Post on 26-Dec-2015
WEBVANWEBVAN WILL GO DOWN IN HISTORY EITHER AS THE NEXT FEDERAL EXPRESS OR AS ONE OF THE BIGGEST FAILED INFRASTRUCTURE BETS IN HISTORY
Marzieh ChapardarNahid Karimaghalou
Introduction
Founded By Louis Borders A full service online grocery retailer Activity
Internet Grocery + home delivery Launched operations in the
San Francisco Bay Area in June 1999
Vast infrastructure
2
Introduction cont.
Expanding aggressively Network growth 10,000 consumer in 5months
(Compared to 100,000 of Peapod in 10 years) 330,000 square foot warehouses to
effectively store and deliver merchandise to customers
Half capitalization of grocery industry leaders Safeway Inc. Kroger Co.
3
Borders Background
Revolutionizing book industry Inventory management system Customer service More efficient and cheaper ways of
delivery in online grocery
4
Webvan’s Business Model
Differentiation strategy Consisted of creating a sophisticated and
highly automated information systems centered around warehouses
Target Market: The new technologist The time starved shopper The price insensitive shopper
5
Webvan’s Challenges
GBF strategy High start-up costs Targeted technologies consumers Marketing budget Market share
6
Webvan's Strategy
GBF (Grow Big Fast) “In the internet economy first-to-scale
counted more than first-to-market “ Aggressive expansion Based the strategy used by Jeff Bezos of
Amazon Face their rivals head on Incur costs now for future profit
7
High Startup Costs
Building brand recognition Large infrastructure consisting of
large warehouses Government regulations Costly technology equipment
8
Initial Costs9
Hired 80 programmers At its peak performance Webvan
could handle 8000 orders a day Attended or Unattended Delivery
service Provided the customers with 50,000
products to choose from Much more than the traditional grocery
store with 30,000 items
Initial Costs cont.10
High operational costs and low initial grocery sales amounted to a loss of $35 million
Average grocery order in September 1999 was $71 Much less than the expected value of $101
needed to produce annual targeted revenues per distribution center of $300 million
Predicted sales for 2001 were $518 million, but an overall loss of $302 million
How Webvan Burnt 1.2 B$
Borders raised $125 million in initial funding and convinced investors to invest $275 million more. (Total of $400 Million Dollars)
They built approximately 26 distribution centers that costs $35 million dollars each(A total of $910 Million Dollars)
11
Targeted Consumer
New Technologist: Technological nature of customer Customer must be technology-oriented and
very knowledgeable with the internet Very limited
Traditional consumer
12
Name Recognition
No one really know who you are Marketing takes a big chunk of biz
budget Webvan marketing costs were
estimated to be 30% of sales
13
Market Share
Market at best was a niche market Margins were razor thin Online grocery sales less than 1% of
the entire grocery market Online grocery customers were less
than 1% of the entire online customers
14
Distribution Centers15
Distribution centers contained 4.5 miles of conveyor belts
Temperature sensitive rooms Each center had the ability to serve
as 20 normal supermarkets
Order Fulfillment Process
Orders were placed on the web They were automatically routed to the
warehouse Pickers were stationed throughout the
distribution center to assemble the orders in plastic boxes or totes
They were color-coded depending if the items were refrigerated, frozen, or dry
Pickers traveled no more than 19.5 feet in any direction to reach 8000 bins of goods in rotating carousels
16
Order Fulfillment Process Cont. Totes were transported throughout the facility by a
conveyor belt until loading onto refrigerated trucks Trucks took the orders to one of 12 docking stations Orders were loaded to one of more than 60 vans Drivers took the orders directly to people’s homes None of the vans traveled more than 10 miles in
any direction The route was mapped out by a system optimizing
travel time
17
Webvan’s Fall
July 9, 2001 Webvan ceased operations and filed for chapter 11 protection
Burned though $1.2 billion of investor capital, making it one of the most spectacular dotcom failures on record
Since then the company has liquidated its assets
18
Reasons of failure
“Webvan was so behemoth that could deliver anything to anyone anywhere that it lost sight of a more mundane task: pleasing grocery customers day after day”.
“The world’s market at your doorstep.” Short to midterm cash mismanagement. Venture capital of
$1.2 B run out. Webvan started a merger with HomeGrocer in Sept 2000 Merger costs: duplicated work force, integration of
technology, realignment of facilities. Company was too aggressive about expansion into
multiple cities, combined with an overly complex website.
19
Webvan vs. Amazon20
Amazon tried something similar and succeeded
Webvan was trying to emulate Amazon Amazon only built infrastructure when forced
to Amazon used existing sales to help pay for
infrastructure Delivery of books is much easier than groceries Customers are much less upset about delays
Webvan vs. Tesco21
Tesco focused on low costs contrary to Webvan’s differentiation strategy
Tesco used existing stores and distribution chain
Tesco already had a strong brand Tesco already had low costs Tesco’s customer base growth was
slow Tesco was profitable!
THANKS FOR YOUR ATTENTION