CyberRebate

» see cyberrebate.com as it lived, on the wayback machine

~ the eulogy ~

i missed cyberrebate. wrong country and wrong consumer culture. mail-in rebate as a retail mechanism never really lived in turkey. our version of the discount was the bargain weeks at migros or a printed paper coupon. the american suburban household that filed a small folder of mail-in rebate forms every month was not a turkish category. cyberrebate was built specifically for that household, then it ate itself.

joel granik incorporated cyberrebate on may 16, 1998. joseph lichter plus athan vadiakas filled out the founding team. the model was deliberately strange. they listed consumer electronics and software at prices three to ten times the manufacturer's list. each item came with a promise of a 100 percent rebate by mail, payable thirteen weeks after purchase. you paid the inflated sticker, you mailed the form, you waited a quarter, you got a check for the full purchase price back. the goods themselves cost nothing in the end if you were patient enough to wait out the cycle.

the model rode on breakage. retail rebate programs historically rely on the gap between people who buy and people who actually claim. cyberrebate priced the gap into the offer. the bet was that enough customers would forget to mail the form or just lose track of the thirteen weeks. by january 2001 the company was the third-largest online retailer in the us with 7.7 million monthly visitors. by may of the same year the model had collapsed.

~ the dossier ~

~ the scheme ~

calling cyberrebate a scheme is fair. the company did not invent the rebate-breakage trick. consumer-electronics chains had been running rebate programs on the same math for decades. cyberrebate's innovation was setting the rebate at 100 percent and the markup at three to ten times. that made the sticker offer look free and the actual price structure depend entirely on people not finishing the paperwork. when the paperwork-completion rate ran higher than the model assumed, the company owed cash it did not have.

internet retail in 1999 to 2001 ran in part on this kind of mechanic. coupons that never expired plus free shipping that lost money on every order. the broader dot-com bust killed companies running the same loose math at scale. cyberrebate was unusual only in how clean the underlying obligation looked on the balance sheet at the end.

~ the math broke ~

chapter 11 came on may 16, 2001, the third anniversary of incorporation almost to the day. the filing listed 83.3 million dollars in liabilities against 24.5 million in assets. approximately 80 million of the liability number was unpaid customer rebates. nine individual customers each held claims between 79,000 and 100,000 dollars in unredeemed rebate paperwork. the model had attracted exactly the demographic of careful filer it had been built to bet against. they had filed.

the bankruptcy proceedings dragged on for years. by april 2005 creditors recovered about eight cents on the dollar. by august 2006 a second distribution paid about six hundredths of a cent on the dollar. for a customer who had been owed 100,000 dollars in promised rebates, the final recovery was around eight thousand from the first round plus another sixty dollars from the second. one dollar back for every sixteen hundred claimed.

~ the long tail ~

cyberrebate sits in the dot-com bust cluster next to webvan and pets.com but the death mechanism is its own. those companies died of cash burn at delivery scale. cyberrebate died of math that depended on customers being lazier than they were. the broader rebate industry kept running on the same breakage assumption afterward and still does. the difference was the percentage. consumer-electronics retailers landed at five or ten percent of price as the rebate. cyberrebate had been at 100, and 100 is the level at which any rate of follow-through becomes an extinction event.

the long-tail lesson for online retail was that the breakage trick scales badly. a model that requires customer error as the load-bearing assumption breaks at the moment customers get organized. the next decade of e-commerce built around precisely the opposite assumption, that any friction in claiming a discount produces a customer complaint that costs more than the discount itself. cyberrebate's death made that lesson concrete to anyone who was paying attention in 2001.

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