An example of e-commerce failure and its causes

E-COMMERCE FAILURE

An example of an e-commerce failure and its causes

First and foremost, in the e-commerce field, a notably large number of businesses were started to take benefit of the opportunities that the Internet provide. Yet, while many of these businesses are successful and profitable, the huge majority of them have had to shut down due to lack of profitable business activities. According to research, at least 210 Internet companies went out of business in 2000 (Webmergers.com 2000). In terms of business sectors, about 75% of the failed companies were in the consumer (B2C) sector and 30% were content providers.

There are several examples of well known Internet-based (e-commerce) businesses that failed. The list provided by Hinssen (2001) includes companies such as: Pets.com, Funiture.com, Bid.com, eToy.com, and Auctions.com. Other businesses include Boo.com, Toysmart.com, ValueAmerica.com, and Petstore.com. The major factor that worries business analysts and venture capitalists and other investors is that this trend is expected to continue - i.e., the majority of new e-commerce businesses are expected to fail.

The purpose of this write-up is to analyze the causes of the failure of the e-commerce businesses. Thus, we look at one of the e-commerce failure that is eToy.com.

For instance, eToy.com failed in e-commerce because of the founder of eToy.com previously worked for the Walt Disney Corporation, but had no experience with the retail toy industry. Generally management experience is considered to be one of the most important contributing factors to success or failure. Without previous experience, a business is more likely to fail. In the case of these online retailers, even though there was a wide range of experience among the leaders, it may have been the lack of specific industry knowledge that contributed to the failure.

Besides that, competition environment is one of the causes. The eToy.com was competing with companies such as Toys R’ Us that had not only an online presence, but also the perceived stable infrastructure of bricks and mortar. EToys.com strategy to offer more diverse products conflicted with the strong “toy store” branding they had created. The price wars and high customer acquisition costs also caused problems for this e-tailing.

Furthermore, customer service and poor demand forecasting also pose as a causes of failure to eToy.com. For example, in the case for the 1999 Christmas season, it decided to use a third party, Fingerhut, to fulfill orders. EToys.com described the outcome as a disaster. Seeing the disappointment on a child's face only once was enough for a parent to never buy from that company again. This electronic orders increased, particularly during the peak holiday season, eToy.com was unable to meet its delivery requirements due to its limited logistics capability and poor demand forecasting, and make eToy.com unsuccessful in e- commerce.

Finally, though the sites did offer toll free lines for customer services and attempted to have representatives in place for consumer contact, but this was not enough to create a feeling of trust and services.Thus, security and trust is another importantt factor to be considered in e-commerce businesses.