An Example of an E-Commerce failure and its causes

Nowadays, E-commerce has become efficiency in the global business. It serves as one of the business tools for companies. However, E-commerce will become failure if the company does not use it wisely.

WebVan.com is an example of a company for a failure in E-Commerce. WebVan was an online "credit and delivery" grocery business in 1999 and founded by Louis Bounders who also co-founded the Border bookstore in 1971. WebVan tried to deliver products to customers' home within 30-minute window of their choosing. The headquarter of the company located in Foster City, California and expanding its services to 10 US markets such as San Francisco Bay Area, Dallas, San Diego, Los Angeles, Chicago, Seattle, Portland, Atlanta, Sacramento, and Orange Country. The company had originally hoped to expand to 26 cities. However, Webvan went bankrupt in 2001 due to the financial difficulties.

What causes WebVan failure?


(1) Fast and Aggressive
WebVan wanted to grow quickly and immediately after they lauched their website. It tried to enter 26 US markets within 3 years and it opened 4 warehouses by August 2000. However, during the first half of 2001, WebVan was forced to exit several markets such as Atlanta, Sacramento, Dallas and it postponed expansion plans in a few East Coast cities. In the end, WebVan spread itself too quickly and thereby dooming its ambitious business model.

(2) Free Delivery
WebVan lauched its services, it offered free delivery for orders US 50 which ended up costing it millions in uncovered expenses. In May 2001, its delivery fee charging between US 4.95 and US 9.95, and it offered free delivery for order over US 100.

(3) Lack of experience in the grocery industry
The CEO, George Shaheen had no former background and knowledge in gorcery business. He never understood the value chain of the grocery business. Because of lack of experience, WebVan was unable to master the inventory management, warehousing and efficient distribution of goods. They were too optimistic in their operation planning and promised to deliver groceries within 30-minute window. It was unrealistic considering they had to pull items from shelves then drive the distance for the delivery. Besides that,they also lack of inventory controls and the unrealistic cost structure, so, there was no way for them to compete with the economies of scale of the major grocery stores which including Wal-Mart.

(4) Not knowing their target market
First of all, they did not take into consideration that capturing a market for online grocery shopping would not be that easy because it takes a long time to get consumers to adopt new ways of doing things or buying things. shopping for their groceries online. Customers prefer go through the process of going to a store and picking out their groceries, especially their produce, meat and items they choosing. However, WebVan overlooked that their customers were not willing to trade he convenience factor for additional cost of delivery. Even though WebVan did not charge delivery fee, but gorceries were sold in high price compared to its competitors because it did not have low cost structure. Customers were not willing to pay because WebVan was not giving them a service that needed to pay.

In the conclusion, the advancement of technology may helps companies doing businesses easily, more creative and innovative. However, appropriate strategies and planning are the most important in doing a dotcom business. Know the causes of failure, prevent it!

Reference:
Retrieved from http://www.cnet.com/1990-11136_1-6278387-1.html on 17 June 2009
Retrieved from http://en.wikipedia.org/w/index.php?title=Webvan&action=history on 17 June 2009
Retrieved from http://www.knowbd.com/piedmont/mba605/ReportWebVan.pdf on 17 June 2009