Where Webvan failed, Instacart may succeed. Founder and CEO Mike Borders recently called former Webvan CEO Mike Moritz to discuss the company’s business model. In his view, the company failed because it tried to expand too quickly. Instead of building a national delivery network, it should focus on growing its presence in San Francisco first. Now, Borders is confident that his business model will be more successful magazine360.
To build their fleet, Webvan’s founders had an ambitious expansion strategy. They hired Bechtel, a construction firm, to build 26 warehouses across the US, each covering an area equivalent to eighteen grocery stores. They had a goal to build warehouses that were “best in class.” Unfortunately, they were unable to test the efficiency of their warehouses before committing $1 billion in cash. As a result, they ended up laying off 2000 employees healthwebnews.
Despite Webvan’s colossal investments, the company failed to test its product and model with consumers. In the United States, the grocery industry is valued at $603 billion, and Webvan failed to conduct sufficient consumer testing to determine whether this type of grocery service would be successful. Even if it had conducted some consumer testing, the company’s founder believed that the service could capture a small slice of the US grocery market, which is estimated to be worth half a trillion dollars theinteriorstyle.
While webvan had ambitious growth plans, it failed to make a profit due to its high costs. Its business model failed to support this model because it failed to capitalize on convenience. Grocery businesses are notorious for razor-thin profit margins. According to the Food Marketing Institute, net profits from the grocery industry in 2013 were just 1.3% of sales. Webvan’s business model was simply not able to sustain these costs marketbusiness.
In a time of high-speed Internet connections and poor-quality business models, Webvan’s failure is a cautionary tale. A company that failed to develop a business model that suited the era of the dot-com boom is unlikely to become a success. Webvan’s failure is a lesson for the next generation of e-commerce startups. The e-commerce space is not mature enough and the resulting business models aren’t well understood thecarsky.
The most common problem is that Webvan has failed to expand its service beyond its initial launch markets. Its ambitious goal was to operate in 26 metro areas. While it was growing in its market, Webvan still operated in just 10 major cities. Ultimately, Webvan is still a failure despite a few promising early signs. Webvan’s failure in San Francisco is an example of a company that isn’t willing to expand.
In 2003, Webvan raised about $400 million in venture capital funds. In its initial public offering, Webvan’s stock price nearly doubled. By the end of 2001, it was valued at $8 billion. The investors pushed the company to grow fast. By June 2001, Webvan was operating in ten US cities and was rated the internet’s top grocery delivery website. Moreover, Webvan’s stock price has skyrocketed since its IPO.
A similar example of home delivery is Instacart. It uses grocery stores to deliver groceries to customers’ homes within an hour. Unlike Webvan, Instacart’s drivers are independent contractors and don’t receive salaries or benefits. Similarly, Webvan was a failure in its early stages, but it did succeed in generating more than $178.5 million in sales. After its IPO, Webvan was valued at $8 billion.
Finally
However, Webvan’s failure was partially due to its retail strategy, which Sir Moritz has cited as a major weakness. Webvan had to invest in retail while he focused on its business model. Webvan was impatient to achieve profitability. Instacart has a much longer runway and may eventually become a competitor to incumbent grocery stores. So, what could Instacart do to avoid this fate?
