Founding: Webvan launched in 1999. It was founded by Borders bookstore co-founder Louis Borders. George Shaheen, previously head of Andersen Consulting, was appointed CEO. The company received over $400 million in funding from backers including Sequoia Capital, Benchmark Capital, Softbank, Kleiner Perkins, Goldman Sachs, Caufield & Byers, Knight Ridder, LVMH, CBS, former Netscape chief Jim Barksdale, and Amazon.com.
History: Webvan was an online grocer whose fancy green delivery trucks brought fresh produce to customers in select cities. Opening on June 2, 1999, Webvan started delivering groceries to just 10,000 homes in the San Francisco Bay Area before a rapid expansion plan took hold. The company hoped to eventually deliver everything from videos to pizza to clothes from the dry cleaners using automated warehouses.
Its first warehouse was a massive 330,000 square-foot facility in Oakland, California, equipped with more than 4 miles of conveyor belts to automate picking and packing. Webvan later placed a $1 billion order with Bechtel Corporation to build 25 similar warehouses nationwide.
The company’s November 5, 1999 IPO, filed just months after Webvan launched, raised $375 million, adding to its coffers but unable to stem ongoing losses. The IPO was priced at $15, opened at $26 and reached a high of $34 before closing at $24. The company acquired rival HomeGrocer.com for $1.2 billion in stock in June 2000.
This allowed Webvan to turn a profit in Orange County, California, the only market where it did so. Nevertheless, the merger caused various technical problems, and order quantities dropped. Shoppers soon headed back to the grocery store to pick up their milk and cereal.
What Happened: In April 2001, CEO George Shaheen was replaced by Bob Swan, Webvan's former CFO and COO, in an unsuccessful effort to turn things around. As part of that effort, operations in several cities were shut down, marketing expenses were trimmed, and Webvan began charging for deliveries, only to see demand further erode in its remaining markets.
Unable to raise more cash, the company auctioned off assets in an attempt to avoid bankruptcy. On July 9, 2001, Webvan filed for bankruptcy and began its liquidation. In August, the company auctioned $30 million worth of equipment including more than 200 delivery vans, a warehouse order-fulfillment system, several electric generators, office furniture, and computers.
One of the largest auctions was held in October for similar items. The company also sold its technology platform and Oakland distribution center to Kaiser Permanente for $2.65 million.
Where Are They Now? In the end, Webvan was making deliveries to about 750,000 customers in Chicago, Los Angeles, Orange County, Portland, San Diego, San Francisco, and Seattle.
Sunil Bhargava, who was on the founding team and the chief architect at Webvan, says that the customer base never reached a critical mass. There were other problems, too: “Any new way of doing things takes a while to set in,” Bhargava tells The Standard. “Webvan required customers to order the night before. Many would forget and then run out of, say, milk and go to their local grocery store. This made the habit hard to form, attrition high and resulted in us running a jumbo jet-like operation at 25 percent capacity. We were losing lots of money but the street expected us to expand to nine cities in a year. With hundreds of millions from the IPO in the bank we should have taken the hit, slowed down and expanded capacity with demand. Some of us pushed for this but the greed was intense.”
Bhargava is now co-founder of Tandem Entrepreneurs,
Comments
I remember seeing the list of equipment they were auctioning and thinking "DUDE! somebody at Sun retired off of them!". at the time I was the DBA for a major website that easily did 5x (probably more like 10-20x) their traffic on about 1/4 the equipment. the consulting company I had been at prior did some work for them too so I know their partners and Oracle got a nice chunk of that VC as well.
ah, that was a great time to be in IT sales and/or consulting - you just woke up in the morning to .com(s) having left big bags of VC $$$ at your doorstep... :D
>> "We were losing lots of money but the street expected us to expand to nine cities in a year. With hundreds of millions from the IPO in the bank we should have taken the hit, slowed down and expanded capacity with demand. Some of us pushed for this but the greed was intense."
You don't seem to get it. That expectation from "the street" did not materialize out of irrational thin-air: that was the promise made when an untrusted business model was sold to investors. That greed, intense as it was, was fueled originally by the grand design envisioned by hungry (and deluded) entrepeneurs.
It's easy to decide to count your losses when you're playing with other people's money.
-dZ.
Regarding their infrastructure - when they ran out of disk space on say and E450, they would by another server instead of a couple of hard drives and a raid controller...
I interviewed with Webvan as a developer in 1999. I passed because they wasted three hours of my time talking about their stock options instead of the technology. When the IT department only thinks about stock options then it is time to pass.
Employee and customer.
There was the growth pressure, build before proof, etc. A large factor. Too fast, too many...
AND
I think there was a strategic mistake in the marketing and engineering focus. The marketing was focused on getting rid of the grocery store. If the primary focus had been around that simple recurring order for stables (bread, milk, etc) like other successful services (Bay Area Organic Express (now SPUD)) I think the loss of customers (mentioned above) would not have occurred in the same way. Customers still would have gone to the store, but it would have been for those additional items.
Webvan success was targeted on volume (recurring customer a key here).
I'm not sure how early the recurring customer was recognized as key.
If Webvan had required or heavily influenced customers to be recurring until proof of business was achieved it would have been a completely different outcome.
So
1) either marketing/engineering didn't focus enough and they went for the whole enchilada (like amazon) and not foot in the door survival (like The BOX with recurring only) until that model proof was obtained
or
2) Marketing didn't see that recurring customer was the lynchpin to success until too late.
or
3) Marketing felt they couldn't sell a recurring only service and therein lies catch 22. (Odd since there were others who were doing it)
-SAB
fyi: HomeGrocer is still alive as Yummy.com
I was working for Webvan's rival Peapod back in '99 and it was blatantly obvious that Webvan was not going to make it.
Peapod started in the 90's (customers installed a Mac client and connected to Peapod via a dial-up connection) and built their customer base up over the years, Webvan assumed that "if you build it, they will come". Peapod had a distribution center in Niles which was basically a warehouse with a bunch of aisles and racks. The pickers downloaded orders with Palm Pilots (really Symbols) and actually went up and down the aisles with carts. Webvan spent an obscene amount of money to automate facilities that didn't need the automation.
While Peapod is still doing business today (they make a stop at my office building about once per week), they did run into some financial issues that necessitated their buyout by Royal Ahold of the Netherlands. Rumor had it that the CEO had a nervous breakdown (he was supposedly found in the fetal position in a corner of his office) the morning that Peapod was supposed to meet with some financial backers which screwed the deal up for the company.
Minor correction: WebVan never made any real deliveries in San Diego. I was watching closely and they went directly from "coming soon" to "out of business".
Ah, WebVan. I used WebVan a lot and was dismayed when it went away. Its replacements are inferior (less convenient, poorer service, can't order the night before, etc.) - now I'm back to just driving my individual car to the grocery store - ridiculously inefficient. However, WebVan's shutdown meant that I didn't have to return the nice, sturdy delivery containers, which I have found multiple uses for to this day!
Why I never ordered...
1. The details of their program were not given on their site.
2. You had to order nearly a week in advance.
Interesting stories above. I have to say that the service was popular for some friends of ours who had young children, lived in the city, and only had one car -- delivery of groceries to the home was a godsend, and I imagine many other people with disabilities or transportation issues would have found these services to be of great use. The question is: What sort of fee structure would support such a business?
Webvan delivered for quite some time in Atlanta and I enjoyed their service very much. When they started adding a delivery fee I did not mind too much since their prices were reasonable. The real benefit was the time savings and not having to go the store. Once you made your list, your recurring items were saved and future ordering was fast and easy. They never had critical mass in the market. It was great for busy people who didn't want to pick their own meat or produce but I believe these people are few and far between.
When Web Van bought Home Grocer, it was done without the approval of the stock holders of Home Grocer, of which I was one.
I believed in the Home Grocer concept and it was profitable, unlike Web Van.
The execs at Home Grocer took their huge payouts and moved on, leaving the employees and investors in Home Grocer to flounder in the morass that was Web Van.
It was an over ambitious, poorly thought out plan and it is still amazing that the CEO, COO's and the other execs that were mentioned are still in leadership positions with other large companies.
It use to be the Captain went down with the ship, but now the ship can sink with all the crew and passengers as the Captain(s) sail away into the blue in the gold encrusted life boats.
Never invest in any company that has at it's head a person with a poor track record, It seems that the majority of these "turn around specialists" simply sell off all of the company assets and then turn around and leave, with a bundle.
How is it that any company share holders, no matter the size, would allow for a senior manager, whether CFO, CEO, COO or any other idiotic acronym, to receive hundreds of millions in compensation is beyond me.
What happened to maintaining profitability, how can the officers of any company tell it's employees that they must control costs, when they vote themselves millions in pay raises and golden parachutes..
Wake up America.. Is your corporate leader a "Captain Smith of the Titanic" will he/she take your company to the bottom? or will the shareholders rise up and take back their companies.
We don't need board members who are there for name recognition only, It seems that appointments are made by the heads of companies only to provide rubber stamps or flashy names.
Boards of directors are suppose to be the safety link between the shareholder and the management,
but when the management owns and appoints the Board of Directors, there is no link and no safety.
We are going to see many more huge failures, like Countrywide, Lehman Brothers, Bear Sterns and pick an airline. Look at the compensation package of all of the officers of these failing institutions, is there a nexus between poor performance and high management pay??
Would you still get paid if you drove your business into the ground?
Jerry
I was a contributing editor at The Industry Standard and wrote about HomeGrocer's move into southern California, specifically Orange County, before the company was acquired by WebVan. I'm sure that story is rattling around in the Standard archives somewhere. I did a couple test orders while reporting my story and then afterward, when I quit writing to have a baby, became a regular customer. My family loved HomeGrocer because the drivers were so nice. However, as a consumer my biggest problem with the service was you couldn't get the same brand names the supermarkets carried, and there were no club card-type discount programs. The company was so new it couldn't strike deals with major distributors, wholesalers or brands, an that hurt them, along with the enormous overhead and all the other things you mentioned.
Flash forward eight years. I now live in Portland, where Safeway and New Seasons, a regional organic grocery chain, both offer home delivery. I've used Safeway.com for the past six months and love it, especially now that gas is $4/gallon. If I had my way I'd never drive to the grocery store again. The Web-based interface is simple to use and stores my entire shopping list, which means I'm done with my $150 to $200 weekly order in about 10 to 15 minutes. Safeway.com's shoppers pick from one of the company's megastore locations, so the selection is even better than at the smaller outlet near me. I can use my club card to get discounts, and take advantage of frequent free-delivery promotions and other deals - this month, free movie tickets - just like I would in a regular brick and mortar store. And the delivery guy is really nice, guess that hasn't changed. Moral of the story: give customers convenience, a good Web site, huge selection and the same prices they'd pay in the stores. It can't be a high-margin business for them, but then again, the grocery business never has been.
Michelle V. Rafter
OK, help this old brain - wasn't Adam Lashinsky, then with thestreet.com,, now with Fortune, somehow involved in their downfall - exposing some things post IPO that directly led to the end of Webvan?
I used Webvan in Orange County and was so pleased with their service, I almost stopped shopping for the mundane stuff physically and relied on Webvan. I was sad when they shutdown! The service was reliable, the website highly usable (e.g. reordering weekly replenishment in one click), and courteous delivery people. It was so nice!
I worked there for the first 3 years. One of the things the technology team always forgot was that it was essentially a Grocery Store. They seemed to think it was strictly a tech company. Along with forgetting to prove the concept by starting small and expanding once it was proven, they just ignored what grocery shoppers really wanted--convenience, reliability, quality--not flashy structure.