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Chapter 2 E-commerce fundamentals 93

Questions rate and total transaction value). How do they
relate to each other?
1 Explain the business and revenue model for
3 Explain the relative success of lastminute.com and
lastminute.com and assess the potential for
Thomson Travel using the six criteria listed above.
profitability.
4 What action do you consider the founders of the
2 Summarize the measures which are used to
company should take to ensure the future success
assess the effectiveness of an e-business such as
of lastminute.com?
lastminute.com (such as subscribers, conversion

The dot-com bubble bursts

The media played a key role in the dot-com story. Initially the media helped produce
stratospheric prices for dot-coms by tempting investors with instant gains when companies
went through IPOs (independendent public offerings). The media could then also report on
the newsworthy spectacle of the failure of many of these businesses. As failure of more and
more dot-coms was reported this also impacted on the share prices of the more successful
dot-coms such as Yahoo! and even other technology stocks. Popular analogies for the dot-
com collapse are the bursting of the South Sea Company’s bubble in 1720 and the wilting of
the fortunes invested in tulips in the 17th century.

Why dot-coms failed

At the end of Chapter 5 we review the reasons for failed e-business strategies and, in Case
Study 5.3, examine the reasons for one of the most spectacular dot-com failures – Boo.com.
We will see that in many cases it was a case of an unsound business strategy, or ideas before
their time. Many of the dot-coms were founded on innovative ideas which required a large
shift in consumer behaviour. A rigorous demand analysis would have shown that, at the
time, there were relatively few Internet users, with the majority on dial-up connections, so
there wasn’t the demand for these services. We see in the Boo.com example that there were
also failings in implementation, with technology infrastructure resulting in services that
were simply too slow with the poor experience leading to sales conversion rates and return-
ing customer rates that were too low for a sustainable business.
Remember, though, that many companies that identified a niche and carefully con-
trolled their grow th did survive, of which ‘boys’ toys site’ Firebox (Mini Case Study 2.3) is a
great example.

Mini Case Study 2.3 Firebox.com survives the dot-com boom and bust

Firebox.com (Figure 2.17) opened its virtual doors in 1998 as hotbox.co.uk, an Internet retailer which was
founded by university flatmates Michael Smith and Tom Boardman. Initially operating out of Cardiff, the
company saw rapid initial growth due to the success of the founders’ invention, the Shot Glass Chess Set.
In the summer of 1999 the company moved to London and relaunched as Firebox.com.
eSuperbrands (2005) describes Firebox products as ‘unique, unusual and quirky products from around
the world’. Examples include glowing alarm clocks, light sabres, duct tape wallets and, of course, lava
lamps. With many traditional retailers and other niche players operating in this sector now, Firebox positions
itself as being one of the first outlets for innovative products. Firebox makes use of the collaborative nature
of the web with C2C interactions where Firebox.com customers describe their experiences with products
and even send in photos and videos of them in action!