Webvan

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Webvan was an online "credit and delivery" grocery business that went bankrupt in 2001. It is often considered an archetype of misapplying Internet technology to an existing form of business. It is also considered a classic example of a company trapped by sudden demands from venture capitalists for short-term profitability, instead of growth and market share.

Webvan was headquartered in Foster City, California, near Silicon Valley. It delivered products to customers' homes within a 30-minute window of their choosing. At its peak, it offered service in nine U.S. markets: San Francisco Bay Area, San Diego, Los Angeles, Chicago, Seattle, Portland, Atlanta, Sacramento, and Orange County. The company had originally hoped to expand to 26 cities.

Webvan was founded in the heyday of the dot-com boom in the late 1990s, and its original investors encouraged it to rapidly build its own infrastructure to deliver groceries in a number of markets. The idea of online grocery shopping was sound, as established retailers have since proven with their own Web sites. The mistake Webvan made was trying to build everything on their own, instead of partnering with existing supermarket chains, wholesalers, or a network of small chains or independent grocers. Some journalists and analysts blamed this serious error of judgment on the fact that none of Webvan's senior executives (or major investors) had any management experience in the supermarket industry, including its CEO George Shaheen who had resigned the top spot at Andersen Consulting, a management consulting firm, to join the venture.

While Webvan was popular, the enormous amount of money spent on infrastructure far exceeded sales growth, and the company eventually ran out of money. For example: Webvan placed a $1 billion (USD) order with engineering company Bechtel to build its warehouses, bought a fleet of delivery trucks, purchased 30 Sun Microsystems Enterprise 4500 servers, dozens of Compaq ProLiant computers and several Cisco Systems 7513 and 7507 routers, as well as more than 80 21-inch ViewSonic color monitors and at least 115 Herman Miller Aeron chairs (at over $800 each). [1]

To the company's credit, as part of its shutdown process, all non-perishable food was donated to local food banks. Webvan's legacy consists of thousands of colored plastic shipping bins for groceries that are still sitting in customers' basements and closets, and a lucrative severance package[2] for ex-CEO Shaheen.

The online grocery market sector has seen many other failures, including Publix Direct. However, there have been a few successes. Two companies founded around the same time as Webvan that still exist today are Peapod started in 1989 in Chicago and SimonDelivers in the Minneapolis-St. Paul region of Minnesota and Wisconsin. The GTA-area of Toronto is serviced by Grocery Gateway, which has partnered with and is now owned by local grocer Longo's. The New York City market is increasingly served by FreshDirect. Some other companies, such as Peapod, primarily serving the Northeastern United States, existed before the Internet became popular, and adapted their business models to the new medium.

[edit] Trivia

Webvan advertised at Pacific Bell Park (now AT&T Park) in San Francisco. A sign for the company appeared behind home plate on October 5, 2001, the night Barry Bonds hit his 71st home run of the season, breaking the single-season record.