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At its core, the CueCat is a barcode scanner, similar to the light-based scanners found in grocery stores and most other retail outlet cash registers, as well as many other applications like inventory control and libraries. This specific barcode scanner, the CueCat, was a free handout that came with my Wired magazine subscription around 2000. They were delivered with other magazines and were also mailed out to certain people and handed out in some stores. This was right before the dot com bubble burst, so companies were still spending money like crazy without necessarily having a viable business plan. Why would you want such a thing? What was the business plan for the CueCat?
I can't speak to the business plan, but the intended use was the following: You connected your CueCat to your computer via PS/2 port--USB versions came later--then you would scan barcodes in magazines and newspapers which would bring you to product websites or articles. You could also use the CueCat to scan your groceries and other standard product barcodes (Universal Product Codes, or UPC symbols) in order to find out more about the product's manufacturer. There was also a way to hook it to the audio out jack of your TV and when broadcasters sent out a particular tone, the CueCat software would load a webpage. I don't ever remember using the audio part, but I still have the audio cable.
So it wasn't a bad idea, per se. It was an attempt at linking the physical world to the digital world. See something interesting in a magazine that you want to find more about? Scan the page and *voilà* instant access on the web! In fact, today's QR codes and barcode scanners that use the camera on mobile phones are direct descendants of the CueCat. Scan a QR code on the window at your favorite restaurant with your iPhone and immediately get access to the menu online (assuming it doesn't use Flash).
The CueCat, however, was both ahead of its time and just not useful enough because of its awkwardness. I will admit that the CueCat did work as intended, albeit with some controversy. The barcode scanner was fairly standard, except that it encodes the barcode in a proprietary way and adds on one little bit of information: The CueCat's serial number. This raised a few eyebrows as it was considered by many to be a privacy breach. Sure you can scan those magazines and products, but each time you do your serial number is sent to the CueCat company (Digital Convergence Corporation) so they can track your every move. There was no easy way to remove the serial number from the scan and officially you were not allowed to because of the End User License Agreement (EULA).
Obviously, Digital Convergence Corporation has disappeared and CueCats and the CueCat service is no longer in existence. Nowadays there are hacks to decode the string to enable reuse of the CueCats as standard barcode scanners. You can even buy PS/2 CueCats on Amazon and find USB versions online.
Interestingly, around the same time in 2000 when the CueCat came out there was another similar service that gave away free Intel webcams, also in magazines like Wired. My wife and I got free Intel webcams similar to this one out of the deal. The idea behind this other service, which name escapes me, was to hold up a magazine page to your webcam so that the camera could scan the proprietary barcode. Then, like the CueCat, the computer software would whisk you to a website. In fact, this was closer to today's QR codes than the CueCat was, since it used a camera instead of a barcode scanner. The problem: in almost any lighting it was near impossible to get the camera to properly focus on the printed code. It was faster to just type in a website address or AOL keyword. Big failure there, even bigger than the CueCat. Like I said before, I cannot even remember was the service was called.
While the CueCat and its camera-based cousin were failures of the dot com bust, the ideas behind them have evolved to today's QR code scanners and product photo lookup services like Amazon has for smartphones. So they were not complete failures in the eyes of technology, just massive failures in the eyes of business.
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