I would like to summarize the learning via case study and relating it to current scenario.
The Webvan case, was a very interesting read, mainly because I could immediately relate it to the current Indian scenario as regards to Flipkart. Let's draw parallels to the situation,
1. The Euphoria:
a. Webvan: Founder by Louis Borders, who also co-founded the Borders bookstore in 1997. It was met with tremendous euphoria by investors and analysts alike. In 1999, it had raised the highest funding ever for an internet start up at that point. $400 million was raised by Webvan, which eventually after IPO increased to $1.2 billion. The investors included the biggest names from investment banks and VCs like Benchmark Capital, Sequoia Capital, Softbank Capital, Goldman Sachs, and Yahoo! .
b. Flipkart: Founded in 2007 by Sachin Bansal and Binny Bansal, both IIT Delhi pass outs and former Amazon employees. Flipkart is the largest e retailer in India and has raised a total private equity investment of $540 million which is more than seven times the second placed Myntra.
2. Building "Infrastructure":
a. Webvan: Webvan went on for a 26-city expansion plan, signing a $1 billion Bechtel contract to build several state-of-the-art warehouses worth more than $30 million each. They built complex infrastructure, physical as well as software. All this while their first venture in the Bay City area was still not profitable.
b. Flipkart: The Company is building massive infrastructure both in the physical and software space. It has six warehouses at present and is building new ones in tier two cities. It is also developing software that will enable the customers to track their orders.
3. Flawed business model:
a. Webvan
i. Razor Thin margins in grocery business.
ii. They provided 5% discount.
iii. Free home delivery for orders above $50.
iv. 30-minute customer preferred window in which the order will be delivered.
v. Huge operating expenses as it owned trucks and employed drivers.
Too many benefits at too little cost. Webvan model could not make profits.
b. Flipkart
i. Huge discounts and lesser margins.
ii. Free home delivery for orders above Rs. 500
iii. Cash on delivery, card on delivery
iv. 30-day return policy, no questions asked
v. Huge operation expenses due to complex supply chain
Too many benefits at too little cost. Flipkart model is burning investor money every day and is not profitable at all.
4. As we can see, there are certain striking similarities in the way both the businesses are operation. While Webvan has gone bust, Flipkart seems to be headed the same way. There is immense competition in the Ecommerce segment, and the competition is only heating up with the entry of Amazon. It's going to be a brutal battle for supremacy, and the people who are going to bleed are the investors of this company.
It's not a question of who can beat the other, but who has deep enough pockets to outlast the other in the Indian market.
As discussed in class, a sound business model makes a sound business. A good business model has to define the following:
1. Value Proposition
2. Revenue model
3. Market opportunity
4. Competitive Environment
5. Competitive Advantage
6. Market Strategy
7. Organizational Development
8. Management Team
Another useful way to develop a business model is "The business Model Canvas", which I came across on the internet. It is very similar to the model discussed in class.
-Rishi Gupta
12DM-121
E-Business, Section B
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