An example of an E-Commerce failure and its causes

During the late 1990s and early into the year 2000, we witnessed the launch, rapid rise and sudden fall of a relatively new industry…e-commerce. With the widespread use of the Internet, exciting business to consumer (B2C) e-tail opportunities emerged. Sites began selling online directly to consumers. This created a frenzy of companies trying to get online to stake their claim and to get a piece of the action. However, some of the businesses had been success and fail cause of some factors. For example,the dot com businesses such as pets.com, boo.com, Webvan.com, Drkoop.com and eToys.com are failed.

EToys.com is one of the websites which sell toys via e-commerce. EToys.com was founded by CEO Toby Lenk, COO Frank Han and Bill Gross in 1997. Etoys seemed like a very good idea for busy parents. It provides them a chance to order thousands of toys category from the comfort of their homes. The most popular sections of eToys.com – Babycenter and Parentcenter which provide articles and newsletters for new and expectant mothers had formed a loyal customer base.

Etoys.com was rated the second most popular shopping site in the US over the Christmas sales period, beaten only by Amazon.com. However, sales were around 50% weaker than expected and the loss-making US Company is reported to be fast running out of cash. Negative market sentiment is causing funding problems for the internet-only retailers, known as pure plays, while traditional retailers have been able to subsidize their on-line operations. According to research group Forrester, 88% of all on-line retail spending in Europe will be accounted for by traditional retailers rather than pure plays by 2005.

the cause of failure is the competition environment. EToy.com was competing with Toys R’ Us which 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 competing and high customer acquisition costs also caused problems for this e-tailer.

Another reason is the inadequate reserve cash, which is to be calculated before starting any business. It is very important to identify the demands and need of the consumers as well as to understand the market and the needs of the consumers. So the inability to define clearly and to understand the market demand and the customers buying habits is another reason for failure.

EToys' failure also causes of an immediate need for a large infrastructure and plenty of cash to support an untested business model. eToys built too big infrastructure and spent too much money too quickly.The company spent heavily to build two large warehouses to handle inventory and delivery. Nevertheless, the total $ 120 million income of sales for the 2000 season was just half of the company’s expectation. Short of money and other funding options exhausted, eToys.com filed for bankruptcy finally in March 2001.