In the immortal words of philosopher and cultural critic George Santayana, those who do not learn from history are condemned to repeat it. Ebenezer Scrooge, the protagonist of Charles Dickens’ famous play A Christmas Carol, likely would have agreed with this sentiment.
In a similar vein, as the holiday season progresses and the prospect of an economic recovery looms, e-businesses would do well to heed the lessons of their fallen predecessors. Like ghosts of e-business past, infamous flameouts like Webvan and Pets.com may hold valuable lessons for today’s survivors about where the industry has been, what issues e-commerce companies now face, and what challenges are likely to loom in the future.
Can e-tailers learn from past failures, navigate the challenges of the present and face the future with renewed prospects for success?
Amid the economy’s hard downward turn a few years ago, dot-coms were in the thick of the chaos. Many companies that had been founded on shaky business models faded away to nothing, leaving behind only remnants like leftover T-shirts and Aeron chairs. However, other Internet companies had such intriguing rises and falls that it seemed they had been created just to serve as warnings to others.
For example, Webvan turned out to be an example of poor arithmetic, since the company was paying more for its products than it was charging customers. Go.com proved to be a portal that led nowhere, and Iam.com lost US$48 million in trying to convince models and actors to put their portfolios online.
Some dot-coms tried to cash in on markets that did not need online components, such as HeavenlyDoor.com, which tried to sell caskets and burial plots and ended up losing $26 million in the process. The list, from Flooz to iMotors.com, goes on and on.
As IDC analyst Jonathan Gaw told the E-Commerce Times: “It was just a huge implosion, and all of the dot-com stocks went down. But the ones that survived are the stronger for it.”
Root of the Problem
However, it is not enough just to look at the past and shake one’s head in disbelief at e-business blunders. Gaw noted that for e-businesses in today’s environment, it is vital to understand past mistakes to avoid repeating them.
“The problem with the dot-com era was that we had a mantra that the rules [had] changed, that everything was different,” he said. “In some ways, that was true, because the rules did change. But in other ways, it was false, because the principles remained the same. We confused rules [with] principles.”
Gaw added that the Internet’s rise was similar to the invention of the airplane, which did change the world and the rules of travel. However, it did not change the underlying principles of flight. “Gravity still works the same, whether there’s an airplane or not,” he noted.
Similarly, business principles are a constant, and it is up to e-commerce companies to learn — and successfully apply — the basics.
Indeed, if there is a bright side to the dot-com mass extinction, it is that companies now are open to learning from the past, rather than insisting that everything has changed and old rules do not apply. The loss of so much money has not been forgotten by survivors of the e-business shakeout — and neither have the pain of layoffs, unreturned phone calls from venture capitalists and derision from consumers.
Philip Kaplan, founder of dot-com deathwatch site F***edCompany.com, told the E-Commerce Times that when he visits a company now, management and employees are keen to show they are not squandering money as in days past.
“They almost brag about how crappy their offices are and how bad their parties are,” he said. “It’s like they’re proud of it. But I think they’re just trying to distance themselves from what happened.”
Some lessons remain to be learned, though. Although the bad old days seem to have passed, e-commerce companies still face significant challenges in the present. Some of these hurdles are standard business difficulties, including retaining customers, determining adequate pricing strategies, maintaining proper staffing levels and keeping up with the pace of technology changes.
Other issues are more e-commerce specific, such as perfecting online usability and earning customer trust in an age of identity theft.
If today’s e-commerce companies could be visited by a Ghost of E-Business Future, they likely would want to know what challenges they would face in coming months and years, so they could prepareto meet them.
One area that still presents a challenge and will continue to do so in years ahead is usability and navigation. Jared Spool, founding principal of usability firm User Interface Engineering, told the E-Commerce Times that some e-tailers still do not know why customers come to their sites. He said this lack of insight likely will not be overcome soon.
“We see it all the time, that one little piece of information turns out to be tremendously important,” he said. “Making a site usable is a process that takes understanding and time. There is still a great deal to be learned.”
Pendulum Ready To Swing?
Some contemplative e-business executives may be able to gain a deeper understanding of usability, basic business practices and customer management as time passes, but not all of them will succeed, Gaw warned.
“We’re kind of like dogs,” he said. “We have really poor memories. That both helps and hurts…. You need to have a short memory to take risks and be aggressive. But it hurts when those risks do not pan out.”
He noted that in the e-commerce industry, as in other sectors, the pendulum swing of business means that the aggressiveness of the dot-com era is currently being counteracted by conservatism. In the future, the pendulum may begin swinging back toward exuberance.
“You see this swinging in everything, from business to politics,” Gaw said, “and pretty soon you realize that this is just the way life is.”
First, thanks for your daily and interesting information. – I would like only to comment about the importance, I think not well understood by some companies, of the necessary due consideration for people who buy something through Internet. On one hand, I have the perception that this year it could be a golden opportunity for e-commerce to strongly take-off and become trustworthy for common people like me, but, regarding the article, I want to say that not only the principles of economics apply to this area, as the Law also fully applies to it, but also the ways of treating customers. Do some companies really think that they will survive without excellent mercantile practices, attention to the client despite they have already charged his/her credit card, and good customer services? Which business mentality but a virtual one could pretend that 30% of very bad ratings from buyers in an e-commerce company can be translated by a portal into 3.5 stars out of 5 ? In fact, 190 buyers out of 655 have been disapointed, annoyed and even some of them felt deceived. Many of them are still waiting some response, as I AM after five e-mails without answers. I think that is not the way to boost e-commerce. My experience is being uncomfortable and not very pleasant in this case. I don’t think of course I will buy there again, neither in the portal that puts the stars nor in its wherabouts probably. Next year I will probably buy in the little shop around the corner or, perhaps, I will discover virtual good manners somewhere else in the world. – Thank you very much, and apologies for my english. Jorge Cerra