E-business may have been the most innovative idea to emerge from the birth of World Wide Web, but it was also the most misunderstood technology. Most firms believed that e-business would be easy. All you had to do was to offer your products or services online and then let customers visit you and make their purchases. But as it turned out, e-business turned out to be more complicated than that, resulting in massive shakeout in e-commerce sector during early 2000s. The dot.com bubble, as it was commonly known as, was one of the worst possible scenarios in the growth of e-business and it was believed that firms might never be able to harness the power of the Internet successfully. Brick and mortar option was considered safer and the sudden failure of most e-business was attributed to many things including poorly conceived business structures and models. During their study on e-business failure spanning 18-months from January 1999 to June 2000, researchers Agarwal, Arjona and Lemmer (2001) argued that most e-businesses had failed because of "fatal attraction" phenomenon. This is where you are capable of luring the visitors to your site but fail to convert them into buyers. They and some other researchers asserted that failure to follow some basic marketing rules had resulted in this e-business failure as Varianini and Vaturi (2000) explained:
When electronic commerce was young and the outlook was rosy, it seemed that the basic rules of marketing could be cast aside. The most important thing was thought to be a speedy launch to grab a share of the market space. Profit wasn't a near-term, or even a medium-term, goal. The aim was to get as many visitors as possible to your site, on the assumption that this would, at some stage, translate into profits. Today that strategy is in tatters.
Such explanations had some worth and value. But they only explained one part of the problem. While they offered useful information on e-business failures, they failed to take into account other factors such as organizational structure, external and internal strengths of the firm which were as responsible for the failure as poor business model and wrong marketing strategies.
Let us now look at two important e-businesses that failed to take off and learn more about success and failure of this mode of business in the light of these case studies. We shall then explain why these businesses failed and where the core of the problem lies. Here we take into account the e-business failures of Web-Van and e-Toys- two firms that began their e-business operations with great deal of promise and were run by some of the most capable people in the industry. The primary purpose of studying these two cases is to demonstrate that the main problem with their strategy was the failure to see that their service was a new kind of service. Secondly it must also be borne in mind, that for an e-business strategy to be successful, it must focus on both the back-end and front-end work. It is important that back-end work is done as efficiently as the front-end. In the case of Web Van and e-Toys, it was noticed that while a great deal of attention was paid to the front-end where everything was expected to look attractive, the back-end was completely ignored, resulting in serious backlog and efficiency problem.
WebVan was not to be an ordinary e-business. It started with initial funding of $122 million from companies such as CBS and Knight Ridder and had the support of some of the top-notch capital firms including Benchmark Capital, Sequoia Capital and Softbank. Webvan was first launched in San Francisco Bay Area on June 2, 1999. Louise R. Borders and his associates decided to hire some high-profile people to head this e-business. For this reason, Accenture CEO George Shaheen was selected and Webvan was armed with just the right arsenal to take the world by storm. The firm wanted to revolutionize the way people did grocery shopping and tried not to repeat the mistakes made by other grocery stores including Peapod. According to them, their e-business strategy was foolproof and folly-free which meant there was little likelihood of this business venture failing. However this was not to be so. In just two years of its inception, Webvan had lost $1 billion and its stock came down from $34 to mere cents. The volume of orders also dropped significantly in the last few months of its short-lived existence. As Wilson (2001) quotes one customer of Webvan:
Even as I placed a regular, twice-monthly order with WebVan and marveled at the ease of it all, I had to wonder how long it would last. It simply didn't make sense to me that I could sit at my computer and do shopping in 15 minutes that normally would take an hour or more, then have my groceries delivered at no noticeable premium. The savings to me, in time, gasoline and frustration, were obvious, but WebVan's profit potential wasn't. The company said it could achieve profitability at certain customer volumes, but it bled too much cash trying to reach those volumes.
In recent months, as WebVan struggled to survive, it continually made special offers to keep us shopping. I was shopping anyway, but no one turns down $20 in free groceries.
I had to wonder, however, whether those $20 rebate offers weren't just cutting deeper into WebVan's bottom line. Considering that its drivers were always on time and courteous, the goods were delivered in special packaging for freshness - each green pepper got its own ZipLock bag - and each order came with some special freebie, WebVan appeared to me to be working too hard for too little money.
WebVan had hoped that people would switch from brick-and-mortar to electronic clicks in no time but this was sadly not to be the case. Customers could see no genuine benefit of shopping online when their supplies would arrive hours later anyways. It was argued that WebVan had expanded too fast too soon and its presence in multiple cities had proved too costly. While the demand had increased, the capacity to handle that demand had not.
eToys case study:
eToys was another brave new concept in the world of e-business back in 1996. The company started operating online in 1997 and had to shut down its operations in 2001. While the firm had experienced huge increases in sales, there were also dramatic increases in losses- making eToys another e-business that failed to make any profits during its short existence. The firm was not a failure because of lack of demand. This is clear from the fact that the sales, which were $24 million in 1998, had gone up to $182 million in 2000. This is no mean victory by any standard. However at the same time when demand was increasing, the company was also losing money rapidly. The losses were around $35 million in 1998 but climbed to a staggering $137 million in 2000. The stock came crashing down to pennies from a high price of $86.
eToys had opened its doors to the public as a web retailer with array of children good. The products included everything from toys, videos, and games to music and software. It was felt that eToys was the perfect solution to the traditional way of toy shopping. Not only did it offer an easy layout and search facilities, it was also less time-consuming. The firm asserted that with the choices as broad as traditional names brands such as Mattel, Hasbro, and Leggo to more luxury brands like Brio, Playmobil, and Learning Curve- eToys was just the right place to shop for children's goods. They were right to some extent. The sales soared to $151 million in 2000 but the same year, the firm also lost $189.6 million. Stock price crashed to $5 and it was clear that eToys was not making any profits. This venture again was a total failure.
To understand why these or some other e-business strategies failed, it is important to draw lessons from vast body of literature present on the subject. (Ayers, Dahlstrom, and Skinner 1997, Berggren and Thomas 2001, Brown and Eisenhardt 1995, Datar, Jordan, and Srinivasan 1997, Howells 2001, Ittner and Larcker 1997, Kessler, Bierly and Gopalakrishnan 2001, Leonard-Barton, Wilson, and Doyle 1995, Madique and Zerger 1984, Rangan and Bartus 1995, Srinivasan, Lovejoy, and Beach 1997). Though considerable effort had been made by companies to understand the reasons why e-business strategies failed, it was found that failure rate of new business was still quite high. Arthur D. Little reports that around 85% of 700 companies that he studied were dissatisfied with their e-business ventures and strategies. (Berggren and Thomas, 2001). The following recommendations could be collected from various studies:
1. Successful managers of e-business innovation are required to learn from their mistakes. (Howells 2001).
2. Successful managers understand the importance of matching goals with capabilities. They do not…