A Highflier's Legacy: Low Comedy


My Days and Nights at an Internet Goliath

By J.David Kuo

Little, Brown -- 314pp -- $25.95

If you ever wondered what it was like to work in a high-flying dot-com company during the height of the Internet bubble, you're bound to love J. David Kuo's dot.bomb: My Days and Nights at an Internet Goliath. It's an insider's story of the rise and fall of an e-commerce company that should never have existed.

Kuo's tale of the Charlottesville (Va.)-based Value America Inc. reads like pure farce. He describes a passel of characters worthy of a Tom Wolfe novel: a nearly mystical entrepreneur who lacks a grip on reality; a CEO who believes that the company's success is solely dependent upon God; and our wide-eyed narrator, the get-rich-in-a-hurry flack brought in to hype the company and its stock. They work in what Kuo suggests is a chaotic, badly mismanaged company that can't seem to do anything right.

Yet the startup drew influential investors such as Paul Allen, co-founder of Microsoft Corp., and Frederick W. Smith, founder and CEO of FedEx Corp. Their involvement offered instant credibility to a failed but charismatic businessman, Craig Winn, who reinvented himself as an e-commerce visionary in 1996 with the founding of Value America. Positioned as a Wal-Mart on the Internet--or, in Winn's more flamboyant language, the "marketplace for the new millennium"--Value America was to be the future of retailing. (Winn's own self-published account will come out shortly.)

At first, the business model seemed smart and differentiated. When someone bought an IBM PC or a tube of Crest on the Value America Web site, the inventory-less company transmitted the order to the manufacturer, who supposedly shipped direct to the customer. Value America earned a retailer's profit but never had to touch the merchandise--at least, that was the idea.

Like everything with a .com suffix, investors eagerly flocked to Value America. On the day Winn took the company public in April, 1999, the $23-a-share stock soared to a high of $73.68, and Winn momentarily became a billionaire. Some 16 months later, Winn was gone, the stock was trading for pennies, and the company was in bankruptcy. Investors lost hundreds of millions of dollars in the debacle, and some very big names, among them Smith and Allen, lost a bit of credibility as well.

Even by dot-com standards, however, Value America comes across as something of a mirage. By Kuo's account, it was little more than a barely functioning mail-order-catalog outfit. About 70% of sales were made by telephone--when the telephone was actually answered. Toward the end of 1999, an internal study showed that hapless customers waited an average of nearly an hour to get through to Value America's customer-service desk. During one quarter in 1999, the company spent $20 million on newspaper ads that only brought in slightly more than $6 million in sales from new customers.

Winn, who got his start selling fly swatters and toaster ovens, regularly hyped the company and the stock, often stating as fact things that Kuo alleges were "materially untrue." At one point, the company announced it had more than 400,000 customer-members. The real number was under 30,000, Kuo claims. Winn often claimed that Value America carried more than 1,000 brands, but underlings who inventoried them for the initial-public-offering prospectus found around 700. So the task called for improvising, according to Kuo. Six types of Near East couscous were counted as six separate brands, and so on, until staff got the "more than 1,000 brands" number.

In Winn's world, reality was elusive. Kuo recounts that, after a sales meeting with Citibank officials that led nowhere, Winn reported to his newly hired chief executive. "Citibank was awed by me," Winn said. "When we were leaving, they pulled me aside and said, `We are awed by your genius. We never met anyone like you.We think you are sent by God."'

"Fantastic," replied CEO Tom Morgan, knowing of Winn's tendency to exaggerate. "Really fantastic."

"Fantastic?" groaned Winn. "I bring you news about what is undoubtedly the biggest deal in the history of e-commerce, and I get `fantastic?"'

Of course, there was no deal, merely an initial sales call by Winn attempting to open the door to a partnership that would never materialize. Four months later, Value America issued a press release on the deal that Winn said would be worth "billions and billions": Value America would be offering Citibank credit card holders special benefits--the kind of promotions everyone routinely tosses when monthly statements arrive.

The author, a former political speechwriter, comes across as thoroughly gullible, just like the investors who bought into this dot-com nightmare. When hired in 1999 as vice-president for communications, a job paying $125,000 a year with stock options on 80,000 shares, Kuo concedes he thought he would help Winn build "a retail version of Microsoft." Kuo even believed that Winn had the right political stuff to become governor of Virginia--preliminary to a run at the White House.

Kuo's dot.bomb is a wildly entertaining romp through the worst of the dot-com era. At times, I laughed out loud at how zany things became. Other times, I wondered why so many of us, particularly investors, analysts, and the media, were so clueless.

By John A. Byrne

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