Failures during the e-commerce hype
In the early 2000s, the Blockbuster model was at risk, but it was not clear that it was doomed. Adequate understanding of their own business model and that of their competitors, Amazon and Netflix, could have prevented their downfall. Blockbuster did not understand that long-term success is not just a matter of generating revenue but of having a sustainable business model that balances its revenue model with its value proposition, value network and delivery technology.
But Blockbuster was not alone in failing to understand this. Many companies during the e-commerce hype of the early 2000s thought that using fashionable technology was sufficient to generate revenue (“Companies that died and survived the Dotcom bubble,” Lombardi Letter, 22nd March 2017, https://www.lombardiletter.com/companies-that-died-and-survived-the-dotcom-bubble/9106/). For example, Pet.com sold pet food to retailers online but it had an unsustainable business model. Its value proposition addressed a small market, it lost on every sale due to free shipping and discounts, and its revenue model was not sustainable in the future (“Pets.com,” Wikipedia, https://en.wikipedia.org/wiki/Pets.com.).
Webvan is an interesting early e-commerce failure (“Webvan,” Wikipedia, https://en.wikipedia.org/wiki/Webvan). It delivered grocery to customer’s homes but built its delivery infrastructure from scratch, aimed at a price-sensitive mass-market rather than upmarket consumers, which meant that its value proposition was not sustainable. And it expanded too fast, which meant its delivery model could not achieve a long-term balance with its revenue model and value proposition.
What these e-commerce failures have in common is that they, and their investors, were enamored with online delivery technology and forgot to connect it with an attractive value proposition, and a sustainable value network and revenue model. Like Blockbuster, they failed to develop a balanced business model that is sustainable in the long run.