You've probably seen them. In one 30-second spot, a dog sock puppet protests the use of socks as Christmas stockings ("the horror!" he wails); in another, the puppet frolics at a dog park.
Created by online pet retailer
, these TV commercials are the talk of holiday parties and corporate water coolers. But in a competitive and fragmented space, Pets.com and its competitors will need more than cute ads to get a leg up in the online pet store dogfight.
In the last six to eight months, a handful of pet sites have sprung up, hoping to capitalize on Americans' obsession with their pets. The front-runners, though they haven't made any announcements, are expected to go public next year. Along with Pets.com, the leaders are
, which is majority owned by bricks-and-mortar chain
Knowing that only one Goliath (and maybe a David or two) of the online pet store world is likely to survive, the competitors are pushing furiously to capitalize on a growing market, exploit ties to bricks-and-mortar stores and build a strong community among pet owners.
Already in registration, Pets.com's IPO early next year will likely set the tone for pet-related sites. "I suspect Pets.com will start the rush to the courthouse steps," says Marshall Meyers, executive vice president of the
Pet Industry Joint Advisory Council
. "We're going to see a little bit of a scramble."
Youth Will Be Served
Pets.com is a typical dot-com: young (it was formed in February), swimming in red ink (it reported a loss of $19.4 million on net sales of $600,000 since its inception through Sept. 30) and featuring a staff of impressive executives (including top dogs from
Procter & Gamble
). The deal is estimated at $100 million and is backed by heavyweights
Thomas Weisel Partners
Warburg Dillon Read
The market for pet sites is ripe. Some 61% of U.S. households own a pet, according to the
American Pet Products Manufacturers Association
, compared to 56% in 1988. And those households are spending billions on their pets: According to APPMA, $23 billion a year is spent on pets domestically, a number that is expected to increase to $28.5 billion by 2001.
The competition is already fierce.
, the New York tracker of Internet traffic, doesn't rank pet sites, but does track the individual sites' unique visitors. For November, Pets.com had 962,000 unique visitors, Petopia.com had 1.4 million and PetsMart.com had 1.6 million. Petstore.com lagged behind with 823,000 unique visitors.
Despite slightly lower numbers, Pets.com has a behemoth behind it.
has invested $57.8 million in Pets.com, in exchange for consulting, advertising and marketing services. Pets.com also has a deal with the
American Veterinary Medical Foundation
Standing on Two Legs
But its competitors are on the same track. PetsMart.com, an
company based in Pasadena, Calif., has the support of PetsMart, a 500-store chain. Petopia.com, based in San Francisco, has inked a deal with bricks-and-mortar chain Petco, and Petstore.com, based in Emeryville, Calif., has an agreement with
The sites must also have more than just e-commerce, and will need to capitalize on the community and the humane aspects of pet ownership. Petopia.com, for instance, has teamed up with the
American Society for the Prevention of Cruelty to Animals
, Petstore.com has an agreement with the
American Animal Hospital Association
, and PetsMart.com recently acquired
, a large online community for pets.
"It's a space that works well because of all the information they can provide," says George Vrabeck, managing director of
, which has been retained by Petstore.com to do acquisitions in Europe. "It really lends itself to the community-formation process."
The Bottom Line
And ultimately, it'll come back to plain old business. Companies with higher margins will be able to increase revenue faster. Petstore.com, for example, acquired
Flying Fish Express
, enabling it to deliver live fish to consumers, which has higher margins than pet food. It's also planning to expand through Europe.
So how will the dogfight end? It's likely that there will be a rush to get out to the public markets, followed by consolidation. And while there won't be more than a few winners in the space, some analysts wonder if there will be any. "Pets.com's revenue is so low," says Mike May, digital commerce analyst for
. "Someone's really going to need to differentiate."
Tell that to the sock puppet.