What killed Webvan was bricks, not clicks

Webvan's rapid rise and fall from IPO to RIP has elicited a certain sameness in news stories covering the company's recent bankruptcy protection proceedings announcement. Indeed, readers of most U.S. newspapers might be excused for assuming that Webvan Group Inc.'s well-anticipated demise is proof that all dot-com news belongs on the obituary page rather than in the business section.

Yet the fact is that Webvan's fatal flaw was not written in its dot-com DNA, but rather traces to a more prosaic malady: a congenitally weak business model.

To be sure, we've all heard about the enormous infrastructure costs Webvan incurred, and certainly those costs did play a contributing role. Webvan invested in infrastructure the way the ill- fated Iridium venture launched satellites, burning through more than $800 million without pausing long enough to test the basic viability of its business model.

And that model should have been suspect from the start. The reason: In spite of its claim to virtuality, Webvan was a "brick" masquerading as a "click," not only building its brand from scratch but hellbent on building its own billion-dollar, 26-city network of warehouses to serve its (as yet non-existent) consumer clientele.

But Webvan's model wasn't the only business plan available to would-be e-grocers.

Compare the approach that Tesco, the big British grocery chain, took in its entree into e-business. Tesco is actually making money in England on its Internet grocery delivery service (though not yet in its fledgling U.S. e-grocer gambit, in which Tesco has invested in Safeway's GroceryWorks service), using its pre-existing stores as a "distributed network" of warehouses.

Unlike Webvan, which had a brand to build, Tesco made its task much more manageable: Extending its established brand to a new channel. Likewise an online grocer of the home-grown variety, Peapod, which shares a distribution infrastructure with the physical stores of Royal Ahold, parent of well-known American grocery chains such as Giant Food and Stop & Shop.

Just days after Webvan folded, Royal Ahold scooped up the remaining shares of Peapod at a 72 percent premium over its closing price. Clearly, Webvan's go-it-alone strategy put it at a disadvantage that proved deadly--just as Peapod and Tesco's hybrid model exploits the synergies that may well make e-groceries viable.

And that wasn't the only blind spot in Webvan's business model. From the first, Webvan touted its status as a new-economy time- saver: Life's too short to waste precious minutes standing in line at the supermarket checkout.

A worthy thought in our new millennium, but in fact what Webvan did was less a matter of saving lost time than simply shifting our ennui to a new venue: from the supermarket checkout to the kitchen table, as customers waited for Webvan to arrive. It didn't help that, as bankruptcy neared, Webvan's promised 30- to 60-minute delivery window was running 24 hours late in some cities.

Still, Webvan was on to something. Checkout lines are just one aspect of the time stolen by grocery shopping. What more concrete inconveniences plague the grocery shopping experience? For one, grocery shopping requires you to plan. To plan well (as anyone knows who's had to double back for a missing ingredient), you need a list-- an inventory of items in need of replenishment. Webvan did nothing to relieve consumers of time spent on that tedious task.

In the July 9 statement announcing bankruptcy proceedings, a Webvan spokesman wistfully characterized the e-grocer as "ahead of its time." And perhaps it was. To make Webvan's ambitious business model work--to truly erase the time factor for consumers--would require things like Internet-enabled refrigerators that would e-mail an e-grocer alert when the milk's run out or someone's about to eat the last burrito. We're not there yet--and when we do awake to that new world where our toasters talk and our vegetable crisper puts our produce purchase out for bid over priceline.com, Webvan will be little more than a footnote in the hypertext history of the online era.

Webvan had its share of low-tech defects as well. After all, what makes it safe for consumers to pass up the real-world opportunity to squeeze the Charmin--or sneak a ripe strawberry, for that matter? Trust in the traditional wares of an established grocer, who can be counted on to deliver the same ripe cantaloupe you would have chosen yourself. With no brand to begin with, Webvan had no trust-factor to build on.

Now that Webvan has passed its "sell-by" date, it's tempting to interpret its demise as the death of the dot-com experiment. In fact, Webvan's passing proves an enduring truth: In the new economy as in the old, only the strong business models survive.

Jorge Rufat-Latre is a Director at Strategos, an international innovation company with offices in Chicago, Menlo Park, CA, New York and London.