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Webvan Bust Leaves A Big Hole

New online search for that perfect bagel follows demise of grocery dot-com.

Hundreds of dot-com companies bit the dust in the past year, but, until now, the folks who delivered H&H Bagels--New York's best--to my doorstep in Northern California were not among them. Even frozen, H&H's offerings were better than any other brand in the Bay area's supermarkets and bagel shops, including--or perhaps especially--those labeled "New York-style."

But now, the failure of Webvan, which delivered those bagels to my home, has left a bad taste in my mouth.

We didn't use Webvan for all our grocery shopping--mainly for the Costco-type commodity products such as laundry detergent, cat food, and cat litter. In fact, most of our orders had a lot more feline than human products--a feature that didn't escape the wit of the personable delivery employees.

It was good to have a rapport with them, because they'd always give us the inside dope on the latest reasons, they were being told, the company wasn't about to fold. "We're pulling out of Atlanta and Sacramento to focus on San Francisco and a few other key markets." Or "we're gonna do a reverse stock split." That's life in the E-commerce age--delivery of company survival updates along with your cans of Friskies Fancy Feast.

Webvan had lots of customers. By most reports, the majority of them, like us, were pretty happy with the service. But clearly Webvan didn't have enough customers, or they didn't buy enough groceries often enough, to sustain the company's gargantuan spending rates. And venture capitalists, in the market of 2001, certainly weren't going to help. A very familiar story there.

Except that Webvan wasn't like the hundreds of other dot-bombs with half-baked business ideas and little management experience chasing the Holy Grail of an initial public offering. Webvan seemed to have what it took to really build a company with capital investment, innovative--albeit bleeding-edge at times--use of IT, and savvy marketing.

The company truly could have pulled it off, economic downturn or not. The tragedy of Webvan was its own grandiosity. A lot of dot-coms had Steve Jobs syndrome. It wasn't enough to build a solid, successful business; they had to change the world. Webvan had that vision on a grand scale. For some reason, redefining the grocery industry wasn't a big enough challenge. Webvan was eventually going to deliver everything--CDs, office supplies, gifts--all over the country.

Why? Was it the low margins on groceries? Looking back, it seems a little odd to start out delivering goods that don't produce a profit to prove the concept for the high-margin stuff later on. A business plan like that would seem to depend on unlimited time, resources, and investor patience. Oops, I forgot: Those actually were some of the assumptions about the New Economy two to three years ago.

Why do things have to be so grandiose? What would be so wrong with Amazon.com, say, declaring that its mission was to be the world's largest online seller of books and music? But no, it has to become the one-stop shop for all kinds of products. Know anyone who's bought power tools from Amazon?

Webvan didn't pay attention to former Intel boss Andy Grove's legendary dictum: Only the paranoid survive. Instead, its formula seemed to be that if the company just grows and grows, continually expanding into new markets and new products, the profits will show up. Sure, everyone wants to scale their business. But you better make sure the concept is at least sustainable on a small scale first.

Much of the reaction to Webvan's demise seems to be, "See? People don't want to buy groceries online. It's a business you can't redefine." To me, that's the wrong interpretation. Even with its many and very costly mistakes, Webvan did redefine the business. You can call this irony if you like, but the company will be looked back upon as a pioneer that helped pave the way for the brick-and-mortar grocery stores, the Safeways and the Albertsons, to fulfill Web orders cost-effectively. Tesco, Britain's No. 1 food retailer, is turning a profit on Web-ordered groceries. It will happen here.

For Webvan, that will be the opposite of "getting Amazoned"--the established company getting blindsided and losing share to the online upstart. I wouldn't want to call it "getting Barnes & Nobled," but there's a certain logic to an established company moving slowly, learning from the $830 million mistakes of the upstart, then moving in for the kill.

Meanwhile, I've heard H&H Bagels has its own Web site and takes orders online. I'll check it out.

Write to Clinton Wilder at [email protected].

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