Webvan vs. Uber

Webvan is often considered a spectacular failure during the early dotcom era. Looking at what it was trying to do and when, it is not a surprise. Their IPO raised $375M which looking at the financials below was not nearly enough for its lofty goal.

The Webvan business is not that different than several new businesses, such as Uber and Doordash. The business is logistics and delivery of goods from one place to the other. In Doordash’s case its food, and people for Uber.

The major difference between Webvan’s business model and the new businesses, Webvan used its own capital and employees to grow the business. They bought vans and employed drivers, this was too costly to get to scale fast enough and sustain long enough for the demand curve to catch up.

Using Uber as an example, the new business model leverages the underemployed to use their own cars and are hired as part-time contractors and not employees. Contractors give a company more flexibility, especially without guaranteeing an income or benefits. The drivers benefit with the ability to earn income, a win-win to a degree, just tilted in Uber’s favor.

In December 2015, there were 162,037 (1) Uber drivers, estimating the average car cost at $25,000, it would require a $4.0B investment in capital to have that many cars available, not counting on-going maintenance; all of which Uber gets for free.

In an article by Greylock on Why Uber won, highlights how Uber used over $10B dollars it raised over 6 years as a weapon to grow the company. This money excludes the additional free capital they derive by using other people’s cars. Greylock puts it:

The company’s use of money as performance enhancing drug was beautifully aggressive. It was offensive and defensive at the same time.

Looking at Webvan in this light, its understandable why they failed because needing that much capital to bootstrap a business is challenging enough. Plus the unemployment rate in 2000 was 4%, the lowest in three decades, making it expensive to hire a large workforce. The unemployment rate in 2010 when Uber started was 9.6%

Uber’s advantage, plenty of available cash throughout their growth cycle, plus an available workforce, putting them in the right place at the right time to take advantage.

(1) Source: https://www.washingtonpost.com/news/wonk/wp/2015/01/22/now-we-know-many-drivers-uber-has-and-how-much-money-theyre-making/ [404]