Rakuten shuts down e-commerce legend Buy.com

Rakuten shuts down e-commerce legend Buy.com

- in Cashback, E-Commerce, Loyalty Programs
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Rakuten shuts down Buy.com

When Buy.com launched in 1998, the company’s tagline was “The Internet Superstore—Low Prices on Top Brands.” It started selling discount computers and software and quickly added office products, wireless products, electronics, books, videos, games, music, and sporting goods.

Buy.com logos

The company’s prices were so low, Fortune magazine called it a “seemingly crazy new model” two months after it launched, saying it was like selling dollars for 85 cents. By Spring 2000 however, Forbes ranked Buy.com a “Best of the Web” site.

Founder Scott Blum originally launched the site as BuyComp.com in 1996 as a discount seller of computer products. It was selling more than $1 million a day in computer gear when it relaunched as Buy.com in November 1998.

Yesterday, current owner Japanese conglomerate Rakuten shut down the US site and 87 employees will lose their jobs as the site winds down over the next two months according to a report in Techcrunch. Traffic was already diverted to Rakuten’s global cashback rewards site as another online retailing pioneer becomes a ghost.

Designed to monetize web traffic

Blum originally designed Buy.com not to make money like a traditional retailer but by selling advertising and monetizing its visitor traffic while also making a small margin on a wide range of retail products.

advertising on Buy.com in 2003

Japanese software distributor SoftBank, later a big VC investor in many technology startups, added $60 million in capital for several small acquisitions and the start of a big TV and print advertising campaign. The company also acquired more than 2000 domains with the word “buy” in them, hoping to launch hundreds of niche specialty stores under the Buy.com umbrella.

The company developed search engines to automatically find the lowest price on the web, and without carrying any inventory, have products shipped directly from the supplier to the consumer. Today, that business model is very familiar among online sellers, shoppers, and cashback sites.

The concept seemed to work at first, as it sold more than $125 million of product in 1998, breaking a 15-year, first-year startup sales record previously held by Compaq Computer Corp. In 1999, Buy.com was selling more than $2 million of merchandise daily and finished the year with $600 million in sales. Its niche sites like buycomp.com, buyvideos.com, buygames.com, and buybooks.com blossomed.

But customer service was another story. Sm@rt Reseller reported more than 60% of online shoppers felt sales staff was not knowledgeable, nor helpful while 80% said exchanges were poorly handled and just half said they would recommend Buy.com to friends. Billing practices were heavily criticized, and the company lost a high-profile class-action lawsuit against pricing problems. Those of us with deep roots in e-commerce remember the days.

Buy.com had traffic, demographics, buyers

Buy.com awards
what are

Even by today’s standards, the site traffic and demographics were impressive and attractive to advertisers and sellers. In June 2001, Media Metrix reported 2.75 million unique visitors, 38.6 million unique monthly pageviews, and 165,000 average daily unique visitors.

Back then, demographically, 70.4% of site visitors were men and 29.6% women; 41% were age 18-34 and 64.5% were age 25-49 with an average age of 38. 68.1% had a household income of $50K+ and average household income was $74,000.

Buy.com was flying high, buying a Super Bowl TV spot in 2000, and taking over Nike’s sponsorship of the PGA Tour in an expensive five-year sponsorship deal. The company issued 1,125,000 shares to the PGA and made a cash payment of $8.5 million from its IPO  in addition to $6.4 million paid to the PGA and a $17 million letter of credit as security for the sponsorship fee.

IPO raised $186 million in 2000 and growth explodes

It’s February 2000 IPO raised $186 million – big-money in those days. 14 million shares were sold at $13 each, quickly hitting $35 during busy trading before settling at $25.31. Heady times.

Buy.com grew fast

1999 revenue quadrupled to $296.8 million but profits proved elusive and yet investors seemed unfazed. The year 2000 continued with much expansion and heavy spending to try and gain market share in a wide range of product categories.

A full-service online ticket booking deal with United Airlines was created through BuyTravel.com with discounted air deals on United and 500 other airlines as well as hotels and car rental services. A new business superstore offered 55,000 products followed by a sporting goods store together with Global Sports.

In April 2000, it launched a License Online Program with Microsoft which quickly added software from Symantec, Computer Associates, Executive Software, and Trend Micro. Expansion to the UK and Australia followed although Australia quickly closed by the end of 2000 and the UK operation was sold to UK retailer John Lewis in March 2001.

Buy.com acquired online retailer Telstreet for $8 million helping it open its Wireless Store by October 2000 offering cell phones and accessories, mobile service plans, and products from most of the major global wireless providers.

Not surprisingly, towards the end of 2000, reports surfaced that Buy.com was running low on cash and shares dropped to two dollars in trading by November. In early 2001 an entirely new management team was installed. And profits? What profits?

Founder Scott Blum reacquired the company for $23.6 million ($.17 a share) and took the company private in November 2001. In 2002, with the addition of apparel, shoes, health and beauty products, he also took out a Wall Street Journal ad promising Amazon.com customers that Buy.com was a better buy, promising 10% lower prices on books and free delivery on all items with no minimum purchase. This with just 5 million customers compared to Amazon’s 25 million at the time.

Dec 2003 Buy.com site
Buy.com Dec 2003

In January 2005, the company announced plans to go public but withdrew those plans in May 2007. An April 2008 partnership with eBay helped Buy.com become the largest seller on the site without paying for listing fees.

Buy.com’s marketplace more than doubled from 2.3 million products in 2007 to 5 million by 2009 making it the second-largest e-commerce company behind Amazon. And profits? What profits?

Along came Rakuten

As part of its global expansion strategy, Rakuten purchased Buy.com for $250 million in May 2010. At that time Rakuten had 64 million members in Japan compared to Buy.com’s 14 million customers.

Rakuten shuts down Buy.com July 2020

In January 2013, Rakuten rebranded Buy.com to Rakuten.com Shopping. Among its unique features was the ability for merchants and independent sellers to communicate directly with customers. Now gone were direct sales favored previously by the company.

Rakuten followed quickly with the launch of its own e-commerce sites in 13 other countries including South Korea, Russia, Canada, Brazil, Germany, France, Taiwan, and the UK. In September 2014, Rakuten announced its biggest acquisition of US cashback leader Ebates $1 billion in cash.

At that point, Buy.com’s future fate was sealed and the news of its official shutdown this week came as little surprise to most e-commerce industry experts. In part, a testimony to the perils of rebranding.

It’s another fascinating story in the relatively young and turbulent history of e-commerce, placed in even sharper focus because of the critical role of e-commerce during the current global pandemic.

Historic Buy.com logos and website pics courtesy of the Logos History blog and the Internet Archive

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