Webvan

Why do you think Webvan failed so spectacularly?


Webvan failed because it over-relied on technology and automation. As I was reading the case, I questioned whether its technology was an asset or a liability because it was extremely expensive to maintain and wasn't generating enough value--Webvan couldn't even break even in its flagship store. Even though it was later acquired by Webvan, a less automated Homegrocer.com had been able to expand quickly at lower cost. Rather than depend on automation/technology, Homegrocer invested in its people, allowing it to set up facilities that cost 25% less than Webvan. Despite its reliance and investment in automated technology, Webvan could only fill about 35% of the order using its automated pods. With a large number of perishable goods and heavier items requiring labor intensive picking per order, an automated system was not creating enough value for Webvan. 


Since many online grocers struggled during this time, it seems to imply that the customers did not perceive a benefit from the online business model. Webvan assumed that it could create a more efficient model that offered convenience to its customers, though I'm not sure its customers found it valuable to order commodities over the internet, wait 24 hours to receive them, and schedule a 30 minute window for delivery. The online business model has been more successful for companies like Zappos and Amazon because they're not selling commodities (or perishable goods, complicating the storage/delivery process) and instead they're making it easy and convenient for customers to purchase hard-to-find items.