Buzz
During a vacation in Morocco in the late 1990s, Silicon Valley innovator Spencer Waxman encountered the Arabic slang word flooz, meaning money, which left a lasting impression. Amid the dot-com frenzy in the U.S., unique and catchy domain names were in vogue. When Waxman and his collaborator Robert Levitan aimed to revolutionize online shopping, naming their venture Flooz.com seemed inevitable.
Levitan and Waxman aimed to create a digital gift certificate that would attract customers to online stores, safeguard users' personal data, and simplify gift shopping for hard-to-please recipients. This wasn't just a digital currency; it was a solution-driven service.
Sadly, the venture was destined to collapse.
For over 3000 years, non-cash currency has existed, starting with the Chinese using cowry shells to settle debts for goods and services. In the 1960s, credit cards emerged as an attractive alternative to saving and carrying cash. By the 1990s, as online retail surged, it was inevitable that startups would begin experimenting with virtual payment systems.
Back then, many consumers viewed digital transactions as a near-certain path to identity theft. While handing a card to a vendor in a controlled retail setting was acceptable, the fear of hackers stealing personal information in the open realm of the internet deterred many from shopping online.
This fear, as we now know, was well-founded given today's frequent data breaches. It also presented an opportunity for businesses to capitalize on credit card security concerns by offering monetized solutions. Flooz.com launched in 1999, a year after Beanz.com, another currency-based platform, made headlines. Beanz operated as a points-based rewards system, while Flooz took a unique approach: users could buy gift certificates for specific retailers on Flooz.com, which they could use personally or send as gifts via email.
For businesses, Flooz.com was a tool to attract traffic to their sites. For consumers, it provided a way to limit credit card use to a single vendor. As the intermediary, Flooz.com earned a 15 to 20 percent commission on transactions completed at partner retailers like Godiva Chocolates, Barnes & Noble, and Tower Records.
To stand out in the crowded online marketplace, Levitan recruited actress Whoopi Goldberg as the brand's spokesperson. In exchange for company shares and Flooz.com currency, Goldberg spearheaded an $8 million advertising campaign across radio, TV, and print, promoting the advantages of using Flooz.com.
Whether it was Goldberg’s endorsement or the innovative concept, Flooz.com quickly gained traction. Launched in late 1999, the platform amassed 125,000 accounts by January 2000. That year, approximately $25 million worth of Flooz.com currency was bought and spent. (The media often highlighted the quirky internet jargon of the era, noting that Beanz could be exchanged for Flooz.)
Encouraged by its initial success and media buzz, Flooz.com secured $35 million in venture capital. The platform allowed users to fulfill gifting needs by simply emailing a code to recipients, eliminating the hassle of traditional shopping. For a while, it seemed Flooz.com would dominate as a preferred online payment method.
Paul Hawthorne/Getty ImagesHowever, flaws in the Flooz.com model soon became apparent. While sending gift vouchers was convenient for the sender, recipients were restricted to a small selection of participating vendors. If a competitor like Amazon offered better deals on DVDs or books than Barnes & Noble, Flooz users had no flexibility to shop for bargains.
The second and most devastating issue stemmed from a requirement Flooz.com had to meet to secure vendor partnerships. The company guaranteed all transactions, meaning it would honor orders even if Flooz currency was bought using stolen funds. By mid-2001, this policy became a breaking point. The FBI informed Levitan that Russian hackers were suspected of using stolen credit cards to purchase $300,000 worth of Flooz for money laundering.
This led to a severe cash flow crisis: As their credit card processor froze funds pending transaction verification, users continued redeeming Flooz currency they had already spent. Retailers then demanded reimbursement from Flooz.com. Soon, customers attempting to use Flooz encountered error messages indicating the site was unavailable.
These challenges, combined with corporate clients abandoning Flooz for employee gifting, forced Flooz.com to file for Chapter 7 bankruptcy in August 2001. Court documents revealed nearly $14 million in liabilities. (Beanz.com also fell victim to the dot-com crash as participating retailers went out of business.)
Levitan recovered by launching the Pando file-sharing network, which he later sold to Microsoft in 2011 for $11 million. Today, Flooz.com is a largely forgotten chapter in the history of digital currency, though its role in paving the way for innovations like Bitcoin cannot be overlooked. As with many groundbreaking ideas, timing was crucial.
