On July 28, 1999, drugstore.com — one of the first Internet pharma — sold shares of its stock to the public. Within seconds of the opening bell, the stock multiplied nearly threefold to $65 per share.
Four weeks later, the stock closed as high as $69, creating a market valuation of over $3.5B.
Interestingly, the company had only sold products for less than 9 months and had fewer than 500 employees, offered no hope of investor dividends for years, and deliberately planned to lose hundreds of millions of dollars before turning a single dollar profit.
People used to justify the extraordinary situation ~
Hey! “New technology will change everything.”
Listen! “The Internet is going to completely revolutionize all business.”
Well! “It’s the great Internet land grab: Be there first, be there fast, build market share — no matter how expensive — and you win.”
It was a moment in history when the whole idea of trying to build a great company seemed outdated. “Built to Flip” became the new mantra of the day. Just tell people you were doing something, anything, connected to the Internet — and you’d become rich by flipping shares to the public, even if you had no profits (or even a real company).
Why take all the hard steps to go from buildup to breakthrough, creating a model that actually works, when you could yell, “New Technology” or “New Economy” and convince people to give you hundreds of millions of dollars?
At the high point of this frenzy, drugstore.com issued its challenge to Walgreens (a century-old pharmacy store chain in the USA). At first, Walgreens’ stock dropped by 40% of its price.
Investors seemed to think that the Web race would be won by competitors like drugstore.com, which traded at 398X revenue rather than Walgreens trading at 1.4X revenue. Analysts downgraded Walgreens’ stock, and the pressure on Walgreens to react to the Internet threat increased as nearly $15B in market value evaporated.
Walgreens’ response was quite surprising in the midst of this frenzy ~ We are a crawl, walk, and run company.
Instead of reacting like Chicken Little, the Walgreens executives did something quite unusual for the times. They decided to pause and reflect.
They decided to think!
Slow at first (Crawl) ~ Walgreens began experimenting with a website within the framework of their business strength.
They tried to think along the lines of, “How will the Internet connect to our convenience store concept?”
“How can we tie it to our economic denominator of cash flow per customer visit?”
“How can we use the Web to enhance what we do better than any other company in the world and in a way that we are passionate about?”
Then a little faster (Walk) ~ Walgreens began to find ways to tie the Internet directly to its sophisticated inventory and distribution model and ultimately its convenience store concept.
They introduced Walgreens drive-throughs — customers just have to fill the prescription online, start the car, and collect the medicine in seconds at Walgreens’ drive-through window.
Also, you can get it shipped to your doorstep.
Finally, Run — Once the operations were fixed, Walgreens poured big bucks and launched that fully sophisticated and perfectly designed Internet site. It was as thoughtful as Amazon.com. Within a year, Walgreens had figured out how to harness the Internet to accelerate momentum.
From a low point in 1999, Walgreens’ stock price nearly doubled within a year.
What about drugstore.com?
Continuing to accumulate massive losses, it announced a layoff to conserve cash.
While Walgreens went from crawl to walk to run, drugstore.com went from run to walk to crawl.
In 2011, Walgreens acquired drugstore.com for $409M — which in 2016 was once valued at $3.5B. Later in 2016, Walgreens shut down drugstore.com in order to focus completely on Walgreens.
Bubbles come and bubbles go!
It happened with the railroads. It happened with electricity. It happened with the radio. It happened with personal computers. It happened with the Internet.
And it will happen again with unforeseen new technologies.
Credit: Good to Great
