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Flooz.com; Bubbles, Banks & Depressions March 26, 2008

Posted by olvidadorio in Money.
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Just stumbled across a phenomenon of the big dot-com bust called flooz.com. In a CNET-article on the top-ten of dot-com busts it says:

For every good dot-com idea, there are a handful of really terrible ideas. Flooz.com was a perfect example of a “what the heck were they thinking?” business. Pushed by Jumping Jack Flash star and perennial Hollywood Squares center square Whoopi Goldberg, Flooz was meant to be online currency that would serve as an alternative to credit cards. After buying a certain amount of Flooz, you could then use it at a number of retail partners. While the concept is similar to a merchant’s gift card, at least gift cards are tangible items that are backed by the merchant and not a third party. It boggles the mind why anyone would rather use an “online currency” than an actual credit card, but that didn’t stop Flooz from raising a staggering $35 million from investors and signing up retail giants such as Tower Records, Barnes & Noble, and Restoration Hardware. Flooz went bankrupt in August 2001 along with its competitor Beenz.com.

What were the actual pitfalls here?

Obviously I don’t share the commentator’s analysis concerning the basic idea of having an internet-currency. I wonder if they weren’t mismanagement or inadequate technology at the time. Probably some of the criticism is right on. You can’t just build a currency that’s more like a coupon-system. Surely it’s very helpful to have big suppliers accept one’s currency, but probably the most important ingredient was missing: People who really used this currency to trade among each other.
And this, I believe, is a situation which has changed over the years, since the last bubble. There is much more actual economic activity happening online, around the globe, nowadays.

Still, I find it quite heartening that such high-volume retailers were willing to experiment with something “as wild as” online currency. I wonder if this willingness was simply because they were kind of blinded by the light or whether they had some insight to recognize the innovative potential in non-national-bank-issued, electronic money.

Hopefully there still is room for such ideas nowadays. As the news these days is all about the credit crunch, bank failure and looming depression, it might be interesting to note that community currencies provide a method of supporting a less volatile economy by being less dependent on growth, hence warding off hyper-inflation in times of economic stagnation.

This doesn’t mean to say that there aren’t any types of community currencies prone to inflate – by far; If a community loses confidence in its currency, it will hyper-inflate very quickly, as with any currency though.

Coming back to flooz.com: They had a pretty nice idea; combining gift-cards, bonus-programs & vouchers to start an electronic currency that could be used at online retailers.

Update: Just found an interview with Robert Levitan of Pando , formerly involved in flooz.com. He attributes flooz’s problems to “market timing”. Interesting. I also read that they had problems with money laundering; an evident pitfall.

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