride,
I guess. They still thought, we're Pets .com.
We have the sock puppet. We're worth more than
this. The narrator's voice comes in. They were
not, in fact, worth more than this. They were
not. So November 2000 arrives. This is less than
a year after that triumphant Super Bowl ad. The
money is gone. No new investors are stepping
up because the entire dot -com bubble is bursting
everywhere. The party is over. So what happens
the final day? November 7th, 2000. The announcement
comes down from the board. Pets .com is shutting
down all operations. Effective immediately. Just
like that. A press release. Just like that. They
announced they would cease taking new orders
on November 9th at 1100 a .m. Pacific Standard
Time. I'm just imagining being a customer. You
go to the website at 10 .59 a .m. You can buy
a bag of dog food. You refresh the page at 11
.01 and it's just gone. It was a hard stop. A
digital ghost town overnight. And the human cost
was immediate and brutal. They laid off 255 of
their 320 employees that day. Almost everyone.
Just gone in an instant. Almost everyone. And
the investors who bought in at the IPO. Remember
that stock price? It debuted at $11 a share.
Right. On the day of the liquidation announcement,
it fell to 19 cents. $11 to 19 cents. That's
effectively zero. It's a total wipeout. A total,
complete wipeout. If you had invested $1 ,000
into Pets .com's stock in February, by November,
you had enough left to maybe buy a sandwich and
a cup of coffee. Now, whenever we talk about
these massive corporate failures, there's always
a part of the story that just makes me a little
angry. The executives, the people who were actually
steering the ship into the iceberg, did they
go down with the ship? Well, yes and no. The
CEO, Julie Wainwright, and nine other top executives
did stay on to, and I quote, oversee the liquidation.
Which means what? Turning off the lights and
selling the furniture? Pretty much. selling off
the assets, winding down the company legally.
Did they do it for free as a gesture of goodwill
to the employees they just fired? They did not.
Wainwright received $235 ,000 in severance pay.
But on top of that, the board approved a $225
,000 retention payment. A retention payment?
To retain her for what? The company is dead.
There's nothing to retain her for? The justification
was that they needed to pay her to retain her
services to manage the shutting down process.
So while 255 people were sent home with their
personal belongings and cardboard boxes, the
CEO walked away with nearly half a million dollars
for overseeing the spectacular failure she had
presided over. That just, it leaves a very bitter
taste. It does. It's legally standard in many
cases, but ethically, it's tough to swallow.
The stockholders had a final meeting in January
2001 to formalize the end. They changed the company's
name to iPad Holdings, sold off the last of the
assets, and that was it. Pets .com was officially
dust. But the pieces of the company, the valuable
bits, they didn't just vanish into thin air.
They went somewhere. Let's talk about the scavengers.
Who got the good stuff from the wreckage? Well,
the single most valuable asset they owned, by
far, was the domain name. Pets .com. And who
ended up with that? PetSmart. Of course. The
very company they tried to disrupt, the company
that made that insulting offer, ended up owning
their name. And if you go to your browser right
now, today, in 2026, and you type in pets .com,
go ahead, try it. It just redirects you straight
to PetSmart's website. The old school brick and
mortar giant won. They were patient. They waited
out the storm. They let pets .com burn through
hundreds of millions of dollars educating the
market about online shopping. And then they swooped
in and bought the front door for pennies on the
dollar. That is a masterclass in strategy. What
about the puppet? Did someone buy the rights
to the sock? The puppet had a very strange afterlife.
In 2002, a joint venture literally called Sock
Puppet LLC, I'm not making that up, bought the
rights to the mascot for $125 ,000. $125 ,000
for a disgraced mascot. What on earth did they
do with it? It was licensed to a company called
Bar None, Inc. They were a finance firm that
specialized in car loans for people with bad
credit. Wait, a subprime auto loan company used
the Pets .com puppet as their mascot? They did.
And get this, the new slogan spoken by the puppet
in the commercials was, everyone deserves a second
chance. Oh, wow. That is incredibly, almost poetically
meta. I'm a failed .com mascot. You have a terrible
credit score. Let's work together. It was actually
pretty clever advertising. It ran for about nine
commercials in 2002, but then the puppet kind
of faded back into obscurity. You know. For all
the talk of greed and hubris and stupidity, I
did read one thing in our source notes that made
me smile. A little moment of redemption right
at the very end. Yes, the dog food. Tell us about
the dog food. So when they shut down in November
2000, they had these massive warehouses full
of inventory. Tons and tons of kibble. They couldn't
sell it. The easiest thing would have been to
just dump it all in a landfill. But they didn't.
They didn't. They worked with their charity arm,
which was called Pets .Commitment, and they arranged
for a massive donation. Where did it all go?
They sent more than 21 tons of high -quality
dog food to the mushers in Alaska's interior.
To the sled dog teams? Exactly. To the working
dogs that run the Iditarod and other races. It
was a huge logistical challenge to get it all
up there, but they did it. So the final act of
Pets .com wasn't a frivolous Super Bowl ad. It
was feeding thousands of hungry dogs in the Arctic.
I really like that. It doesn't forgive the $300
million loss, but it is a really nice final footnote
to the story. It is a positive final act. So
let's zoom out a little. We've told the story
from beginning to end. But why does it stick
with us? Why are we still talking about this
specific failure decades later? You mentioned
that fantastic object idea earlier. I think Pets
.com persists in our collective memory because
it's the perfect, most concise symbol. of the
irrational exuberance, as Alan Greenspan called
it, of that time. It shows how quickly the culture
can build something up and then tear it down.
One minute, you're the hero of the new economy.
The next, you're the villain. There's that commercial
that aired right after they crashed, the parody
ad. Oh, the E -Trade ad. It was savage. Yes.
Tell us about that. So this is during the 2001
Super Bowl. Just one year after Pets .com had
been the star of the show, the online brokerage
firm E -Trade aired this spot that was a parody
of that famous crying Indian anti -pollution
commercial from the 1970s. I remember that ad.
In the E -Trade version, it showed a chimpanzee
on a horse riding through a ruined, desolate
landscape. A post -apocalyptic dot -com wasteland.
Exactly. You see broken computers, empty office
buildings with police signs, and the chimp rides
past a demolished company called eSocks .com.
And then a dirty, discarded, rain -soaked sock
puppet lands at his feet, and the chimpanzee
sheds a single tear. That is just brutal. It's
kicking a man when he's already down. It was
vicious. But it perfectly captured the public
mood. America felt scammed. They felt like they
had been sold a bill of goods by all these dot
-com companies. And the sock puppet had become
the face of that scam. CNET later named it one
of the greatest dot -com disasters of all time.
But, and here is the big twist. This is the part
of the story that I think is most relevant to
us today. The fundamental idea. It wasn't actually
wrong. No. The core idea was sound. It was just
20 years too early. Because I order my dog's
food online. All the time, everyone I know with
a pet orders their supplies online. The company,
Chewy .com, is a massive, publicly traded, successful
company. Chewy is basically the ghost of Pets
.com, but a version that actually worked. So
what's the difference? Why is Chewy a multi -billion
dollar success story and Pets .com is a late
night talk show joke, if they are, for all intents
and purposes, doing the exact same thing? I wouldn't
say they are doing the exact same thing. The
what is the same selling pet food online. But
the how and, crucially, the when are completely
different. Okay, so break down the how for me.
What did Chewy do differently? First, logistics
and technology. In 1999, warehousing was largely
a manual process. Tracking shipments was primitive.
Today, Chewy uses these highly automated fulfillment
centers with robots that dramatically cut the
cost per order. So robots are packing the kibble
now, which is way cheaper than human hands. Right.
Second, and this is a big one, is route density.
In 1999, the FedEx truck was stopping at maybe
one house in your entire neighborhood. Today,
that same Amazon or FedEx truck is stopping at
20 houses on your block. The last mile cost of
delivery is shared across way more packages.
That makes a ton of sense. The network is denser,
so it's cheaper for them to drop off my 40 -pound
bag of sand. Exactly. And finally, there's just
cultural adoption. In 1999, buying things online
was still a little bit scary for a lot of people.
It was a novelty. Today, it's the default. Chewy
didn't have to spend $11 million just to explain
to people how to use a website and trust it with
their credit card. The market was ready. The
market was ready. The technology was ready. Ryan
Cohen, the founder of Chewy, was actually asked
about the Pets .com comparison when Chewy had
its own IPO back in 2019. Did he embrace it?
Did he say, we stand on the shoulders of giants?
He hated it. He absolutely rejected it. He called
the comparison absolute crazy and said there
was nothing in common between the two companies.
Which feels a little defensive, doesn't it? It
is a bit defensive, but he was right about the
execution. He focused on obsessive customer service.
and getting the unit economics right from day
one. He didn't buy a Super Bowl ad until he knew
he could afford it. He built the business first,
and then he built the brand. Pets .com did the
exact opposite. That's the takeaway right there,
isn't it? Brand versus business. It is. A brand
is what people think and feel about you. A business
is how you make money. Pets .com had a world
-class, globally recognized brand. They just
had zero business attached to it. It really makes
you look at the current landscape a lot differently.
Because we are right now living through another
massive hype cycle, aren't we? We always are.
There's always a new bubble, whether it was crypto
a few years ago or AI today or the metaverse.
It makes me wonder, are there sock pippets out
there right now today? I can guarantee you that
there are. Companies that everyone knows that
are on the cover of every magazine that have
that marriage made in heaven with all the big
investors. But if you actually lifted the hood
and looked at their unit economics. you'd find
out they're just selling dollar bills for 70
cents. That is the provocative question I would
leave you, the listener, with. Look at the apps
on your phone. Look at the services you use every
day, especially the ones that seem weirdly cheap
or free. Which ones are actually sustainable,
profitable businesses? And which ones are just
burning through a mountain of venture capital
to keep the lights on until they either get bought
Or they collapse. Are you buying a product or
are you just buying into a fantastic object?
Exactly. And just because it has a really cool
logo or a cute mascot doesn't mean it's going
to survive the winter. On that slightly ominous
note, I think we're going to wrap up. I'm now
going to go look at my entire investment portfolio
and panic slightly. It's always a healthy exercise.
If you want to see the terrifying math for yourself
or pictures of that giant faloon or read the
details of the triumph, the insult comic dog
lawsuit. Please check the show notes on our website.
We've got all the sources linked there for you
to go even deeper. Thanks for taking this deep
dive with us. Thank you.