The Downfall of Webvan: Lessons
from a Failed Dot-Com Grocery
Delivery Startup
Evidence 3: Report discussing what went
wrong
Webvan: A Failed Dot-Com Grocery Delivery Service
Webvan was a dot-com company and grocery business that filed for
bankruptcy in 2001 after just 3 years of operation. The company was
headquartered in Foster City, California, United States, and it delivered
products to customers' homes within a 30-minute window of their choosing.
At its peak, Webvan offered service in ten US markets, including the San
Francisco Bay Area, Dallas, Sacramento, San Diego, Los Angeles, Orange
County, Chicago, Seattle, Portland, and Atlanta. The company had hoped to
expand to 26 cities by 2001.
Webvan is often cited as the poster child of the dot-com "excess" bubble that
led to the tech market crash in 2000. The grocery delivery service grew too
fast, expanding its services to eight cities in just a year and a half. In the
summer of 1999, Webvan announced a $1 billion investment in wineries and
plans to begin operating in 26 other cities by 2001. When the company went
public in November 1999, it raised $375 million, with the stock trading at
around $30 and the company valued at $1.2 billion. However, this was the
peak, as investors soon realized that the company's customer base and
margins were not large enough to sustain all of its expansion plans. By the
time Webvan announced it would cease operations in July 2001, the
company's stock had fallen to just 6 cents per share, and it had laid off 2,000
employees.
Mistakes Made by Webvan
Wrong target audience segmentation and pricing: Webvan
adopted a mass-market strategy, but the target audience was not "price
insensitive" enough to sustain the company's operations.
Complex infrastructure model: Webvan decided to build its
infrastructure from scratch, which proved to be an overly complex and
costly endeavor. The company's automated carousel pods and tote
system added unnecessary complexity to the order fulfillment process.
Excessive and ill-spent capital raise: Webvan's $800 million capital
raise was viewed as excessive and poorly spent, as the company's
desire for massive, immediate growth led to premature expansion into
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