FAILURES AND STRATEGIES FOR SUCCESS

E-Commerce Failures : Failures of EC initiatives are fairly common. Furthermore, during 2000–2002,
large numbers of dot-com companies failed. In this section we will look at some
examples of failures and their causes. We will also look into some success factors
that can be used to prevent failure.
INTERNET-RELATED EC FAILURES. Pioneering organizations saw the potential
for e-commerce, but expertise and EC business models were just developing.
Failures of EC projects started as early as 1996. However, the major wave of
Internet-based EC failures started in 2000, as second-round funding (funding
subsequent to a firm’s original funding but before it goes to the stock market with a stock offering) began to dry up. Here are some examples. (In the list we
have highlighted key reasons for the failure.)
● Dr. Koop, a medical portal, was unable to raise the needed advertising
money, so the company folded. The diagnosis: death due to incorrect business
model.
● An Internet mall operated by Open Market was closed in 1996 due to an
insufficient number of buyers.
● Garden.com closed its doors in December 2000 due to lack of cash. Suppliers
of venture capital were unwilling to give the company any more money to
“burn.”
● Several toy companies—Red Rocket, eParties.com, and BabyBucks.com—
failed due to too much competition. This competition led vendors to lower their
prices, which resulted in insufficient profits.
● Living.com, the online furniture store, closed in 2000. The customer acquisition
cost was too high.
● PaperX.com, an online paper exchange in the UK, folded due to lack of
second-round funding.
● Webvan, an online grocery and same-day delivery company, made a huge
investment (over $1 billion) in infrastructure of warehouses and logistics. But its
income was insufficient to convince investors to fund it further. It collapsed
in 2002.
● In late 2000 Chemdex.com, the “granddaddy” of the third-party exchanges,
closed down. Ventro.com, its parent company, said that the revenue growth
was too slow and that a new business model was needed. Chemdex was not
alone: During 2001–2003 large numbers of exchanges folded or changed
their business models.
According to Useem (2000), the major reasons for EC failure are incorrect
revenue model, lack of strategy and contingency planning, inability to attract
enough customers, lack of funding, channel conflict with distributors, too much
online competition in standard (commodity) products (e.g., CDs, toys), poor
order-fulfillment infrastructure, and lack of qualified management. To learn
more about EC failures, visit whytheyfailed.com and techdirt.com.

FAILED EC INITIATIVES WITHIN ORGANIZATIONS : Whereas failed companies,
especially publicly listed ones, are well advertised, failed EC initiatives within
companies, especially within private companies, are less known. However,
news about some failed EC initiatives has been publicized. For example, Levi
Strauss stopped online direct sales of its apparel (jeans and its popular Levi’s
and Dockers brands) on its Web site (levistrauss.com) after its major distributors
and retailers put pressure on the company not to compete with their brickand-
mortar outlets (channel conflict). Another EC initiative that failed was a joint
venture between Intel and SAP, two world-class companies, which was
designed to develop low-cost solutions for SMEs. It collapsed in August 2000
due to low demand and too few customers. Large companies such as Citicorp,
Disney, and Merrill Lynch also closed EC initiatives after losing millions of
dollars in them.