Dr. Chen, Information Systems – Theory and Practices  John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices Webvan Jason C. H. Chen, Ph.D. Professor of MIS School of Business Administration Gonzaga University Spokane, WA USA

Dr. Chen, Information Systems – Theory and Practices  John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices 2 The Case Learning Objective: To examine aspects of the question "How and why did so many of the new economy start-ups fail so spectacularly?" To discuss whether Webvan's problems were foreseeable and whether the company had room to be wrong about any of its operating assumptions. Subjects Covered: Electronic commerce, Food, Information technology, Internet, Logistics, Scheduling, Supply chain, Warehousing. Setting: California; Food industry; 2001 –Started with catalog orders in 1997 and IPO in Nov –Closed on July 9, 2001 (less than 2 years)

Dr. Chen, Information Systems – Theory and Practices  John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices 3 The Case Description: Examines Webvan's operations and the processes by which it delivers groceries that were ordered from the Internet to customers' homes. Recounts Webvan's history from founding through early 2001 and concentrates on the unique approaches to warehousing, delivery, scheduling, and to a lesser extent, marketing and information technology. It also examines the rest of the Webvan business model and how it was formulated. At the time of the case, there is great pessimism, reflected in the press and the company's share price, that Webvan will be able to execute its business model profitably or even stay in business. Webvan's business model relied heavily on properly designed and executed operations, and it appears clear that the company's operations were neither. However, the mismatch between visiting operational capabilities and the operational requirements imposed by the rest of the business model appear to be severe.

Dr. Chen, Information Systems – Theory and Practices  John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices 4 4 IS/IT Strategy Triangle Each group: Complete the case using “Strategy Triangle” model

Dr. Chen, Information Systems – Theory and Practices  John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices Information System Strategy Triangle Business (Firm) Strategy Organizational Strategy IS/IT Strategy N

Dr. Chen, Information Systems – Theory and Practices  John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices Information System Strategy Triangle Business (Firm) Strategy Organizational Strategy IS/IT Strategy N ~ Differentiation (GBF) ~ Innovation (Become premier online grocer) ~Crack “Last Mile” ~Capture 1-3% of target market ~26 Distribution Centers ~Business-to-consumer e-commerce ~Efficient process ~Lean business process ~Capital & technology intensive approach ~Highly automated DC w/50,000 items that could process 8,000 orders/day ~Carousel Technology

Dr. Chen, Information Systems – Theory and Practices  John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices 7 Case Analysis The Analysis consists of the following sections: The Webvan Business Model Problems with Conception in the Business Model Problems with Execution in the Business Model Incremental vs. Big-Bang Approaches to Technology Adoption How GBF Was Supposed to Work

Dr. Chen, Information Systems – Theory and Practices  John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices 8 Main concepts and discussions Perception vs. Execution Assumption: “GBF” strategy – Network effects –Definition - The phenomenon whereby a service becomes more valuable as more people use it, thereby encouraging ever-increasing numbers of adopters. –Information - The network effect is often the result of word-of-mouth testimonials. The network effect can be perpetuated indirectly, as well, through analysis of a network's size and projected growth. Brand-building Webvan life span lasted from Nov till July 9, 2001 (less than two years and burned several (1.2) billions of dollars) Get Big Fast (“winner-take-all”)

Dr. Chen, Information Systems – Theory and Practices  John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices Exhibit TN 1: Webvan's Plan for Success

Dr. Chen, Information Systems – Theory and Practices  John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices Exhibit TN 2: Destiny of the “Mars Shot” Marketing research? Ready for culture and habit changes?

Dr. Chen, Information Systems – Theory and Practices  John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices 11 Risks: Failing to deliver what customers want Streamline.com experienced the effects of the risk when using the Web to provide home delivery of groceries and pick- up/drop-off service for move rentals. –Streamline may have failed because its once-a-week delivery was too infrequent, or because customers wanted to inspect the produce when bags were dropped off. –Quitted its service on Nov. 22, 2010 Webvan thought it had learned from Streamline? (? ?) Webvan invested heavily in an infrastructure (using IT) that would allow its employees to take customers’ orders online and deliver them within 30 minutes. –Unfortunately for Wevban, many of its customers worked during the day and wanted their groceries delivered at home at night. –This made the 30-minute delivery window – and the related infrastructure expense and unnecessary.

Dr. Chen, Information Systems – Theory and Practices  John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices 12 Business on the Web Two things can be said with certainty about business on the Web: Companies are playing for real stakes, and Winning companies are playing by different rules.

Dr. Chen, Information Systems – Theory and Practices  John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices 13 Webvan's Ambition Supermarket + Amazon + Fedex + % hour delivery window NO CHANCE

Dr. Chen, Information Systems – Theory and Practices  John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices 14 Three Essentials for a Successful Enterprise 1.Business model 2.Core Competency 3. Execution a. GBF (Get Big Fast or Go Broken Fast?) b. unproven -- is unproven business model good or bad to the company? (cf. First mover advantage such as Amazon.com, e-Bay and Priceline.com) a. too many focuses (supermarket, FedEx, Amazon way) b. NO top management are with experience in the grocery a. NO Market Research b. incremental approach vs. radical approach. c. invested too much on the High-tech that Grocery really does not need that much (not cost-effective)

Dr. Chen, Information Systems – Theory and Practices  John Wiley & Sons, Inc. & Dr. Chen, Information Systems – Theory and Practices 15 Webvan now Resurrected by Amazon.com in 2009 As of January, 2009, Webvan.com is operating as "part of the Amazon.com family" (i.e. shipping non-perishable items by UPS or other standard shippers, the way Amazon.com purchases are handled), offering "more than 45,000 non-perishable grocery items.