Egghead Software

Egghead Software was a computer software retail company.[1] It was founded by Victor Alhadeff in 1984, and grew into a chain with over 200 stores in the United States and a few in Canada. Its stores were primarily located adjacent to shopping malls. Egghead operated two distinct divisions - Retail Division and the Corporate, Government & Education (CGE) Division.[2] Competition grew especially from big box retailers. Severe price pressures also grew in the CGE division. In May 1996 Egghead sold the CGE division to Software Spectrum of Dallas Texas.[3][4] Reported proceeds of the sales vary from 45 million to 90 million and the associated revenue was documented at between 362 million to 440 million. Faced with declining revenues, in 1998, the company shifted its focus to online business, closing its retail locations and selling entirely through its Egghead.com website.[1] Egghead.com merged with online auctioneer OnSale.com in 2000 and assumed the name Egghead.com.[1][5]

Egghead was hurt by a December 2000 revelation that hackers had accessed its systems and potentially compromised customer credit card data.[6] The company filed for bankruptcy in August 2001. After a deal to sell the company to Fry's Electronics for $10 million fell through, its assets were acquired by Amazon.com for $6.1 million.

Brick-and-mortar period (1984–1998)

Employee coffee cup, circa 1988

Egghead was successful from the early days, expanding from a single store in Bellevue, Washington, to a 200-store chain, with locations primarily on the West Coast.[1] A 1989 newspaper promotion in the Los Angeles area announcing the grand opening of the Pasadena, California, store offered a coupon offering customers a free 5¼" 360k floppy disk for showing up—at the time an unprecedented offer. Customers were lined up out the doors and down the block, an indication of the insatiable desire for software in the booming personal computer market.

Early on, the company focused on repeat business, customer service, and sales integrity. Egghead easily became the premier retail vendor of software and peripherals in the United States. The company sold more Microsoft product than any other U.S. vendor for a number of years and enjoyed distinctly favorable pricing as a result.

Among other things, Egghead's customers could sign up for a "CUE" card (for "Customer Updates and 'Eggs'tras") that would guarantee a slightly reduced price on certain items, while at the same time tracking user purchases.[7]

Internet period (1998–present)

Several years into the business expansion, the original founder, Victor Alhadeff, went into semi-retirement. The board brought in George Orban as CEO, a man with retail experience in building the businesses of Ross Stores, Devon Stores, and Office Mart. George Orban was chairman of the board as well as a major stockholder.[1][8] After a huge run up in Internet stocks (1997–1999), and facing declining margins from increased manufacturer pricing as well as increased competition from so-called "superstores", Orban closed all 250 of its loss-generating retail stores to focus entirely on its small, but profitable and growing, web business in January 1998.[1] The decision to close all retail stores was unprecedented, but bolstered by market research and a belief that web sales represented the future.

Even as its retail outlets closed, Egghead expanded its online offerings with the purchase of Surplus Direct.[1] In response, Onsale.com, a struggling online auctioneer, merged with Egghead to form Egghead.com in 2000.[1] Onsale CEO Jeff Sheahan and president Jerry Kaplan assumed the same roles for the merged company, and Orban was named chairman of the board.[1][5][9] Kaplan later became co-chairman.[9]

In December 2000, the company's IIS-based servers were compromised, potentially releasing credit card data of over 3.6 million people.[10][11] In addition to poor timing near the Christmas season, the handling of the breach by publicly denying that there was a problem, then notifying Visa, who in turn notified banks, who notified consumers, caused the breach to escalate into a full blown scandal.[12]

Although Egghead had more PC software sales experience than most any other retailer, having been in business with outlets across the nation since PCs became popular in the mid-1980s, and having pioneered Internet software and hardware sales, they were nevertheless out-resourced and surpassed by the publicly traded giant Amazon.com. Sales were insufficient to sustain the business in the face of such a multinational giant, their stock plummeted, and the company went into bankruptcy. In 2001, Amazon purchased Egghead for $6.1 million. Egghead.com now redirects to Amazon's software pages.

References

  1. 1 2 3 4 5 6 7 8 9 "Egghead.com, Inc.". Company Histories. Funding Universe. Retrieved 2009-06-13.
  2. ↑ http://ecommerce.hostip.info/pages/374/Egghead-Com-Corp.html
  3. ↑ http://www.nytimes.com/1996/03/26/business/company-news-software-spectrum-plans-to-buy-egghead-division.html
  4. ↑ http://fcw.com/articles/1996/08/11/software-spectrum-absorbs-egghead-fed-biz-aims-for-larger-market.aspx
  5. 1 2 Junnarkar, Sandeep (November 22, 1999). "Egghead, Onsale complete merger". CNET News. CNET Networks. Retrieved 2009-06-13.
  6. ↑ http://www.sfgate.com/business/article/Fallout-Remains-From-Egghead-com-Hacking-Some-2966203.php
  7. ↑ CUE Cards Introduced http://www.highbeam.com/doc/1G1-13575064.html
  8. ↑ Flynn, Laurie J (March 1999). "Quick-change artist: Egghead's CEO bets the company on a plan to become a 'store without stores'". New York Times. ContextMag.com. Archived from the original on August 5, 2009. Retrieved 2009-06-13.
  9. 1 2 "Jerry Kaplan: Serial Entrepreneur". Entrepreneurial Thought Leaders Seminar. Stanford University. Retrieved 2009-06-13.
  10. ↑ Lemos, Robert (December 22, 2000). "Egghead cracked; data at risk". ZDNet News. Ziff Davis. Archived from the original on January 2, 2008. Retrieved 2009-06-13.
  11. ↑ "Credit Card Thievery Report; Crackers May Have Stolen Personal Information from Hundreds of Thousands of Computer Users". EmergencyNet. Emergency Response & Research Institute. January 8, 2001. Archived from the original on June 10, 2008. Retrieved 2009-06-13.
  12. ↑ Greene, Thomas C (April 27, 2001). "Egghead credit card hack: serious questions remain". The Register. Retrieved 2009-06-13.
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