An Example of an E-Commerce failure and its Causes
Pets.com was one of the examples of an e-commerce failure. Pets.com founded in 1998 by Greg McLemore. It was a short-lived online business that sold pet accessories and supplies direct to consumers over the World Wide Web. It went public from an IPO on the Nasdaq stock exchange to liquidation in 9 months. A few months later, Pets.com formed an alliance with Amazon.com which made Amazon.com a majority stockholder in the company. By October of 2000, Pets.com realized that it could not raise the capital necessary to stay afloat, so finally their management decided to close its doors while it still had a positive net worth.One factor that contributed to Pets.com’s failure was that it was in a very competitive arena, the pet supply sector. It was competing with many click-and-mortar pet supply businesses, such as Petopia.com and PetPlanet.com. Pets.com also faced competition from many brick-and-mortar pet supply businesses, including PetSmart and PETCO. In general, Pets.com was selling the same products and had the same level of service as many of its competitors, and thus, it was hard for the company to gain a strong market share.
Another factor that contributed to the failure of Pets.com was the company did not make wise financial decisions. Pets.com made significant investments in its infrastructure, such as warehouses. It result the company needing a critical mass of customers to simply break even. Another financial problem the Pets.com faced was that it had to undercharge for shipping costs in order to get customers to buy online instead of going to their local supermarket. Unfortunately, this tactic meant that it lost money on most of the items it sold.
The best factor that contributed to the failure of Pets.com was the fact that the company failed to give its prospective customers a reason for its existence. Why would pet owners buy cat food online and wait for a couple of days to receive it? The convenience of Pets.com is outweighed by the fact that they could go to the local supermarket and get the same cat food in under a half-an-hour. In general, pet owners are less likely than others to shop online because most can get their pet supply at the same place they got their groceries. Pets.com failure was due in part to the fact that it did not off pet owners a compelling reason to shop online.