WEBVANKUNAL KUMARNAVIN BAFNAPRASHANT CHATURVEDISHRUTI GUPTAVISHAL CHANDNANI

Stop acting as if life is a rehearsal. Live this day as if it were your last.

The past is over and gone. &

The future is not guaranteed-Wayne Dyer

WEBVAN - 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, California USA, near Silicon Valley

It delivered products to customers' homes within a 30-minute window of their choosing

At its peak, it offered service in ten U.S. markets Approximate burnout US$ 1 bn

Markets – The network

San Francisco Bay Area Dallas San Diego Los Angeles Chicago Seattle Portland Atlanta Sacramento Orange County

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, Knight – Ridder

Co, Softbank Co of Japan Benchmark Capital and Sequoia Capital venture

Capital firms. George Shaheen was the CEO, 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.

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

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. Expansion is not always the solution.

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.

The Distribution would operate for first 5 quarters before the profit could be shared.

Audience from the local area would be the first target. Once successful, they could move ahead with the expansion of its services to a larger market.

Inventory turnover expected figure of 24 times annually as compared to 9-11 times in traditional supermarkets.

Expectations from the Plan

To offer best quality products at the cheapest price by click of a button.

No competition for a web enabled grocery store structure.

Many high profile people from various companies were appointed to support the growth of Webvan.

Study conducted in San Francisco, 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.

Figures to represent there expectations

$650 billion – Total US market for groceries, drugstore, 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 – $12.4 billion market in 1998 expected to reach $75 billion by 2003.

$16.8 billion in 2004 – Expected online grocery purchase by end of 2004.

2% of the market – The expected online grocery purchase would represent only 2% of the market.

Webvan realized that its goals were ambitious, but were they too ambitious? What do you think of the quote from the Webvan spokesman that, “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.

Razor thin margins People didn’t want to pay delivery charges and everyone

demanded higher service standards. People viewed grocery shopping as waste of time but

they didn’t put any economic value on their time spent in the supermarket.

The challenge was also to scale up and replicate the model to increased demand without any increase in cost.

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.

Grocery items include more perishable items. Attention was not paid to large number of perishable items and their handling and delivery

Automation does not mean cost saving.

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