WebVan: A Disaster on the Web

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Background Note

The main force behind the launch of Webvan was Louis Borders (Borders). Borders had graduated in B.A. (Mathematics) from the University of Michigan. In 1971, he established the Borders book store and was the CEO and President of the store till 1992. In the same year, he sold it to Kmart.5

Borders also established a software consulting company, Synergy Software in 1989 and an investment firm, Mercury Capital Management in 1995. In 1997, Borders decided to launch an online grocery store. He felt that the fast growing Internet based e-commerce would have a revolutionary impact on the intensely competitive grocery business. He wanted to start a venture that would harness the power of the Internet and deliver goods to people's homes in a simple and inexpensive manner. Borders wanted to set up an online store, which would target the entire American retail market. Right from selling fresh fish to designer clothes, he wanted to have every product in his store. He met the partners at Benchmark capital, a venture capitalist firm.

The partners, though initially doubtful about the project, were impressed by Borders' intelligence and determination. They persuaded him to start his site with groceries. He agreed and Benchmark Capital agreed to invest $3.5 million in his venture.

Sequoia Capital, another venture capitalist firm, invested the same amount. By early 1999, several companies including Yahoo!, CBS,⁶ Knight-Ridder⁷ and a French luxury goods conglomerate LVMH invested another $150 million in the company. Webvan began its operations in the San Francisco Bay area on 2 June, 1999. This area was chosen because it had a large number of web-savvy and quality conscious consumers. Borders held the position of Chief Executive Officer of the company. Webvan planned to appoint more than 10,000 people within three years of its launch. It decided to pay its employees an average salary of $40,000 a year and including benefits, labour would cost Webvan $400 million a year...

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5] A leading US based retailer.

6] A television network.

7] Knight-Rider is a communications company engaged primarily in newspaper and Internet publishing. The second largest newspaper publisher in the United States, it owns 31 dailies and operates the Real Cities network of 83 regional websites.