Why the Largest E-Commerce Acquisition Ever Is Actually a Disappointment

A $2.4 billion sale is rarely going to be viewed as a failure. But it can be a disappointment.

Case in point: the planned acquisition of Zulily, the discount online seller, by QVC parent company Liberty. Zulily, an online retailer that sells discounted toys and clothing, mostly for kids and women, went public in 2013 at a higher valuation than the $2.4 billion sale price and at one point was valued at a whopping $9 billion. So what the heck happened?

Zulily grew incredibly quickly on the back of limited-time sales, known as flash sales, in a model that got shoppers excited about discovering new products and led to impulse purchases. In less than four years, Zulily’s founders built a multi-billion-dollar business from scratch and attracted millions of customers in an industry typically dominated by Amazon. Industry entrepreneurs and investors loved this because when other startup investors talked about their hesitancy to invest in e-commerce companies, they often pointed to the dearth of big e-commerce companies to go public since Amazon and eBay did so more than 15 years ago. Zulily was seen by many as an example of how entrepreneurs could build a big publicly-traded company in the U.S. that would not get crushed by Amazon. (Online furniture seller Wayfair probably holds the baton for now.)

But as Zulily started to expand its product selection to attract new customers, it ran into a few big problems. It began to carry items from bigger brands that are available on competing sites. That eliminated one of its big differentiators from Amazon. Along the way, it found that the new customers it was attracting weren’t becoming repeat customers as frequently as its earlier set of buyers.

It also found that its long delivery times — on average more than 10 days — were becoming a problem for more potential shoppers. Additionally, the company didn’t allow returns on most products, a major pain point for many. (They have recently begun offering returns for some customers.)

These challenges were evident in Zulily’s financial results. Earlier this year, the company parted ways with its CFO and drastically lowered its revenue guidance for the year.

The troubles continued when it reported its most recent financial results. Net sales grew just 4 percent year over year in the second quarter, down a ton from year-over-year growth of 97 percent in the second quarter of 2014. The slowdown in growth didn’t come as a result of increased profitability, either. Zulily reported net income in the quarter that was less than half of what it was in the same quarter last year.

By this time, expectations of the company had softened so much that these results were greeted by a stock increase, because for once, they did not come in below what analysts were expecting.

Still, you do not agree to sell your company for less than it was worth during a relatively recent IPO if you are confident in its promise as a standalone company. It’s clear Zulily executives weren’t.

That doesn’t make it a bad deal for QVC, which sees Zulily as a company that offers a similar proposition to shoppers that skew much younger than its current audience. It also doesn’t mean it’s a bad deal for Zulily, which may benefit from QVC’s expertise in TV programming and could find new customers in its older demographic.

And it certainly doesn’t look like a bad thing for Zulily’s co-founders, who will each net hundreds of millions of dollars in cash and stock, should the deal go through. Nor Zulily’s early investors like Maveron, which raked in around $1 billion from its early bet on the company.

But the deal has not been received in a celebratory manner by the e-commerce industry at large because a lot of investors and entrepreneurs were hoping Zulily would prove so much more about how to fend off Amazon. The sentiment was summed up well earlier this week in a tweet from Andy Dunn, the co-founder and chairman of the men’s online clothing brand Bonobos, who linked to an article he published in 2013 about the tough challenges of building giant e-commerce companies in the U.S.:

https://twitter.com/dunn/status/633707020844204032

So what will be the next e-commerce company to go public and become a model for industry entrepreneurs? Sure, new shopping site Jet could someday go public with its wildly ambitious, but high-risk, plans to take on Amazon directly. But that potential is many years away.

It could be Jessica Alba’s Honest Company or Warby Parker — two companies that differentiate from Amazon by creating and selling their own brand of products that have resonated with large numbers of shoppers. It could be Stitch Fix, which is already selling hundreds of millions of dollars of clothing a year through a personal-shopper service backed by smart technology. Or it could be a wild card like Wish, an up-and-coming portfolio of shopping apps that has secured a $3.5 billion valuation from private investors at a young age.

But at one point it was Zulily. No more.

This article originally appeared on Recode.net.