Although drastic declines have become typical of the hi-tech
sector recently, when NASDAQ management warned WebVan two
weeks ago that it could be delisted due to the low price at
which its stock is traded, it came as a surprise for a
company that was traded at a value of $10 billion not long
ago and tried, for a short period, to turn the U.S.
household economy upside-down.
The company's venture was essentially an attempt to do to
the grocery market what Amazon has done to the book market,
i.e. to alter consumer food-purchasing habits and to bring
customers online rather than to the grocery store.
In order to set up the cyber grocery store, the company
raised no less than $1.2 billion from the major capital risk
funds in the U.S., including Sequoia, Benchmark, Goldman
Sachs and SBC, which together invested $793 million;
additional investors funneled another $400 million into the
venture.
Six months ago the company issued stock in an IPO on the
NASDAQ, commanding a price of $25 per share and representing
a total company value of $10 billion on the first day of
trading.
With its tremendous capital reserves, the company announced
that within three years it would develop 26 giant logistics
centers in large cities around the U.S., at a cost of $35
million per center. It promised to deliver orders within 30
minutes, with free delivery on orders of $75 and more.
But plans are one thing and reality is another. Americans
were not thrilled at the idea of ordering their groceries
via computer and as a result the entire idea quickly
collapsed.
WebVan shares are currently trading at a price of seven
cents with the company's total market value a mere $34
million.
After having wasted a billion dollars on ambitious plans
that bore no fruit, WebVan is now waging a tough battle for
survival, accompanied by an aggressive advertising campaign
and discounts for regular customers. If the company succeeds
this will prove to be the biggest comeback for any dot.com
company so far, and if it fails this will be one of the
biggest failures computerized communications has seen,
sending investors back to the drawing boards to contemplate
what they could have done with the billion dollars they
threw away.
