August 9, 1999
Webvan delivers logistics lesson to online vendors
What is it about books and electronic commerce? First, Jeff Bezos launched a Web bookstore, rapidly built it into a poster child for e-commerce, then leveraged his company's dominance of the online book market to expand it into a slew of other product categories, earning Amazon.com the moniker "Wal-Mart of the Web."
Now, Borders Books founder Louis Borders has created Webvan (www.webvan.com), an online grocery store that may redefine online commerce as radically as Amazon.com has. If Borders pulls it off, Webvan may soon be known as the "FedEx of the Web." (You heard it here first.)
Granted, Borders Books is hardly at the forefront of the e-commerce revolution. But clearly Louis Borders learned some important logistics lessons during his years as a bookseller.
Webvan, despite appearances, is more than just an online food vendor. It's a bold -- and expensive -- experiment in direct-to-consumer product distribution.
Much attention has been paid to the "last mile" in network access -- the narrow data pipes that lead to the end-user's desktop. But for e-commerce vendors, there's a more pressing last-mile problem -- the physical distance from a distribution center to the customer's doorstep.
In no category is this difficulty greater than in the fresh food and groceries market. You can't just pop a carton of eggs into a FedEx mailer. You need to make sure that groceries arrive quickly, intact, and at the right temperature. And you need to do it without big per-customer shipping charges, given the food industry's notoriously skinny margins.
Webvan is addressing this problem with giant automated distribution centers, each of which will serve a large urban area. The warehouses are designed to enable fast, cheap delivery of food and other products anywhere within a 40-mile radius.
The first time I tested the service, Webvan was a mixed bag. Although I found the site extraordinarily easy to use, my groceries never arrived. (Webvan's customer service people blamed it on a computer crash, proving there's still plenty of room for improvement in the system.)
Employing one of the best "shopping-cart" applications I've ever seen on an e-commerce site, Webvan always lets you see exactly what you've ordered, and displays an accurate running total of your purchases.
So far, Webvan is available only in the San Francisco Bay area. But the company has signed a $1 billion contract with construction giant Bechtel to build automated distribution centers in 26 cities around the United States. And Webvan has raised a whopping $400 million in venture capital so far.
If you think venture capitalists would readily invest almost half a billion dollars to get into the grocery business, you better think again. Even with Webvan's efficient distribution system, the margins for food products just aren't going to be high enough.
That's why it's almost certain Webvan will add higher-margin goods to its product mix. Want a video with your frozen pizza? How about a few CDs and a Discman? Or some copies of Symantec's Visual Café along with a case of Jolt and a gross of Twinkies for your hard-working software development staff?
If Webvan solves the problem of distributing groceries, there's nothing it won't be able to bring to your doorstep, which should make retailers quake in their boots.
Can Webvan pull it off? Write to me at email@example.com.
Dylan Tweney is the content development manager for InfoWorld Electric. He has been writing about the Internet since 1993.
Previous columns by Dylan Tweney
Password shuffle is inconvenient, causes security problems
August 2, 1999
Internetworking points at necessity of data `garages'
July 26, 1999
Increasingly global, the Web challenges U.S.-based companies
July 19, 1999
One-click buying makes online world spin a little faster
July 12, 1999
Every column since August, 1997