Few niches crashed more spectacularly during Web 1.0 than the pet sector. In the space of just nine months in 2000, Pets.com managed to raise a jaw-dropping $82.5 million in an IPO, air a $1.2 million Super Bowl ad starring its sock puppet mascot, land funding from Amazon.com (Charts), build a network of cavernous warehouses … and go out of business without making a penny in profit.

So when San Francisco Web designer Ted Rheingold co-founded Dogster.com in January 2004 as a kind of canine version of Friendster, the news drew smirks from the few who bothered to notice. How could Dogster, a pet site cobbled together on weekends and launched on a shoestring budget, expect to succeed where lavishly funded pet sites had flamed out? The consensus on Dogster.com was unanimous: It would fail.

Since its launch, Dogster has indeed failed, repeatedly, in ways its founders never imagined.

But that, it turns out, has been a good thing. Dogster has found a way to turn its mistakes into better features. With virtually no promotion, Dogster (along with sister site Catster.com, launched in August 2004) has become a leading social network for pet lovers, boasting more than 275,000 human members, 340,000 photos and profiles of dogs and cats, and a stable of blue-chip advertisers such as Disney, Holiday Inn, and Target.

Dogster has even done something Pets.com never came close to doing: It has turned a modest profit. While site founders decline to give details, they claim that Dogster has been running in the black since July 2005. Last year the company said it earned more than $1.1 million in revenue and nearly doubled its number of users.

Along the way the site has become a case study in how to fail well - by launching features quickly, seeing what works, and fixing things on the fly. “When we roll out a new feature, we know we’re probably not going to get it right the first time,” Rheingold says, perched in the startup’s loft office in the Potrero Hill section of San Francisco, close enough to the Anchor Steam Brewery that you can smell the hops.

Companies like Dogster that constantly examine user data - especially the discouraging stuff - are finding the information increasingly vital online. “Instead of working on a feature for months trying to get it perfect,” Rheingold says, “we’ll work on something for two weeks and then spend two or three days listening to users and fine-tuning it.”

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