An example of an E-Commerce failure and its causes

Electronic commerce, commonly known as e-commerce, consists of the buying and selling of product or services over electronic systems such as the Internet and other computer networks. There are some e-commerce failure. Kozmo.com is 1 of them.

Kozmo.com was founded by young investment bankers Joseph Park and Yong Kang in March 1998 in New York City.You could order a wide variety of products, from movies to snack food, and get them delivered to your door for free within an hour.The model was criticized by some business analysts, who pointed out that one-hour point-to-point delivery of small objects is extremely expensive and were skeptical that Kozmo could make a profit as long as it refused to charge delivery fees. The company countered in part that, in their target markets, savings due to not needing to rent space for retail stores would exceed the costs of delivery.

The company raised about $250 million, including $60 million from Amazon.com. It entered a five-year co-marketing agreement with Starbucks in February 2000, in which it agreed to pay Starbucks $150 million to promote its services inside the company's coffee shops. Kozmo.com ended its deal in March 2001 after paying out $15 million. In July 2000, at the height of its business, the company operated in Atlanta, Chicago, Houston, San Francisco, Seattle, Portland, Boston, New York, Washington, San Diego and Los Angeles.

While popular with college students and young professionals, the company failed soon after the collapse of the dot-com bubble, laying off its staff of 1,100 employees and shutting down in April 2001. It was clear that it cost too much to deliver a DVD and a pack of gum. 18 locations nationwide and their Memphis distribution center were liquidated by a veteran entertainment wholesaler from Florida. Kozmo had filed an IPO with Credit Suisse First Boston before the layoffs, but it never went public. According to documents filed with the Securities and Exchange Commission, in 1999 the company had revenue of $3.5 million, with a resulting net loss of $26.3 million.

From the failure of Kozmo.com we know that we must have a good market plan before doing E-Commerce. We must come out with a good marketing strategy. We oso know that not every product can sell in the internet. Offering a costly home-delivery service for free although can attract many customers but it was also the main reason to cause failure in Kozmo.com.