Webvan

History

Webvan was founded in the heyday of the dot-com bubble in 1996 by Louis Borders, who also co-founded Borders in 1971.

Growth

The company's investors pressured it to grow very fast to obtain first-mover advantage. This rapid growth was cited as one of the reasons for the downfall of the company. Webvan started taking orders in the San Francisco Bay Area in June 1999.

Webvan placed a $1 billion order with Bechtel to build its warehouses, and bought a fleet of delivery trucks. In 2000, Webvan bought HomeGrocer, a competitor that was also losing money, for $1.2 billion in stock. At its peak in 2000, Webvan had $178.5 million in sales but it also had $525.4 million in expenses.

Financing

Benchmark Capital, Sequoia Capital, and Borders each invested $3.5 million in the company in a Series A round in 1997, buying shares for $9.58 each. Sequoia later invested another $50 million, Softbank Capital later invested $160.3 million, and Goldman Sachs' venture arm invested $50 million. E-Trade and Yahoo! each invested $10 million. In total, venture capitalists invested more than $396 million in Webvan.

The company raised an additional $375 million in an initial public offering in November 1999, during the dot-com bubble that valued the company at more than $4.8 billion. Up to that time, the company had reported cumulative revenue of $395,000 and cumulative net losses of more than $50 million.

Management

None of Webvan's senior executives or major investors had any management experience in the supermarket industry, including its CEO George Shaheen, who had resigned as head of Andersen Consulting (now Accenture), a management consulting firm, to join the venture. When the company filed bankruptcy in July 2001, Shaheen was an unsecured creditor. Shaheen resigned in April 2001, while the company was on the verge of shutting down.

Bankruptcy

The company lost over $800 million and shut down in June 2001, filing for bankruptcy and laying off 2,000 employees. As part of its shutdown process, all non-perishable food was donated to local food banks.

Reasons for failure

Commentators point to several reasons for Webvan's failure:

• Aggressive expansion to many cities without proving its business model in its first market
• A business model targeting price-sensitive mass-market consumers rather than upmarket consumers who would be more profitable
• Building its own warehouses and fulfillment infrastructure from scratch, in contrast to services such as Peapod which survived the dot-com bust and used the infrastructure of existing supermarkets (as did the later Instacart)

CNET named Webvan one of the largest dot-com flops in history.

Legacy

A large number of Webvan's colored plastic shipping tubs are now used for household storage. The company's distinctively shaped vans, now repainted, are still seen.

Some executives of the company went to work for Amazon.com.

From about 2020 many companies were vying to provide ultrafast delivery, similar to the Webvan concept.

References

References

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2. Goldman, David. (March 2, 2015). "10 big dot.com flops". [[CNN]].
3. Kale, Sirin. (9 December 2021). "Beware the emergency avocado: what does ultrafast delivery really cost us?". The Guardian.
4. D'Onfro, Jillian. (April 18, 2014). "The Founder Of A Dot-Com Disaster Is Giving His Old Grocery Delivery Idea Another Shot". [[Business Insider]].
5. (2007). "Breakout Strategy: Meeting the Challenge of Double-digit Growth". [[McGraw-Hill Education]].
6. Relan, Peter. (September 27, 2013). "Where Webvan Failed And How Home Delivery 2.0 Could Succeed". [[TechCrunch]].
7. G. Weinzimmer, Laurence. "The Wisdom of Failure: How to Learn the Tough Leadership Lessons Without Paying the Price".
8. Wolverton, Troy. (October 30, 2001). "Seeking relics amid Webvan's ruins". [[CNET]].
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10. FISHER, LAWRENCE M.. (June 27, 2000). "Webvan Will Acquire HomeGrocer.com". [[The New York Times]].
11. Emert, Carol. (July 15, 2001). "Venture lessons in Webvan collapse / Financing history a cautionary tale". [[San Francisco Chronicle]].
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13. (November 5, 1999). "FORM 424(B)(1), Webvan Group, Inc". [[U.S. Securities and Exchange Commission]].
14. (May 16, 2001). "Webvan pays off Shaheen". [[CNN]].
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17. Delgado, Ray. (July 9, 2001). "Webvan goes under / Online grocer shuts down -- $830 million lost, 2,000 workers fired". [[San Francisco Chronicle]].
18. (July 9, 2001). "Webvan shuts down". [[CNN]].
19. (July 9, 2001). "Webvan bags it for good". [[ZDNet]].
20. Sandoval, Greg. (September 7, 2007). "Webvan delivers its last word: Bankruptcy". [[CNET]].
21. Cohan, Peter. "Four Lessons Amazon Learned From Webvan's Flop".
22. Lanxon, Nate. (November 18, 2009). "The greatest defunct Web sites and dotcom disasters". [[CNET]].
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24. Barr, Alistair. (June 18, 2013). "From the ashes of Webvan, Amazon builds a grocery business". [[Reuters]].