Webvan was the first of many "spectacular" failures in the go-go Dot.Com days.
There were some core reasons Webvan failed.
1. "We believe we had a brilliant concept. We were just ahead of our time." - Webvan spokesman Bud Grebey. In fact, Webvan was not a novel idea at all. Home delivery was common in the 50s and 60s (bread, milk) but both lifestyles and economics changed the fundamentals here.
2. Webvan delivery costs were $30-35 per order. This was a cost that consumers were already absorbing in their visits to grocery stores. Why subsidize that which consumers are already willing to pay? In fact, the number of consumers who would actually pay for the delivery function of the business was a very small fraction of the market.
3. Technology in and of itself is not a solution. In Webvan's case they had a technological "solution" looking for a problem. There was no sizable market demand for home delivery with or without Webvan's technology. The existence of Webvan services did not change this fact.
4. Webvan entered a mature market that was highly efficient and had razor thin margins (Kroger's, Giant and Safeway have about a 1% net margin). With such fierce competition, Webvan was a guppy learning to swim in a pool of sharks. The likelihood of success in this competitive environment is very low.
Had Webvan had the institutional knowledge of the home delivery market and the reasons for it's failure they may have chosen to alter their strategy or avoid the home-delivery market entirely. This was another company that was caught up in the glitz of the Dot.Com era believing that their simple existence would guarantee a booming stock price and .... eventually profits.
I think this provides a good analysis of why WebVan failed at their home delivery attempt. I used to think how efficient home delivery was, however I like to physically go to the store and see all my options on the shelf. I think that Webvan should have targeted a specific area that was lacking this service since other areas already had this resource and competition was high.
ReplyDeleteWebvan also believed that their DCs being able to stock more per square foot along with some automation in their processes would lead to extreme efficiencies over B&M grocers. These supposed efficiencies were lost when you add in the fact that their delivery trucks had to accounts for ambient temperature, refrigerated and frozen foods; they had to have a delivery network in place, and the warehouse had to be full stocked.
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