Comparative Analysis of Amazon and Webvan

Webvan was founded by Louis Borders in 1999 aft(prenominal) he see the opportunity in the growing number of people devising online purchases. Borders created Webvan as an enterprise that would offer greater variety than effected stores and at the like time provide the necessary convenience to online shoppers. Webvan erupted by offering groceries that were frequently bought by online shoppers to ensure economies of scale in their orders.After set uping a critical node base, it planned to use its distribution system to expand its sale to point of intersection lines that were not being frequently offered but with high profit margins much(prenominal)(prenominal) as books and consumer electronics. The caller-out developed the web store and constructed its distribution and fulfilment center in the San Francisco verbalize area from 1997 to 1999. After implementing its trial voice communication system in May 1999 to 1,100 guests, Webvan was launched in June of the same year as a venture whose primordial mission is to deliver to its customers e trulything from groceries to palm pi pilings in a cheap and efficient manner.After raising $1. 2 billion as start-up expectant from its stock offering, it began to execute hifalutin plans of establishing strings of futuristic warehouses with fit carousels and robotic product-pulling machines which embodyed $35 cardinal, hoping it would minimize the salute of operations. With profit-margins so thin, Webvan failed to c everywhere its growing cost of operations. Demand was so weak to confine the income that Webvan needed to raise. Finally, after piti suitable a net loss of $217 one million million million and accumulating tremendous deficits amounting to $830 million, Webvan found itself in a loosing situation.By July 2001, Webvan Group, Inc. and its subsidiaries, Webvan-Bay Area, Inc. , Webvan Operations, Inc. , and HomeGrocer. com, Inc. filed voluntary petitions for Chapter 11 bankruptcy protection in the join Stated Bankruptcy Court in July 2001 and ceased operations. amazon was founded by Jeff Bezos in 1994, after he noticed the promising growth of Web sites and lucre access. Bezos was said to be particularly optimistic ab issue online retail opportunities and suffice out to develop a business model that will supplement growth of internet access in the United States.Bezos decided to start with book administering as its initial retail category, with the belief that online business model possess superior economics to established competitors. amazon was so triumphful in its initial public offering that it was able to sell 3 million dole outs at $18 per section, thereby raising $54 million as part of its start-up capital. And so they asseverate the rest is history. Amazon evolved from a bantam warehouse to a leading internet retailer in the world. Bogler and Johnson (2000) wroteThe companys growth was phenomenal it expanded from books to offering 28 million items across nume rous categories and acquired 29 million global customers along the way. By 2000 according to Interbrand, Amazon. com became the forty-eighth most valuable brand in the world, embodying the teaching of electronic commerce for people worldwide. However by late 2001, Amazon experienced a tremendous loss of $2. 3 billion. Its share value which ascended speedyly in 1999 went down signifi arseholetly. Fortunately, it was able to borrow $2.1 billion to sustain its international investments. With innovations such as the one- ticktack system and creative strategies to raise r flushues from publishers and amplify in sales from wider product selection, Amazon was able to survive the correct in the subsequent period at the NASDAQ. (Burgelman, 2001) By 2008, Amazon emerged as a global brand with 76 million active customer accounts and order fulfillment to more than 200 countries. With this volume of sales, on declination 31, 2007 Amazon employed approximately 17,000 full-time and part-time employees. COMPARE & CONTRASTIt would be interesting to note that the founder of Webvan actually started in the business of bookselling. In scathe of experience in the dot-com business, Amazon started earlier in 1994 while Webvan started in 1999. Webvan started operations in 1999 and was publicly-listed on November of the same year, with its share price zooming to $34 from the offering price of $15 on its inauguration day. This allowed Webvan to raise a whopping $1. 2 billion in start-up capital from the offering and other sources such as venture capitalists, thereby move it within the league of Amazon.com. (emailprotected, 2001) In other words, both companies were of equal pick in 1999 when Webvan caught up with Amazon in terms of dot-com top and financial backing. Both companies also established strategic alliances in the flight of their operations. In the case of Webvan, it established partnership with Eve. com, an online prestige beauty products sell company. It also est ablished strategic alliances with Coca-Cola Company, Kraft Foods, and Chlorox Company. This was done by Webvan to adulterate its procurement costs.Amazon partnered with Drugstore. com (pharmacy), Living. com (furniture), Pets. com (pet supplies), Wineshopper. com (wines), Sothebys. com (auctions) and Kozmo. com (urban home pitching). In most cases, Amazon purchased an equity stake in these partners, so that it would share in their prosperity. Such partnerships helped Amazon egest its reach into the customer-base of other suppliers, and of course, customers who buy in one category such as books can be encouraged to purchase into other areas such as clothing or electronics.Webvan carried mostly perishable grocery goods in its retail categories while Amazon had the policy of selling solitary(prenominal) non-perishable and conveyable items. Since profit margins were so thin for perishable goods compared to non-perishable goods, it would be easy to undertsand wherefore Amazon had greater chances of success than Webvan. Furthermore, perishable items have greater try and cost in muniment handling. This is the reason why Webvan had to invest in any case much money in its warehousing infrastructure. This spelled the contrariety in the success and failure of the Amazon and Webvan.Webvan had to invest in addition much money on a system that must ensure the freshness of its perishable goods. It had to establish a highly technological and robotic warehousing infrastructure that was very pricey to take up with in contrast to Amazons system which required its employees to touch its products. In the case of Amazon, since most of its items sold online were non-perishable, it had lesser inventory risks. In attachment to that, its business model allowed it to shift it cost of carrying most of its inventory to its suppliers.Thus, Amazon had better grip in its infrastructure costs. The savings it obtained from its leaner operations allowed it to invest its money in developing its software systems that facilitated greater aptitude in its distribution. Finally, the viability of both business differed primary(prenominal)ly from its customer-base and funding support during inviolable times. Webvan had a weak local customer-base that was of ecstasy dissatisfied by its delivery service while Amazon had a strong customer-base that was not only confined to the US but also overseas.More so, NASDAQ just gave up on Webvan when it continously experienced financial setbacks while Amazon was able to secure additional investments to sustain its global operations. CAUSES FOR FAILURE OR SUCCESS star of the main reasons why Webvan failed is because it made the wrong decision of investing the money it successfully raised in a very expensive infrastructure and rapid expansion of operations. According to Strom (2001) Webvan spent huge sums on high-tech warehouses that were intentional to revolutionize distribution, but they turned out to be mostly a waste o f money.The problem is that all the technology was meant to reduce application costs, and labor is relatively cheap. Worse, Webvan designed the warehouses so they could scale to 8,000 orders per day, but thats a lot of unnecessary expense when youre receiving less than half that many orders. Another component part that led to the failure of Webvan is the lower in the quality of its service delivery. When Webvan took over HomeGrocer, an internet grocery shopping store which was absorbed into Webvans grandiose expansion plan, customers noticed the deteriorating effectivity of customer service.Before the takeover, there were no complaints with HomeGrocer curiously interms of customer service. Emails from customers were being promptly addressed by customer service such as providing refunds in cases of occasional mistake or damage food. This quality of service worsened when customers started to receive rotten fruits from the delivery. Webvan was buying low- take aim produce in ord er to save on cost. Such decline in customer service resulted in customers going back to the conventional way of picking up their groceries and patronizing the local groceries once again.(Mcafee, 2006) Finally, it can be seen that Webvans botched acquisition of HomeGrocer led to its failure as it didnt handle the merger of resources and assets wisely. HomeGrocers competency and saturation in terms of operations and marketing were not totally assimilated into Webvans system. Amazons e-commerce technology platform, brand power and fulfillment infrastructure was a primal to its success. It had technological innovations that efficiently facilitated online order such as the one-click check out process.Amazon provided its customers with an online system that allowed shoppers to purchase products online without filling lengthy registration and fare forms that would usually turn-away buyers. Amazon was able to create an online system that also helped copy purchases by buyers to be execu ted by just one click of a button a system whose patent was eventually awarded to Amazon. One primary(prenominal) factor why Amazon succeeded is because of certain inherent strengths in its business model.Its negative operating cycle allowed Amazon to get course credit card payments from its customers in a few days while enjoying a time lag of thirty to sixty days to pay its vendors after the sale. This gave Amazon a financial advantage that allowed it to generate interest in the full price of its goods for over a month. Another inherent strength in Amazons business model is its less dependence on physical infrastructure such warehouses. Amazon was able to sell it products with out actually carrying in most of its inventory thus sack the risk of its inventory to its vendors.Amazons suppliers carried the burden of storage, thereby lessening its cost due to minimal inventory handling. Amazon also instituted free shipping offers to encourage increase in basket size since customers have to set down over a certain amount to receive free shipping. The level at which free-shipping is set is critical to profitability. Because of this, Amazon got a competitive inch as promotional battles evolved with its competitors. LESSONS LEARNED AND CONCLUSION Growing Too speedy Too Soon The lesson that can be learned from the experience of Webvan is that of timing.Some would work out its a business that is way ahead of its time others would say it grew too fast too soon. In his review of the Top ten dot-com flops, German (2009) wrote that A core lesson from the dot-com boom is that even if you have a good idea, it is best not to grow too fast too soon. But online grocer Webvan was the poster child for doing just that, making the celebrated company our number one dot-com flop. In a mere 18 months, it raised $375 million in an IPO, expanded from the San Francisco Bay Area to eight U. S.cities, and built a gigantic infrastructure from the background signal up (including a $ 1 billion order for a pigeonholing of high-tech warehouses). Webvan came to be worth $1. 2 billion (or $30 per share at its peak), and it touted a 26-city expansion plan. But considering that the grocery business has razor-thin margins to begin with, it was never able to attract enough customers to justify its spending spree. The company closed in July 2001, putting 2,000 out of work and leaving San Franciscos spick-and-span ballpark with a Webvan cup holder at every seat. acquiring Big Fast Ironically, in the case of Amazon, the same business pattern of getting big fast was said to be the most important decision that lead to its success. In an interview with Jeff Bezos by Fortune Magazine, he said that the initial strategy was very focused and very uni-dimensionalIt was GBF pee Big FastWhat once looked foolish can seem brightness now. When we started the company on July 15, 1995 we offered one million titles. We were advised by very knowledgeable people to offer only three hun dred curtilage titles.That was twice the size of the inventory carried by the largest physical bookstores. The catalogue was badly for us but doable. Obtaining the books was really hard. But the success generated word of mouth. (Brooker, 2000) Supply-chain way was also a crucial lesson in the experience of Webvan and Amazon. The company that was able to efficiently and effectively manage its online retail business with minimal inventory cost and risk was the company that turned out to be successful.The difference in the supply chain management of both companies ultimately dominating between the company that was financially viable and which one was not. References Bogler, Daniel and Edgecliffe-Johnson, Andrew (2000). Jeff Bezos The Man of know Year Revisited. Brooker, Katrina (2000). Beautiful Dreamer. Fortune Magazine. Burgelman, Robert and Meza, Philip (2001). Amazon. com Evolution of an e-tailer. Graduate School of Business. Stanford University. emailprotected (2001).Webvan F inds that obtain for Food Online Hasnt Clicked with Consumers. Online. Available http//knowledge. wharton. upenn. edu/article. cfm? articleid=321 German Kent (2009). Top 10 dot-com flops. CNET Networks Incorporated. Online. Available http//www. cnet. com/1990-11136_1-6278387-1. html Mcaffee, Andrew and Ashiya, Mona (2006). Webvan. Harvard Business School. President and Fellows of Harvard College. Strom, David (2001). Where Webvan Went Wrong. TidBits 588. Online. Available http//www. strom. com/awards/255. html