Webvan Final


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Webvan Final

  2. 2. <ul><li>Stop acting as if life is a rehearsal. </li></ul><ul><li>Live this day as if it were your last. </li></ul><ul><li>The past is over and gone. </li></ul><ul><li>& </li></ul><ul><li>The future is not guaranteed </li></ul><ul><li>-Wayne Dyer </li></ul>
  3. 3. WEBVAN - Background <ul><li>WEBVAN was an online &quot;credit and delivery&quot; grocery business that went bankrupt in 2001 </li></ul><ul><li>It was founded in the heyday of the dot-com boom in the late 1990’s </li></ul><ul><li>It was headquartered in Foster City, California USA, near Silicon Valley </li></ul><ul><li>It delivered products to customers' homes within a 30-minute window of their choosing </li></ul><ul><li>At its peak, it offered service in ten U.S. markets </li></ul><ul><li>Approximate burnout US$ 1 bn </li></ul>
  4. 4. Markets – The network <ul><li>San Francisco Bay Area </li></ul><ul><li>Dallas </li></ul><ul><li>San Diego </li></ul><ul><li>Los Angeles </li></ul><ul><li>Chicago </li></ul><ul><li>Seattle </li></ul><ul><li>Portland </li></ul><ul><li>Atlanta </li></ul><ul><li>Sacramento </li></ul><ul><li>Orange County </li></ul>
  5. 5. The Investors & Management <ul><li>Webvan was founded by Louis Borders ,the co-founder of the Borders bookstore in 1971 </li></ul><ul><li>Webvan's original investors included Goldman Sachs and Yahoo </li></ul><ul><li>Investment Bankers such as CBS Inc, Knight – Ridder Co, Softbank Co of Japan </li></ul><ul><li>Benchmark Capital and Sequoia Capital venture Capital firms. </li></ul><ul><li>George Shaheen was the CEO, who also served as the CEO for Andersen Consulting </li></ul><ul><li>Arvind peter Rolan Snr VP Technology from Oracle </li></ul><ul><li>Mark Zaleski from Federal Express </li></ul><ul><li>Vivek Joshi VP Prog Mang from GE Transportation Systems. </li></ul>
  6. 6. The Myth & Reality <ul><li>Too much Money to burn </li></ul><ul><li>Dependency on Technology to revolutionize business but it should reduce labour costs </li></ul><ul><li>Infinite Expansion Creates Infinite dilution – Recession Doctrine </li></ul><ul><li>Merge And Die - Home Grocers acquisition. </li></ul>
  7. 7. Questions
  8. 8. What happened here? Why did this business fail so spectacularly? Discuss reasons <ul><li>Expectation were not realistic </li></ul><ul><li>Predictions were not converted into sales </li></ul><ul><li>Over emphasis on Technology </li></ul><ul><li>Huge Capital intensive costs </li></ul><ul><li>Surface study was done without seeing the ground realities. </li></ul><ul><li>Expansion is not always the solution. </li></ul>
  9. 9. What was supposed to happen? On what basis Webvan’s founders and initial investors hoped for success of their venture? <ul><li>The Thought Plan </li></ul><ul><li>A simple and hassle free approach was designed for grocery shopping </li></ul><ul><li>The good that were ordered could be delivered within a specified 30 min window upto max of 4 days. </li></ul><ul><li>The Distribution would operate for first 5 quarters before the profit could be shared. </li></ul><ul><li>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. </li></ul><ul><li>Inventory turnover expected figure of 24 times annually as compared to 9-11 times in traditional supermarkets. </li></ul>
  10. 10. <ul><li>Expectations from the Plan </li></ul><ul><li>To offer best quality products at the cheapest price by click of a button. </li></ul><ul><li>No competition for a web enabled grocery store structure. </li></ul><ul><li>Many high profile people from various companies were appointed to support the growth of Webvan. </li></ul><ul><li>Study conducted in San Francisco, assured Webvan that 35 % of the market would buy groceries over the internet. </li></ul><ul><li>This Webvan group also identified the inconveniences people faced during grocery shopping. </li></ul>
  11. 11. <ul><li>Figures to represent there expectations </li></ul><ul><li>$650 billion – Total US market for groceries, drugstore, merchandise and prepared meals </li></ul><ul><li>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 </li></ul><ul><li>6 fold increase in online purchase of good and services – $12.4 billion market in 1998 expected to reach $75 billion by 2003. </li></ul><ul><li>$16.8 billion in 2004 – Expected online grocery purchase by end of 2004. </li></ul><ul><li>2% of the market – The expected online grocery purchase would represent only 2% of the market. </li></ul>
  12. 12. 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? <ul><li>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. </li></ul><ul><li>Razor thin margins </li></ul><ul><li>People didn’t want to pay delivery charges and everyone demanded higher service standards. </li></ul><ul><li>People viewed grocery shopping as waste of time but they didn’t put any economic value on their time spent in the supermarket. </li></ul><ul><li>The challenge was also to scale up and replicate the model to increased demand without any increase in cost. </li></ul>
  13. 13. What could the company have done differently to increase their chances of success? <ul><li>It should not have dependent on economies of scale just in the beginning </li></ul><ul><li>Capital Intensive approach increased the fixed inventory carrying cost though the break even point </li></ul><ul><li>Wrong estimation of demand lead to wrong investment estimates </li></ul><ul><li>Non availability of delivery channel though it was there. </li></ul><ul><li>Grocery items include more perishable items. Attention was not paid to large number of perishable items and their handling and delivery </li></ul><ul><li>Automation does not mean cost saving. </li></ul>
  14. 14. Do you think that large numbers of people will ever buy their groceries over the internet? Why or why not? <ul><li>People do not want to pay delivery charges </li></ul><ul><li>Everyone demanded high service standards </li></ul><ul><li>Going to a grocery store on a weekly basis was highly ingrained behavior </li></ul><ul><li>Survey by the company in San Francisco to learn about how many people would be likely to use an online grocer </li></ul><ul><ul><li>6% - absolutely </li></ul></ul><ul><ul><li>23 % - probably </li></ul></ul><ul><li>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” </li></ul>
  15. 15. What lessons do you take away from the Webvan story about the “dot-com era”? <ul><li>Resources do not mean results </li></ul><ul><li>Surface study should be embedded with ground realities </li></ul><ul><li>Infinite Expansion Creates Infinite dilution </li></ul>
  16. 16. The Conclusion <ul><li>“It’s going to be $10 billion or Zero” </li></ul><ul><li>- Louis Borders </li></ul>