Story of Webvan

Webvan was an online credit and delivery grocery business. 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 which included San Francisco Bay Area, Dallas, San Diego, Los Angeles, Chicago, Seattle, Portland, Atlanta, Sacramento and Orange Country. The company had originally hoped to expand to 26 cities. However, this hope was spoiled when this company went into bankruptcy in year 2001. Approximately 2000 employees had been let go as a result of the shut down.

What causes this matter to be happened?

Too focus on customer service and neglect the profit in long term

Customer service is important. Any business could provide infinitely good customer service but have to balance the need to serve customers with profits. In this case, Webvan was popular with its good customer service but this company was too focus on this short term profit and had neglected that this service would not bring any profit for them in the long term. Not all people could afford its high delivery fees and as a result, it had not attracted enough customers to sustain its business and thus it need to shut down the company.

Too much of capital expenditure

While Webvan was building up its empire of tech warehouses and fleets of delivery trucks, it eventually ran out of money because the money spent on infrastructure far exceeded sales growth of the company. The $1 billion spent on the infrastructure had affected the company’s financial liquidity. Webvan was unable to cover all these expenses and in the end, it had no choice to wind up the company.

Conclusion

The demise of Webvan indicates an unhappy tale for other companies which having online grocery business. It is not easy to conduct E-commerce. Good knowledge and experience in IT and management is important to conduct a business online. Therefore, I hope that Webvan’s failure may help you a lot.

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