Webvan.com was an online grocery store that commerce its business in 1999. It had a headquarter in Foster City, California and expanding its services to 9 U.S. markets, which are San Francisco Bay Area, Dallas, San Diego, Los Angeles, Chicago, Seattle, Portland Atlanta, Sacramento, and Orange Country. Webcan closed all its operation and filing bankruptcy in July, 2001 due to the financial difficulties. Webvan is one of the most spectacular failures of the dotcom era. Its operation is not more than 18 months and hailed by CNET as the greatest dotcom disaster in history.
Why Webvan Failed?Below are the reasons for the failure of Webvan:
(1) Overspending that makes the financing difficulties
Late 2000, Webvan acquire HomeGrocer, one of its leading rivals in an all-stock deal worth $1.2 billion at the time. After the acquisition, the company began to close some of its operations. Webvan had $178.5 million in sales in 2000, but that $525.4 million in expenses turned the revenue down.
(2) Too quick in expand its infrastructure
Webvan has an ambitious plan that it hopes to expand to 26 cities. In view of this, it signed a $1 billion worth contract to build a string of high-tech warehouses worth about $30 million each, bought a fleet of delivery trucks, purchased 30 Sun Microsystem Enterprise servers, dozens of Compaq ProLiant computers and several Cisco Systems routers and other expensive equipments. This massive infrastructure that Webvan thought to begin in multiple geographic areas was too great at cost!
(3) Huge compensation of CEO
Shaheen, the Webvan's CEO, left Webvan in April 2000, the company was required by the terms of its employment agreement with Shaheen to pay him $375,000 a year for the rest of his life.
(4) Insufficient demand from consumers
Webvan does not have enough customers to support the expanding of infrastructure. It omitted the fact that the powerful of traditional grocery store such as Wal-Mart that customers had gained loyalty on them.
(5) Speed of delivery
Webvan try to embrace a total customer satisfaction model involving only 30 minutes delivery. However, the deliveries would be late sometimes and cause their customer leave them.
It is true that the advancement of high technology makes people create and doing business easier. However, not all the company can success in the dotcom era, at least not without good strategies and planning. Know the causes of failure, prevent it from ruin your business!
Click here to Top 10 E-Commerce Failure.
By FuiChin
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