Retailers Scramble as Major Internet Mall Announces Shutdown

If you heard a loud crash this weekend, it may have been the sound of 390,393 online stores shutting their doors for the last time.

One of the e-commerce pioneers, Zlio.com, announced that it will cease operations and force its 390,393 member retailers to find new homes for their online ambitions. The reason for the collapse appears to be Google's February search algorithm change that demoted the search-result rankings of many content farms. [Note: ZLIO.com should not be confused with the real estate site ZILO.com]

In a press release sent to me by email on Friday, this former giant of online "pop-up stores" made the following announcement:

Six years after its launch, we regret to announce that we are going out of business.

The service will officially end on September 11!

Zlio had a fantastic start, receiving capital from one Europe's largest venture capital funds, Mangrove Capital. In addition, we held advanced M&A talks with Google, which unfortunately fell through at the last minute.

Our strong initial growth was interrupted on September 27, 2007, when the majority of Zlio shops, which were generally very well ranked, saw their Google ranking drop dramatically, eliminating 65% of our traffic.

Despite our best efforts, and the opening of 380,000 stores to date, it has not been possible to regain our previous Google rankings, except in exceptional cases.

There are important lessons in here for anyone making a living online:

1. Marketing must include more than SEO.  ZLIO -- and its members -- relied too heavily on the traffic generated by their sheer volume.  By leaving the promotion in the hands of ZLIO (which in turn passed the burden to Google's ranking engines), the store owners doomed themselves. 

2. Promote yourself until it hurts.  Each ZLIO store owner believed that the other owners would drive traffic and buyers to the virtual shopping mall. This doesn't work in the real world, and now it doesn't work online, either.  In the new-new-economy, you must constantly promote your own website and build your own community.

3. If it's too good to be true...  In many ways, ZLIO was just too good to be true.  The site boasted that you could open an online store "in just 5 minutes" without handling any products or transactions. The founders optimistically hoped to make e-commerce easier for great marketers.  Instead they simply attracted lazy storekeepers.  The virtual mall became a ghost town of stores running on auto-pilot without any meaningful content or promotion.  When Google stopped playing that game, the mall collapsed.

The English website does not yet have details of the closure, but the French language site does.  I have posted the full copy of ZLIO's email announcement here.  Besides the Google SEO debacle, it outlines an unfortunate lawsuit.

In a final ironic twist, the press release ends with the names of four new startups that ZLIO teams have launched, including www.iadvize.com, a live-chat widget which purports to "increase your sales and improve your clients’ satisfaction".

Rest in Peace ZLIO.