Before Bitcoin: The Rise and Fall of Flooz E-Currency

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In the late 1990s, Silicon Valley entrepreneur Spencer Waxman was in Morocco on holiday when he heard an Arabic slang term for money—flooz—that stuck with him. In the dot-com boom taking place back in the United States, URLs with obscure etymology were popular. When Waxman and partner Robert Levitan decided to co-found a novel way of disrupting the online commerce industry, calling it Flooz.com was almost a foregone conclusion.

What Levitan and Waxman envisioned was a virtual gift certificate that would drive business to participating online retailers, give consumers some sense of security over their private information, and make shopping for stubbornly gift-resistant recipients easy. Rather than merely offering cyber currency, this was a service with purpose.

Unfortunately, it was also one that was doomed to fail.

A screen capture of Flooz.com
Flooz.com

Non-cash currency has been with us since the Chinese used cowry shells to sort out debt for goods and services more than 3000 years ago. In the 1960s, credit cards became an alluring alternative to saving and carrying paper bills. When online retailing exploded in the 1990s, it was only natural that startups would begin to explore virtual payment methods.

At the time, digital transactions were perceived by many consumers to be a near-guarantee of identity theft. Handing a card to a vendor in a closed-loop retail environment was one thing, but the thought of hackers seizing their information once it was entered into the borderless environment of the internet kept many away from online shopping.

As it turns out, that paranoia would turn out to be justified in our current climate of constant data breaches. It was also good for businesses hoping to turn their apprehension over credit card security into a monetized solution. Flooz.com debuted in 1999, just one year after another currency-based URL, Beanz.com, had garnered press. Beanz were a kind of earned points system, with approved transactions gifting customers with redeemable gift vouchers. Flooz took a different approach: Customers would sign up to Flooz.com and purchase gift certificates for specific retailers, which they could then use themselves or pass along to a gift recipient via email.

For businesses, it was a way of driving traffic to sites; for consumers, it was a way to keep credit card transactions limited to one vendor; for Flooz.com, being the intermediary meant taking a 15 to 20 percent cut of completed transactions on the selected retail sites, which ranged from Godiva Chocolates to Barnes & Noble and Tower Records.

To help Flooz.com cut through online marketing noise, Levitan enlisted actress Whoopi Goldberg to be their spokesperson. In exchange for company shares and Flooz.com money, Goldberg led an $8 million ad campaign for radio, television, and print that extolled the benefits of using Flooz.com.

Whether it was Goldberg’s pitch or the concept itself, Flooz.com met with a receptive audience. The company debuted in the fall of 1999, and had opened 125,000 accounts by January 2000. That year, roughly $25 million in Flooz.com money was purchased and used. (In a nod to the impenetrable vocabulary of the internet at the time, the media loved to point out that Beanz could be used to purchase Flooz.)

Bolstered by the attention and early success, Flooz.com was eventually able to raise $35 million in venture capital. Consumers could meet their gifting obligations by emailing a code to their gift recipient without having to waste time shopping. For a time, it appeared Flooz.com would become a leading method of payment for online transactions.

Actress and Flooz.com spokesperson Whoopi Goldberg is photographed during a public appearance
Paul Hawthorne/Getty Images

But it didn’t take long for the seams in the Flooz.com model to show. While gifting vouchers to family and friends was convenient for the gifter, the giftee was stuck with a very limited number of vendors that took Flooz.com as payment. If Amazon, for example, had a deal on a DVD or book that Barnes & Noble didn’t, Flooz users were out of luck. Shopping for a bargain wasn’t possible.

The second and most crippling detail was one Flooz.com was forced to make in order to strike deals with vendors. The company guaranteed its transactions, meaning that it would make good on orders even if Flooz dollars had been purchased via fraudulent means. By the summer of 2001, that commitment became a tipping point. Agents from the FBI informed Levitan that they suspected a ring of Russian hackers had purchased $300,000 worth of Flooz in order to launder funds from stolen credit cards.

This created a paralyzing cash flow problem: As their credit card processor withheld funds until Flooz.com could secure the transaction, people were still busy redeeming Flooz dollars they had already spent. Retailers then looked for Flooz.com to reimburse them. Suddenly, customers trying to pay with Flooz were greeted with error messages that the site was down.

Those issues, coupled with the fact that corporate clients had already started to move away from gifting employees with Flooz dollars, forced Flooz.com to file for Chapter 7 bankruptcy in August 2001. Court papers cited almost $14 million in liability. (Beanz.com was also a casualty of the dot-com bust, when participating retailers processing the points steadily went out of business.)

Levitan rebounded, founding the Pando file sharing network and selling it to Microsoft in 2011 for $11 million. Meanwhile, Flooz.com remains a barely-remembered footnote in e-currency, though it would be hard to chart the rise of digital funds like Bitcoin without it. Like with so many other good ideas, timing is everything.

The Long Stride of Tony Little, Infomercial Titan

Mike Coppola, Getty Images for MTV
Mike Coppola, Getty Images for MTV

Tony Little didn’t see it coming. It was 1983, and the aspiring bodybuilder and future Gazelle pitchman was living in Tampa Bay, Florida, winding down his training for the Mr. America competition that was coming up in just six weeks. While driving to the gym, Little stopped at a red light and waited. Suddenly, a school bus materialized on his left, plowing into Little's vehicle and crumpling his driver’s side door.

Dazed and running on adrenaline, Little got out and sprinted over to find the bus was full of children. After seeing that none of the kids were seriously hurt, he promptly passed out. When Little later awoke, he was in the hospital, where he was handed a laundry list of the injuries he had sustained. There were two herniated discs, a cracked vertebrae, a torn rotator cuff, and a dislocated knee. He struggled to maintain his physique in the weight room and made only a perfunctory appearance at that year's Mr. America competition. Little's dreams of becoming a professional bodybuilder had been derailed courtesy of an errant school bus, whose driver had been drunk.

Though it took some time, Little eventually overcame the setback, pivoting from his original goal of being a champion bodybuilder to becoming one of the most recognizable pitchmen in the history of televised advertising. Before he did that, however, he would have to recover from another car accident.

 

For someone so devoted to physical achievement, Little was constantly being undercut by obstacles. During a high school football game, Little—who was a star player on his team in Ohio—ended up tearing the cartilage in his knee after he collided with future NFL player Rob Lytle. From that point on, Little's knee popped out of place whenever he stepped onto the field or went to gym class.

Tony Little is photographed at the premiere of Vh1's 'Celebrity Paranormal Project' in Hollywood, California in 2006
John M. Heller, Getty Images

In There’s Always a Way, his 2009 autobiography, Little wrote about how that injury—and the loss of a potential athletic scholarship—caused him to act out. A friend of his stole a Firebird and took Little for a joyride. When they were caught, Little took the blame; as he was under 18, Little figured he would get by with a slap on the wrist, while his older friend might be tried and convicted of a serious crime as an adult. According to Little, the judge gave him a pass on the condition that he relocate to Tampa Bay, where he could live with his uncle and put some distance between himself and the negative influences in his life. Little agreed.

Because of his previous injury, Little was unable to play football after making the move to Florida; instead, he devoted himself to his new high school’s weight room, where a bad knee was not nearly as limiting. After graduating, he pursued bodybuilding, earning the titles of Junior Mr. America and Mr. Florida. Little envisioned a future where he would be a fitness personality, selling his own line of supplements when he wasn't competing professionally.

The school bus changed all that. Little, who was now unable to train at the level such serious competition required, retreated to his condo, where he said he relied on painkillers to numb the physical and emotional pain of the accident. More misfortune followed: Little accidentally sat in a pool of chemicals at a friend’s manufacturing plant, suffering burns. He also had a bout with meningitis.

While Little was convalescing from this string of ailments and accidents, he saw Jane Fonda on television, trumpeting her line of workout videos. Little was intrigued: Maybe he didn’t need to have bodybuilding credentials to reach a wider audience. Maybe his enthusiastic approach to motivating people would be enough.

By now it was the mid-1980s, and a very good time to get into televised pitching. In 1984, President Ronald Reagan signed the Cable Communications Policy Act, which deregulated paid airtime for cable networks. Herbalife was the first to sign up, airing an infomercial for their line of nutritional products. Soon, stations were broadcasting all kinds of paid programs. Exercise advice and equipment pitches were abundant, a kind of throwback to department stores that used to feature product demonstrations. It was not enough to read about a Soloflex, which used resistance bands to strengthen muscles. It was better to see it in action.

Now that he was back in shape, Little was ready to make his mark. He was told by his local cable access channel that he could buy 15 half-hours of airtime for $5500. To raise the money, Little started a cleaning service for gyms and health clubs. After airing installments of an exercise program, he was picked up by the Home Shopping Network (HSN). Little made his HSN debut in 1987. With his energetic pitch and trademark ponytail, he sold 400 workout videos in four hours.

 

Little was on the home-shopping and infomercial circuit for years before landing his breakthrough project. In 1996, the Ohio-based company Fitness Quest was preparing to launch their Gazelle, an elliptical trainer that could raise the heart rate without any impact on joints. People used their hands and feet to move in a long stride that felt effortless.

Little felt he would be the perfect spokesperson for the Gazelle and entered into an arrangement with Bob Schnabel, the company's president. The night before the infomercial was scheduled to shoot, Little was driving when he got into another serious car accident that required 200 stitches in his face. Little called Schnabel to break the news, and was told he’d have to be replaced.

Tony Little demonstrates a Gazelle during an MTV upfront presentation in New York in 2016
Mike Coppola, Getty Images for MTV

Undaunted, Little flew from Florida to Ohio to speak to Schnabel in person. By insisting that he could make the story inspirational (and that he could cover up his injuries with make-up), Little managed to convince Schnabel to proceed with the infomercial as planned. The Gazelle ended up with $1.5 billion in revenue, with Little’s other ventures—Cheeks sandals, bison meat, and a therapeutic pillow—bringing the total sales of his endorsed products to more than $3 billion. Little later reprised his Gazelle pitch for a Geico commercial, which also served as a stealth ad for the machine—which is still on the market.

While pitching wound up being relatively low-impact, it was not completely without problems. Little once said that the accumulation of appearances—more than 10,000 in all—has done some damage to his neck because of constantly having to swivel his head between the camera and the model demonstrating his product.

Those appearances have made Little synonymous with the machine. In 2013, the Smithsonian's National Zoo wondered what to name their new baby gazelle. The answer: Little Tony.

A Timeless History of the Swatch Watch

Jeff Schear, Getty Images for Swatch
Jeff Schear, Getty Images for Swatch

A curious sight surrounded retail watch counters in the 1980s and early 1990s. The crowds that gathered as salespeople put new Swatch watches out for purchase resembled something out of the Cabbage Patch Kid craze of just a few years earlier. Shoppers would jostle one another in the hopes of scoring one of the $30 plastic timepieces, which came in a variety of colors and designs. The demand was such that sellers often set a one-watch-per-customer limit.

That’s where the odd behavior came in. Customers would buy a Swatch, leave, then return—this time in a different set of clothes or even a wig in an effort to overcome the allocation and buy a second or third Swatch. The watches were the fashion equivalent of Beanie Babies, though even that craze didn’t quite reach the heights of needing a disguise. Limited-edition Swatches were coveted by collectors who had failed in their pursuit at the retail level and paid thousands for them on the aftermarket. The accessories simultaneously became a fashion statement and an artistic canvas.

More importantly, they also became the savior of the Swiss watch industry, which had been on the verge of collapse.

A person models a Swatch watch on their wrist
Tasos Katopodis, Getty Images for Soho House Chicago

To understand the unique appeal of Swatch, it helps to size up the landscape of the timepiece category in the late 1970s. Swiss watches, long considered the gold standard of timepieces, were being outpaced by quartz-powered digital imports from Japan that were cheap to produce and cheap to sell. Faced with the choice of buying a quality watch for a premium price or opting for a bargain digital model, an increasing number of consumers were choosing the imports. Business was down, factories were closing, and jobs were being lost.

Fortunately, a number of things were happening that would prove to offer salvation for the Swiss. ETA SA, a company that made watches and was headed up by Ernst Thomke, had recently invested in an injection-molding machine at the behest of engineer Elmar Mock. Mock, along with his colleague Jacque Muller, spent 15 months crafting a plastic prototype watch that was one piece and welded together. The significance of a sealed unit was that it economized the entire process, turning watches from handcrafted units to models that could be produced by automation. The watches required just 51 parts instead of the 91 pieces typical of most models at the time. In this way, Thomke, Mock, and Muller had produced a timepiece that was both durable and inexpensive.

The issue was why someone might opt for a Swatch watch over a digital Japanese model. Thomke knew that the idea of a “Swiss watch” still held wide appeal in the same way someone might opt for a real Chicago deep-dish pizza over an imitator’s version. Along with Nicholas Hayek, who later became CEO of the Swatch Group, Thomke believed he had cracked the code for a Swiss watch renaissance. He released the first Swatch in Zurich in March of 1983.

But the manufacturing process that allowed Swatches to come in at a reasonable price was also a problem. Automating the process meant the watches and bands were almost always identical in size and shape. If the watch’s general appearance couldn’t be changed, how could it stand out?

A selection of Swatch watches are seen on display
Anthony Kwan, Getty Images

The answer was in the design. The Swatch name came from a contraction of two words: secondary watch. The idea was that a watch could be analogous to a necktie or other fashion accessory. No one owned just one tie, scarf, or pair of dress shoes. They typically had a rotation. Thomke and Hayek didn't believe a watch should be any different.

At the behest of marketing consultant Franz Sprecher, Swatches were soon flooding stores in an assortment of colors and with different designs on the face of the timepiece itself. They could be coordinated for different outfits or occasions, a practice that became known as “watch wardrobing." Someone who bought a red Swatch for summer lounging might opt for a black Swatch as part of their professional attire. The watches retailed for $30 to $40 apiece, so buying more than one was financially feasible.

That was the concept, anyway. Some U.S. retail stores received their Swatch inventory and didn’t know what to make of what was—on the surface—a cheap plastic watch. Neither did their customers.

What Swatch needed was a marketing plan. That largely fell into the hands of marketing consultant Max Imgruth, who was named president of the company’s American division. Swatch saw their sales rise from $3 million in 1984 to $105 million in 1985. Thanks to an effective advertising campaign and more eclectic color choices, public perception of Swatches put them firmly in the fashion category.

A selection of Swatch watches designed by artist Keith Haring are seen on display
Anthony Kwan, Getty Images

The approach opened up a new market, one Thomke, Hayek, and their colleagues had not quite anticipated: Collectors were rabid about Swatches.

To keep their biannual collections of 22 to 24 watch releases fresh, Swatch began recruiting a number of collaborators to design extremely unique offerings. In 1984, they enlisted artist Kiki Picasso to design a series. The following year, Keith Haring designed his own collection. In a kind of prelude to the sneaker design phenomenon of the 1990s and beyond, these collaborators put their own distinctive stamps on the Swatches, which acted as a kind of canvas for their artistic expression.

Between third-party designers and contributions from Swatch’s Milan, Italy, design team, collectors couldn’t get enough. There was the Swatchetables line, which imagined the Swatches in a series of food-related motifs—a red-hot chili pepper Swatch, a cucumber Swatch, and a bacon-strap and egg-faced Swatch. The entire set sold for $300 and only at select food markets, quickly shooting up to $2400 in the secondary market. (Like all aftermarket Swatches, they needed to be kept in their plastic retail case in order to realize their full value.) Some resellers bought up stock in New York, then resold them for three times the price in Italy.

The 1985 “Jellyfish” model was transparent. The 1989 “Dadali” had a face with Roman numerals that appeared to be melting off the face and onto the strap. Swatches came with cuffs to honor Mozart or adorned with synthetic fur. There were Mother’s Day editions and editions celebrating the 200th anniversary of the French Revolution. Some of the straps were scented.

A selection of Swatch watches are seen on display
Anthony Kwan, Getty Images

The possibilities were endless, and so was the consumer appetite. (Except for yellow straps, which traditionally sold poorly.) Collectors camped out for Swatches at retailers or hundreds of Swatch-exclusive stores around the country. Affluent collectors dispatched employees to different retailers in the hopes of finding a limited-edition watch for retail price. If they failed, some had no problem paying thousands of dollars at auction. A Kiki Picasso Swatch, one of a very limited 121 pieces total, sold for $28,000 in 1992.

Though no one wears disguises to acquire Swatch watches anymore, the company is still issuing new releases. And while the company has seen a decline in sales over the years—the rise of smartwatches like the Apple Watch and Fitbit continue to eat into their marketing share—affection for the brand is unlikely to disappear entirely anytime soon. In 2015, one of the world’s largest collections of Swatches—5800 pieces—went up for sale, and ultimately fetched $6 million.

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