An example of an E-Commerce failure and its causes

Webvan was one of the most epic fails in the dotcom bubble fiasco. The online grocer was founded in 1999 by Louis Borders and was headquartered in Foster City, California, USA. Webvan delivered products to customers' homes within a 30-minute window of their choosing. It served customers in ten US markets: Chicago, Los Angeles, San Francisco Bay Area, Orange County, San Diego, Seattle, Portland, Dallas, Atlanta and Sacramento.

While Webvan was popular, the money spent on infrastructure far exceeded sales growth, and the company eventually ran out of money. Within 18 months, it had spent $1 billion on building its futuristic warehouses which worth $30 million each, buying a fleet of trucks, computer hardwares and upgrading its infrastructure. It raised $375 million in its initial public offering and even bought one of its largest rivals, HomeGrocer. Webvan had $178.5 million in sales in 2000, but that revenue was swamped by $525.4 million in expenses. Yet, the company had planned to expand to 26 markets and turn a profit in 2002.

Once worth $1.2 billion and touting an ambitious 26-city plan, Webvan announced its bankruptcy in 2001. Its stock plummeted from its all-time high of $30 to just six cents within a few months. As part of its shutdown process, all perishable food was donated to local food banks while non-perishable items including some frozen and packaged food were returned to the vendors or sold as part of the company's liquidation. The company began closing operations and 2000 workers were being laid off.

Many analysts have said Webvan spread itself to too many locations too quickly. The enormous infrastructure that Webvan thought to establish in multiple geographic areas has proved to be too great a cost. Besides that, Webvan faced a number of challenges in its short existence, including a sharp economic downturn, sluggish consumer spending and investor indifference.

One of the hallmarks of the dot-com crush has been the presumption that you needed to get big fast. It has been proven in Webvan's case which made the company a relic of the dot-com flops. A core lesson from the dot-com boom is that even if you have a good idea, it's best not to grow too fast too soon. (see cnet.com)

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Saturday, June 14, 2008