Compare and Contrast Webvan and Amazon
SIMILARITIES
Based on Amazon’s success, the large number of similarities between Webvan and Amazon suggests on the surface that Webvan could have remained a going concern. Webvan, like Amazon, created an online service that was convenient and beneficial to use. The company accomplished this by creating an online ordering system where customers could order items and have a personalized shopping experience (B2C model). Both companies focused on providing a vast selection and rapid fulfillment. Furthermore, they focused on detailed market segmentation and appropriate supplier offerings to fulfill each of these segments. Webvan had a rapid growth strategy that resembled Amazon’s approach. Both companies chose to rush to the initial public offering (IPO) stage in order to raise enough capital to continue funding their start-up operations. Also, Webvan and Amazon were highly leveraged with large amounts of debt used to establish business with as many customers as possible in a very short amount of time. Both companies were ambitious, asserting a “winner takes all” mentality. They did this because they faced intense competition from traditional brick-and-mortar companies as well as rival online retailers. Finally, Webvan and Amazon were both capital intensive, stressing “bricks” more than “clicks”. They required large distribution centers (DCs) to meet the needs of sizeable, dispersed geographic locations. These DCs were heavily automated, requiring even more capital to establish, operate, and maintain.
DIFFERENCES
In contrast to Webvan, Amazon provided a much more interactive experience that catered to individual preferences. Amazon had a massively underappreciated information element that was missing at Webvan. Whereas the Webvan experience was incredibly sterile, Amazon has taken advantage of network externalities to create an amazingly rich experience that is largely user-created. Customers write product reviews, create best-of lists and advanced algorithms create personalized recommendations based on analyzing the purchases and tastes of similar users. As the site becomes more popular, the content and context gets richer as visitors contribute new content. Amazon has created an IT architecture that consistently provides more information to customers regarding products and collects more information regarding customer preferences than Webvan ever did. Also, Amazon and Webvan had significant differences in their delivery mechanisms. Amazon decided to outsource their deliveries to be shipped by the U.S. Postal Service, UPS, and FedEx. This enabled them to reach a vast number of people in different geographic locations from the first day of business. This strategy has allowed Amazon to operate efficiently without the need to build costly distribution stations, or spokes. Webvan’s dependence on its own delivery mechanisms resulted in an inability to effectively and efficiently service the “last mile.” Moreover, the perishable nature of Webvan’s key products created problems. Amazon’s largest-selling products (books, music, electronics, etc.) are homogeneous. Products that arrive at a customer’s door are identical to those found in stores. Webvan could not ensure that all of the food they delivered would be of desirable quality.
IN WHAT WAYS ARE WEBVAN’S CHALLENGES GREATER?
Webvan’s challenges were greater than Amazon’s for all of the differences listed above. The nature of the Webvan’s products, [next page]