Webvan (1999-2001)Webvan was an online grocery business that was started in 1999 by Louis Borders, founding partner of Borders Books, and went bankrupt in 2001. Webvan is a business-to-consumer based e-commerce company. At the time, Webvan offered customers to order groceries and fresh food, such as meat, produce and milk, over the Internet and deliver to them within the same day.
What Went Wrong?
The following are some reasons which contribute to the failure of Webvan:
• An inappropriate business model
Webvan has incorrectly believed that it was in the technology business, instead of the grocery business.
• Lack of retail food experience from the management team
Webvan was managed by officers and director who had no retail food experience. Webvan founder Louis Borders was an expert in selling books, however, books do not expire.
• Lack of understanding of the sociology & psychology of retailing food
Webvan’s management did not grasp how consumers shop for food. People go to supermarkets to look at and even feel the merchandise. Customers like to speak to the grocer, the butcher or the wine department manager, for example. There must be a special reason for people to forego supermarket shopping.
• Lack of demographic understanding
Webvan located major warehouses in Atlanta and Los Angeles, where people are used to driving and would rather drive to a store than wait for delivery. . Webvan’s problems were exacerbated in California’s Orange and San Diego counties, both of which have large Latin American and Asian populations. These customers were already being served by local grocers who catered to these ethnic communities much more effectively than Webvan could.
• The high cost of running an online grocery business
In order to make its business to be successful, Webvan spent a lof of money to build "high-tech" warehouse as well as to purchase the "lastest technology" to run its business, however, these did not contribute to the factors of success but worsened the financial situation of Webvan.
The failure of Webvan does not mean the online retail industry is not workable. However, it mean that reasonable study should be taken before entering any industry. Thus, it is a good lesson to remind us not to repeat the mistakes that Webvan has done.
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1 Comment:
There are many e-commerce failure cases and Webvan was one of them. I like this article as it has explained the failure reasons very well and it is very useful.
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