WebVan’s Success-Failure

WebVan’s Success-Failure

Carol Wilson


DATA PACKET: Access; Vol. 2, No. 76

An e-mail newsletter of The Net Economy



WebVan’s Success-Failure

By Carol Wilson

Can a company go out of business by doing its job too well? In

the current market, the answer is a painful, “yes.”

I am among many thousands of consumers who this week are

mourning the loss of WebVan, the online grocery-shopping service

that made life easier for shoppers in major metropolitan areas.

In the epinions ratings, on this site, 87% of customers

recommended WebVan:


Analysis of WebVan’s demise is widespread. Since I’m not an

expert on e-commerce or online shopping, I won’t try to

duplicate what has already been noted.

Here’s one analyst’s view:


But I do view what happened to WebVan as an indication of two

general trends: first, the last mile is tough for everyone;

second, things that appear too good to be true generally are.

Even as I placed a regular, twice-monthly order with WebVan and

marveled at the ease of it all, I had to wonder how long it

would last. It simply didn’t make sense to me that I could sit

at my computer and do shopping in 15 minutes that normally would

take an hour or more, then have my groceries delivered at no

noticeable premium. The savings to me, in time, gasoline and

frustration, were obvious, but WebVan’s profit potential wasn’t.

The company said it could achieve profitability at certain

customer volumes, but it bled too much cash trying to reach

those volumes.

In recent months, as WebVan struggled to survive, it continually

made special offers to keep us shopping. I was shopping anyway,

but no one turns down $20 in free groceries.

I had to wonder, however, whether those $20 rebate offers

weren’t just cutting deeper into WebVan’s bottom line.

Considering that its drivers were always on time and courteous,

the goods were delivered in special packaging for freshness –

each green pepper got its own ZipLock bag – and each order came

with some special freebie, WebVan appeared to me to be working

too hard for too little money.

Here’s a rating of other online delivery services:


The lesson of the day is for companies in any product/service

delivery space to look realistically at the level of customer

service required to traverse the last mile to a customer’s home,

and the cost of that service, versus the potential profit.

If it’s true that the buying public won’t stomach on-line

grocery delivery if it carries some premium, then where is the

profit to be made here?

Other online grocers haven’t given up yet here’s one:


This isn’t just theoretical discussion where local telecom

service providers are concerned. The cable television industry

earned the justifiable wrath of its customer base in the 1980s-

90s by being the poster child for poor customer service. When

AT&T took over Tele-Communications Inc., it vowed to

dramatically improve customer service, and did so, but at a high

price. AT&T’s profit-per customer figures continually lagged the

rest of the industry, which is one reason Comcast’s offer of $58

billion for AT&T Broadband looks reasonable, even though AT&T

paid $90 million for the same systems.

Here’s a bandwidth deal that seems too good to be true: Is David

Schaeffer crazy, or crazy like a fox?


AT&T was not alone in underestimating the mass market cost

issues. The entire Digital Subscriber Line market stumbled over

how to provide customer service for the masses and still make

money. The need to individually hook up DSL customers quickly

consumed any hope of profit that early service providers had for

higher-speed access.

The Bell companies were in a position to continue turning up

customers at a premium, while working to automate the processes

and eliminate the use of expensive truck rolls. The smaller DSL

players such as competitive local-exchange carriers and

Internet-service providers couldn’t climb that wall, and some

went the way of WebVan.

HarvardNet was one of the ISPs to jump into DSL – and then flee

from high cost of service:


One of the few DSL startups to find ongoing success has been

BroadJump, which developed software to enable mass turnup and

customization of services and has been rewarded by contracts

with major telcos, including AT&T, BellSouth, SBC

Communications, Time Warner and Bell Canada.

Check out BroadJump’s software:


Going forward, the challenges of traversing the last mile will

remain the same, whether a company is delivering groceries or

bandwidth, or both. First, the path to profitability must be

clear – if service is too good but not valued by its customers,

then failure is inevitable. Second, the ability to provide a

high level of customer service at a low cost remains an

industrywide imperative and a challenge/opportunity for all.


Copyright © 2004 Ziff Davis Media Inc. All Rights Reserved. Originally appearing in The Net Economy.