Electronic Markets Wine Industry

RESEARCH Electronic Markets Vol. 13 No 1 A b s t r a c t

This paper explores the use of e-commerce in the distribution channel of the wine industry with an emphasis on the North American market. After achieving early attention from e-commerce pioneers, a number of initiatives to sell wine online have failed dramatically – their business models were not commercially viable – and significantinvestments have been lost in the process. In this paper, we comment on some of these initiatives and propose a set of general principles to guide online business entry and evolution. The exposition and discussion of our principles provides general lessons regarding the success potentials of the various business models across domains. Keywords: e-commerce, success factors of business models, wineindustry
DOI: 10.1080/1019678032000039877

The US Wine Industry and the Internet: An Analysis of Success factors for Online Business models
JUDITH GEBAUER AND MARK GINSBURG

INTRODUCTION
There is a broad range of Internet-based Electronic Commerce (e-commerce) applications that firms may utilize to develop business strategies in the digital age. Such initiatives can bring about significantchanges of business processes or even industry structures, as early examples have demonstrated. Initial enthusiasm and optimism have given way to doubt and uncertainty, as some early online business models proved not to be viable. Although they defined basic architectures for products and services, modelled information flows and described possible sources of revenue (Timmers 1998), the early dot.com‘gold rush’ was marked by a failure to link the abstract business model description to its commercial viability. As Timmers points out (Timmers 1998) it is essential to link the business model to a marketing model – the nature of the competitive advantage, the positioning of this advantage, the marketing mix and the product–market strategy. One area that has received attention from the beginning ofthe commercial use of the Internet was the online retailing of wine. Together with online book retailer

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Judith Gebauer (gebauer@uiuc.edu) is Assistant Professor at the Department of Business Administration at the University of Illinois at Urbana-Champaign. Her research focuses on e-business management and strategy, in particular in inter-organizationalsettings. Mark Ginsburg (mginsbur@eller.arizona.edu) is Assistant Professor at the University of Arizona. His research focuses on virtual communities and knowledge 59 management.

Amazon and online auctioneer Onsale, Virtual Vineyards emerged early on as an example of innovative, Internet-only business models (Ware et al. 1998). Several years later, however, expectations still have not been met withonline sales making up only a tiny fraction of overall sales. In 2000, online wine retailing accounted for $100M, or approximately 0.5% of the total US retail sales, only half of the onepercent average share of online commerce (census.gov). Early estimations of growing the share of online retailers to 5% to 10% (or $1.4bn to $2.9bn) in 2005 (Swartzberg et al. 2000) proved to be wildly optimistic – afailure in the business model/marketing model linkage. Since the market was overestimated, the revenue was also overestimated and the viability of a basic wine-on-the-Internet model was greatly weakened. In mid 2001, after having lost a total of $240M, and shortly after an unsuccessful merger with WineShopper.com, Virtual Vineyards, which had renamed itself to Wine.com, went bankrupt. It had tosell off its stateof-the-art technology and office equipment at auction. Some of Wine.com’s assets, including the name and customer list, were bought by rival eVineyard, which

Copyright 2003 Electronic Markets Volume 13 (1): 59–66. www.electronicmarkets.org

Judith Gebauer and Mark Ginsburg

The US Wine Industry and the Internet

continues to operate the site. Other wine ventures,...