Webvan.com was an online grocery business that delivered products to customers’ homes within 30-minutes after their choosing. It was started in early of year 1999 and offered its services in 9 different cities in United State. Within a short period, the company grew very fast and it attracted many funding and managed to raise its capital to $375 million USD in an IPO (Initial Public Offering). This raise gave Webvan.com confidence to continue expand its business to other 26 cities in a short period. However, in early of year 2001, Webvan.com started to close down its business over the country and the CEO, George Shaheen, had stepped down. In a few months time, Webvan.com had run out of money and its stock price had dropped from $30 USD to $0.06 USD. In July 2001, the company’s shareholders voted to approve a 25-to-1 reverse stock split in a last ditch effort to keep the company afloat. Unfortunately, it was too late. A week later, Webvan.com shut down its operations.
The failure of Webvan.com had a few causes. Although the Webvan.com spokesman Bud Grebey said that the shut down of Webvan.com is caused by the company changed its delivery fees, bad press over former CEO George Shaheen stepping down and a critical auditor's report, but it isn’t so. One main factor that causes Webvan.com to shut down was the company grew too big in too short period. The company focus on short-term profit rather than long-term. Webvan.com had ignored the growth and market share which were important component to success in long-term. Other than that, it was too soon for the company to grow and expend to 26 cities coverage market within a two to three year time. It had not attracted enough customers to justify its spending. Other than that, the second factor that leads to Webvan.com’s failure was too much spending in infrastructure. Webvan.com spend too much than its earning. For example, it signed a $1 billion USD contract to build a string of high-tech warehouses worth about $30 million each. It is way too much for the company’s income. The investment is greater than its sales growth. The plan of expanding in short period also had made a big impact in losing their income quickly.
The third reason of Webvan.com failure is that the company did not attempt a partner which is a brick-and-mortar organization. The company did all things by themselves. But technically, the company did not have any experience or knowledge in supermarket industry. It developed its own infrastructure to deliver groceries. The company should have partnered with an existing supermarket chain or wholesalers for example.As a conclusion, although Webvan.com was very successful for attracting investors, but it failed to attract partners to help them. These reasons had lead to the failure of this company in a short period.
References:
- Farmer, M.A., & Sandoval, Greg (2001). Webvan delivers its last word: Bankruptcy. Retrieved June 12, 2008, from http://news.cnet.com/Webvan-delivers-its-last-word-Bankruptcy/2100-1017_3-269594.html?tag=news.1
- German, Kent (n.d.). Top 10 dot-com flops. Retrieved June 12, 2008, from http://www.cnet.com/4520-11136_1-6278387-1.html
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