Flooz: just what we didn’t  whish  for

In the late 1990’s there was a boom in e-businesses with various entrepreneur having their go with internet start-ups, however not everyone is Jerry Yang and so dot-com boom became the dot-gone bust in the in late 2000 with the burst of so called bubble internet firms stock prices came plummeting from their high inflated figures of the late 1990’s and as in the case of webvan.com, kozmo.com so did Flooz.com enter the virtual graveyard

                        

Robert Levitan, Spencer Waxman, founded Flooz.com in August of 1998. It was a privately held company initially but raised 16.5 million dollars in first round capital financing from a group of well-known internet venture capital firms such as Oak investment Partners, Brentwood Venture Capital, Maveron Equity Partners and Venture Strategy Partners LP. Another Famous Investor was former Lotus investor Jim Manzi. (Robert Conlin)  It eventually burned about $50 million in venture capital backing. (Ryan  Naraine) The name of the company originated from Moroccan slang word for “cash”

Levitan and co-founder Spencer Waxman, a college buddy, knew they wanted to use the Web to combine e-mail, gift giving, and online customer acquisition, and it was on this basis they came up with Flooz.com. Flooz was the first "The world’s first online gift currency" Clear Commerce). Consumers they thought would thus have an easy way to send a gift to someone who might be hard to shop for, and that person could choose where to shop. At Flooz.com, users were able to buy any amount of Flooz using a credit card; one Flooz equals one dollar. The certificate was then e-mailed, along with an e-greeting card, to the recipient, who could then redeem the Flooz at one of the Flooz-enabled online merchants, such as Books.com, Caesar's Palate, and Nirvana Chocolates. Anyone receiving Flooz could spend it right away or store it in an account, which can be added to if others give them the gift of Flooz. The service is free for both users and merchants, who install a communications module that integrates with Flooz servers and pay Flooz.com a commission when recipients spend their Flooz. Levitan and Waxman thus planned to make their money of the commissions received form online retailers.

The ‘value proposition’ for flooz was that it provided a service for customers to gift someone and online currency which could be used at any of their 50 affiliate sites which enabled them to buy 200,000 products online. Flooz used the “affiliate” e-commerce revenue model. As Flooz used to steer business to an affiliate and received a percentage of the revenue from the resulting sales the company steers business to an affiliate and receives a referral fee or percentage of the revenue from any resulting sales. It had huge market opportunity, as every person who bought something online was a potential customer. Their competitive environment was nil until the formation of “copycat” companies such as GiveAnything.com, 1-800 Gift Certificate later. They had the competitive advantage as they were the first online gift currency and were able to make key allegiances with companies first like tower records nirvana chocolates etc. Their marketing strategy relied heavily on advertising, which they spend exuberantly along with “pitchwoman” Whoopi Goldberg (who was given a share in company) and other schemes. The Organizational development and Management team were seasoned professionals which included founder Robert Levitan who successfully had lead another e-commerce venture Ivillage.com into profit. “Levitan was a co-founder of iVillage.com and a consultant to America Online. At iVillage, Levitan was responsible for developing the company's innovative sponsorship sales strategies. Levitan created integrated online marketing programs for companies such as Kimberly Clark, MGM, Toyota, Starbucks, Johnson & Johnson, IBM, and Glaxo Wellcome. Levitan also created a new online publishing model with Intuit and Charles Schwab to launch a financial planning site for iVillage called the Armchair Millionaire. In recognition of his accomplishments in developing new online sponsorship models, Advertising Age proclaimed Levitan a "digital media master." (NY e-comm.)

Flooz raised $43 million within a short period; it was forming partnerships with its competitors to increase its reach for the customers. There are several reasons behind the success of Flooz. First, the on-line currency made it easy for the consumer to send gifts over the Internet, and they were able to do so without giving their credit card number to the receiver. All they had to do was to email the other person the money they could spend at various participating merchants’ web sites. Also, there were no transaction charges for sending or using Flooz, the primary income for Flooz was the transaction fee collected from the merchant, which was either a fixed amount or a percentage of the purchase. These transaction charges were much lower that the charges by traditional credit card companies due to which merchants promoted Flooz. Third, the customers were encouraged to use Flooz as exclusive vendor discounts were given through Flooz and bonus money was give for spending Flooz. Other features like; reminders about special deals and account management helped the consumer confidence in the currency.

    There are no IPO stock prices available for Flooz, as it was a privately owned business. It faced tough competition for other online currencies like Beenz.com and cybercash, and traditional credit card companies. The main reason that lead to the bankruptcy of the company were a series of illegal purchases made on stolen credit card numbers. Over a period of three months, $ 300,000 worth of Flooz was sold to credit card thieves in Russia and the Philippines, before the FBI alerted them. Soon customers started complaining about charges to their accounts, due to which credit card companies stopped paying Flooz. During this time, customers at Flooz were still making purchases online, which lead, to more problems with the merchants. In the end, Flooz could not keep up with the problems and decided to file for bankruptcy. Soon afterwards, other similar companies closed their businesses fearful of the credit card frauds. In the end, Flooz burned through approximately $50 million in venture capital backing and had to file for Chapter 7 bankruptcy.

          Flooz.com was an ambitious idea with great promise, although managed well is faced many unforeseen circumstances. As business model it was great but it faults lay in the inadequate security for it site and clients which made it prone to web fraud and left e-customers saying just what they didn’t ask for.

Resources

Robert Conlin, E-commerce Times, September 13th 1999, http://www.ecommercetimes.com/perl/story/1215.html

  Ryan Naraine, August 27th 2001, http://www.atnewyork.com/news/article/0,1471,8471_873321,00.html

Faith Keenan, January 16th 2001, http://www.businessweek.com/ebiz/0101/ec0116.htm

Clear Commerce 2000-200012000-2001 http://www.clearcommerce.com/merchants/merchant_customers.html

New York ecomm http://www.nyecomm.org/About_Us/levitan.asp

http://www.stanford.edu/~srapkin/flooz.htm

The Detroit News http://detnews.com/2001/technews/0109/04/b01-284778.htm

http://www.thedaily.com/flooz.html

E-Commerce Guide

http://ecommerce.internet.com/reviews/article/0,3371,10412_383661,00.html

  Flooz   http://www.flooz.com