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Present article focuses on service failure and recovery in the online shops in Iran. The article investigates interaction between service failure and online shops readiness for service recovery and resulting impact on customer reaction. The data was collected by an e-questionnaire from 615 Iranian online shoppers. The findings suggest, although many online shops are severely breaching few fundamental business principles, defection is not happening as vast as in other similar studies. Furthermore, winning the customers back via service recovery seems to be depended rather on the process than the outcome of service recovery, which is very similar to the findings of another study in Chinese environment. Discussion of the findings suggests the researchers and managers to be conscious of the possible impact of the culture and environment on customer's responses to service failure and service recovery states. [ABSTRACT FROM AUTHOR]