WEBVAN

KUNAL KUMAR NAVIN BAFNA PRASHANT CHATURVEDI SHRUTI GUPTA VISHAL CHANDNANI

The past is over and gone. Live this day as if it were your last. & The future is not guaranteed -Wayne Dyer .Stop acting as if life is a rehearsal.

Background       WEBVAN was an online "credit and delivery" grocery business that went bankrupt in 2001 It was founded in the heyday of the dot-com boom in the late 1990’s It was headquartered in Foster City. it offered service in ten U. California USA.S. markets Approximate burnout US$ 1 bn .WEBVAN . near Silicon Valley It delivered products to customers' homes within a 30minute window of their choosing At its peak.

Markets – The network           San Francisco Bay Area Dallas San Diego Los Angeles Chicago Seattle Portland Atlanta Sacramento Orange County .

Knight – Ridder Co.The Investors & Management         Webvan was founded by Louis Borders .the co-founder of the Borders bookstore in 1971 Webvan's original investors included Goldman Sachs and Yahoo Investment Bankers such as CBS Inc. who also served as the CEO for Andersen Consulting Arvind peter Rolan Snr VP Technology from Oracle Mark Zaleski from Federal Express Vivek Joshi VP Prog Mang from GE Transportation Systems. Softbank Co of Japan Benchmark Capital and Sequoia Capital venture Capital firms. George Shaheen was the CEO. .

.The Myth & Reality     Too much Money to burn Dependency on Technology to revolutionize business but it should reduce labour costs Infinite Expansion Creates Infinite dilution – Recession Doctrine Merge And Die .Home Grocers acquisition.

Questions .

Expansion is not always the solution. .What happened here? Why did this business fail so spectacularly? Discuss reasons       Expectation were not realistic Predictions were not converted into sales Over emphasis on Technology Huge Capital intensive costs Surface study was done without seeing the ground realities.

they could move ahead with the expansion of its services to a larger market. . The Distribution would operate for first 5 quarters before the profit could be shared.What was supposed to happen? On what basis Webvan’s founders and initial investors hoped for success of their venture? The Thought Plan      A simple and hassle free approach was designed for grocery shopping The good that were ordered could be delivered within a specified 30 min window upto max of 4 days. Inventory turnover expected figure of 24 times annually as compared to 9-11 times in traditional supermarkets. Once successful. Audience from the local area would be the first target.

. Study conducted in San Francisco. Many high profile people from various companies were appointed to support the growth of Webvan. assured Webvan that 35 % of the market would buy groceries over the internet. This Webvan group also identified the inconveniences people faced during grocery shopping. No competition for a web enabled grocery store structure.Expectations from the Plan      To offer best quality products at the cheapest price by click of a button.

2% of the market – The expected online grocery purchase would represent only 2% of the market. .8 billion in 2004 – Expected online grocery purchase by end of 2004.4 billion market in 1998 expected to reach $75 billion by 2003. merchandise and prepared meals Total number of web users was 63 million in US at the end of 1998 and expected to reach 177 million users by end of 2003 6 fold increase in online purchase of good and services – $12. drugstore. $16.Figures to represent there expectations      $650 billion – Total US market for groceries.

but were they too ambitious? What do you think of the quote from the Webvan spokesman that. The challenge was also to scale up and replicate the model to increased demand without any increase in cost. People viewed grocery shopping as waste of time but they didn’t put any economic value on their time spent in the supermarket. Razor thin margins People didn’t want to pay delivery charges and everyone demanded higher service standards. “You don’t build a rocket to go halfway to Mars?      Challenge was delivery of perishable and dry goods at competitive prices to consumers within a 30 minute window chosen by the customer on a scale never attempted before. .Webvan realized that its goals were ambitious.

What could the company have done differently to increase their chances of success?       It should not have dependent on economies of scale just in the beginning Capital Intensive approach increased the fixed inventory carrying cost though the break even point Wrong estimation of demand lead to wrong investment estimates Non availability of delivery channel though it was there. Attention was not paid to large number of perishable items and their handling and delivery Automation does not mean cost saving. . Grocery items include more perishable items.

Do you think that large numbers of people will ever buy their groceries over the internet? Why or why not?      People do not want to pay delivery charges Everyone demanded high service standards Going to a grocery store on a weekly basis was highly ingrained behavior Survey by the company in San Francisco to learn about how many people would be likely to use an online grocer  6% .absolutely  23 % .probably 55% of all Americans considered time to be their most precious commodity said “consumers apparently put little economic value on their time in the supermarkets” .

What lessons do you take away from the Webvan story about the “dot-com era”?    Resources do not mean results Surface study should be embedded with ground realities Infinite Expansion Creates Infinite dilution .

The Conclusion “It’s going to be $10 billion or Zero” .Louis Borders .

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