An example of an E-commerce failure and its causes

Although there are hundreds of EC success stories in specialty and niche market, but failures of EC initiatives are fairly common. Furthermore, during 2000-2002, large number of dot-com companies failed.


One example of EC failure is Kozmo.com. It was founded in 1997 by two young Wall Street professionals, Joseph Park and Yong Kang. Park had been an analyst in the corporate finance division of blue-chip investment bank Goldman Sachs & Co., while Kang was an assistant vice president at societe generale in the media and communications group.

Kozmo.com's catalogue featured 5 main product categories :
- entertainment
- meals
- grocery
- drugstore
- gift shop
Customers choose from 30,000 different products at the Kozmo.com site, running from magazines to CDs to food. If you want to have further understanding on the Kozmo's products, here is the link : http://www.businessweek.com/ebiz/9908/ec0831.htm

Why Kozmo.com will fail in the e-commerce ?
The reasons are :
(i) targeted customers base
Kozmo's greatest error with their customers occurred when they stopped catering to their main client base of middle class college-student. The reasons behind of this change is they could target more upscale clients who would order expensive products. Indeed, the college-student customers who made up almost 76% of their business that pay a premium to have thousands of items.
(ii) Cost
Kozmo offered free delivery and charged competitive prices to their customers when it launched in New York. In real, the cost of delivery were high but they though the customers loved the services they offered. Burdo, Kozmo Chief Executive, slashed Kozmo's overhead, instituted a delivery fee and oversaw several round of layoffs. Since everything goes worse, therefore the company closed operations in San Diego and Houston.
(iii) Investor's withdraw
Investors promised to give a private funding of $30million but later on the company learned that an investor has withdrawn from a $6million commitment. This have caused the merger deal with Los Angeles-based PDQuick collapsed when the funding that was promised to PDQuick did not materialize.

Besides the Kozmo.com, there were some well-known B2C failures include eToys, Drkoop.com, Boo.com and etc. Does the large number of failures mean that EC's days are numbered? Individuals and companies that wish to engage in the e-commerce business can learn more about EC failures by visit www.whytheyfailed.com or www.techdirt.com