Y2K10 – Part One: a brief look back to the pioneer days of wine ecommerce

“What’s past is prologue” … Antonio, The Tempest, Act 2, Scene 1 – by William Shakespeare

The Doors of Perception

As I rub my eyes, to clear the fog of time, I can’t believe that we’re at the end of the first decade of the 21st Century. Wow! Just wow! It seems like I’m caught on this infinite loop of Einstein’s time-space continuum, no longer trapped by a third- dimensional existence, but wandering aimlessly through the strings of the stream, moving across the universe. Here’s yesterday, there’s tomorrow, but where’s today? Oops! Gone. Transitory. But it did exist? Right? It did. It does exist – however fleeting? Transitory like the existence of photons, neutrinos and muons created in the Farm’s particle accelerator. The fundamental particles in the standard model being the past, the particle zoo the present and the still undiscovered Higgs boson, the future.

Party Like It’s 1999

As my mind’s eye clears, I start to recall many of the events leading up to the final days of 1999, both in wine and tech.  Behind this is the story of Y2K and the largely unnecessary BIOS updates, and all of the smoke being blown into the peak of the dot-com bubble, there was a perfect storm brewing behind the marriage of winery sales and marketing and tech that was launched with the release of the personal desktop computer by Apple and then IBM in the late 1970‘s early 1980‘s. The introduction and adoption of which led to some intended, but for the most part unintended outcomes. Although within the computer biz there are some of the largest market cap companies in the world, they all started as bootstrappers. HP started in a garage in Palo Alto, Fairchild Semiconductor as part of Stanford lab experiment, Microsoft by two Harvard drop-outs who bought a disk operating system from a Seattle computer shop and then licensed the software to IBM helping to launch the PC . Two more dropouts who met in a computer club  developed the Mac, based on concepts and designs originally developed at the Park by Xerox with no intention of ever releasing a consumer usable computer. In 1985 Quantum Computer Services, under the direction of Steve Case, launched Q-Link for the Commodore 64. And, by 1988 launched Apple-Link online services, and then PC-Link. In 1991 the name was changed to America Online, merging the two separate services.  AOL quickly became the dominant ISP generating significant income through their monthly consumer subscription model. By 1999 Time Warner’s Jerry Levin was in merger talks with AOL, and in January 2000 the historic $164 billion merger was completed. This all took place against the background of rapidly improving and innovative computer technology, and with the development of ISPs and telecommunication tools that allowed web access for increasing numbers of consumers, helping to transform what had been utilized primarily as  a research tools of loosely connected, disparate networks, originally known as the ARPANET, into what we now know as the Internet.

During this period, most of the Bay Area development in tech had geographically taken place on the Peninsula, South of San Francisco, along stretches of Hwy. 237, Zanker Road, Page Mill Road, Stevens Creek Blvd., DeAnza Blvd., the Lawrence Expressway and Homestead Road, not far from Stanford, aka-the (brain) Farm. However, in 1999, in an area in San Francisco known as China Basin, a then backwater area of empty warehouses, and now the site of AT&T Park, the home of the San Francisco Giants, offered cheap rents for start-ups in an area known as South Park. Just up Townsend Street, was Pyra Labs, where Ev Williams and Paul Bausch wrote the script for Blogger, and in buildings surrounding the China Basin area was Salon and a host of other web-tech companies in what was then a grim neighborhood. I remember going to a 1999 pre-opening Giants event at the under construction ball park, and noting the names of now long gone (i.e. Pets.com) tech start-ups on the sides of warehouses, and thinking that this would be a thriving community again. And it now is, with the development of biotech research centers, living spaces, retail development and restaurants. Twitter HQ is now located near South Park, and the neighborhood is once again the center of a new slate of start-ups.

WineShopper.com

With the development of virtual retail technology and the introduction of secure payment systems, and in a spate of healthy competition, the online ecommerce channel floodgate had been opened by Amazon.com and others, including many bricks and mortar companies. Margins in the ecommerce channel were lean for books, CDs, videos and electronics – from 9%-14%. Research and a few existing online wine sites revealed net margins of approximately 30%. College educated, affluent urban buyers were already buying a significant amount of goods online, matching the demographics of targeted wine consumers . On the surface this seemed like a natural line expansion for Amazon and others. Amazon partnering with the Kleiner Perkins Caufield & Byers invested $46 million (Amazon at $30M, and the Sand Hill Road boys $16M) in the online wine ecommerce marketing agent, WineShopper.com. But the task at hand was daunting. WineShopper had developed the Naxon Network, an automated distribution system meant to link and track the inventories of 250 major wine wholesalers. This was revolutionary at the time. The idea of online sales might have been on the radar for the few wineries left in Silicon Valley, but it was geek speak for most of the other wineries’ sales and marketing technology adverse late adopters. Adapting Naxon to this arcane and unconnected data field, obtuse due to the complete balkanization of state beverage practices, became a task that CEO Peter Sisson eventually found to be undoable. Wine, unlike books with uniform ISBN numbers without regard to the individual point of distribution, stocked by each distributor in each market had unique proprietary product coding systems identifying individual wine SKUs. A system that along with the arcane and fragmented State by State beverage laws eventually proved to be the undoing of WineShoper, even with what would later be identified as a talent laden start-up, including a name that in the next 10 years would become synonymous with digital initiatives for wine business ecommerce, Paul Mabray.

Virtual Vineyards, oops Wine.com, oops Wine.com/WineShopper.com, oops Wine.com by eVineyard, oops Wine.com

Peter Granoff and Robert Olsen had been operating the wine ecommerce site Virtual Vineyards for three years when in 1998 they partnered with Lionstone International out of Lake Forest, IL to increase their reach and points of distribution in the US wine market. A speed bump was hit in March of 1999 when the State of Massachusetts sued both Virtual Vineyards and their shipper FedEx. Although the suit was eventually dismissed, the points presented in the suit have in fact as yet been resolved.  In June of 1999 a combination of VC-financing was sourced from New Millennium Partners LP, GE Capital and MediaOne Ventures. Three months later in September of 1999, Virtual Vineyards acquired the name wine.com from the by then struggling online retailer. Bill Newlands was brought in as the new CEO as co-founder Robert Olson took a step back from day to day leadership. Co-Founder Peter Granoff continued as the public face of the wine.com. With the rapid evolution of the company, the now named wine.com announces TheWineryShops@wine.com, greatly increasing their selection of imports and mico production wines from California. A influx of $50 million represented at the time the largest capital infusion into any online wine ecommerce platform. A series of quick partnerships were announced, signing agreements with Bloomberg.com and Microsoft eShop. However, expenses greatly outweighed revenues as sales of just $9 million resulted in a 1999 operating loss of $20 million. In these halcyon days of the dot-com bubble, this was a company with a business model, reasonable burn rates and, my god, revenues. All was well. Or so we all thought.

Merger, Merger, Takeover

As the decade turns, wine.com continues to sign on partner affiliations, first with WeddingChannel.com and as the exclusive online wine merchant for PBS cooking programs. And here you thought that the current KQED wine club was a new idea. Wine.com also announced an agreement to be the ecommerce channel for Gallo of Sonoma. In June 2000 wine.com and the Wall Street Journal announce an exclusive strategic alliance with wine.com functioning as the exclusive ecommerce merchant for the WSJ’s firstonline wine offerings at wine.wsj.com. By August WineShoper.com recognized the futility of their model and merged with wine.com, operating under the name of the latter. Rounding out FY 2000 wine.com partners with Realbeer.com to offer beer through the wine.com portal. Then in October 2000 acquires the European Wine Exchange (EWX) a German based B2B-B2C ecommerce site. In December wine.com launched  possibly the first mobile wine ecommerce site on the AvantGo ISP. However, all was not well. The burn rate approached unsustainable levels, and the by now bridge loan investor, Menlo-Park based Sand Hill Capital pulled the plug and negotiated the sale in April 2001 of the merged entity wine.com/WineShopper.com to eVineyard, which then relaunched wine.com  as ‘wine.com by eVineyard.’ (to be continued)

What the Point?

There are, for sure, lessons to be learned. It’s great to be a pioneer in any industry or business segment, that is if you can duck the “slings and arrows of outrageous fortune.” While the rewards may be potentially great, so are the risks. It has been said that timing is life, but that the right timing = success. Some of the ideas introduced more than 10 years ago were perhaps, based on limited infrastructure build and low bandwidth strictures creating a then clogged pipeline which limited wide consumer adoption, then too early too succeed they are now being refined and reintroduced. The wine ecommerce effort, in spite of the ruling coming out of the landmark Granholm v. Heald case, still has an uphill but not sisyphean climb. Byzantine state regulations and protectionist legislation fueled by short sighted, intransigent three-tier wholesalers continually block significant progress. However, a new field of visionaries (and a few pioneers) dot the wine ecommerce universe these days. There has never been a deeper concentration of experienced talent at the top of the wine ecommerce pyramid. Some of the battles have been won, but talent and experience alone will not win out. Each individual player in our highly independent and fragmented wine industry must at some point pick up their ecommerce tool kits and travel the digital pipeline and ensure their brand(s)’ success through the strategy of channel diversity and  chose to ‘make wine work online.’

Note: Copyright © 2009 Think Wine Marketing® All rights reserved.

3 thoughts on “Y2K10 – Part One: a brief look back to the pioneer days of wine ecommerce

  1. Pingback: Tweets that mention Y2K10 – Part One: a brief look back to the pioneer days of wine ecommerce « Think Wine Marketing -- Topsy.com

  2. A well-written and fascinating chapter from John’s upcoming and very important book, “The Modern History of Marketing Wine”, or “How to Fast Forward into the Future”. We need the book Cork. Let me know where to place my order for an advance copy. What’s past IS prologue, indeed.

  3. I second Vic’s book order and statements about your great article. What a great history we’ve had in wine e-commerce (that reads a bit like a soap opera) and the story is just beginning. We were fortunate to have great visionaries who took the lead in bringing wine online like Peter Sisson, Peter Granoff, Nick Lucca, John Hinman, Lesley Berglund, Smoke Wallin, Clay Wallin, Derek Bromley, Chris Edwards, Jeremy Benson, Karen Roche, Nick Piediscalzi, Steve Koetzner, and many more unsung players that were instrumental in building the foundation for an industry. We are all thankful to their vision and the sacrifices they made to help the industry move forward. Now there is a new generation of stars coming into the mix and from my perspective, the future looks bright. I can truly say that we have an exciting road ahead of us and the next group of amazing companies bringing innovation and success to wine online amaze me daily. It’s a great time to be in the online wine business.

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