Can AmazonFresh Avoid The Ghosts Of Webvan’s Past?

Despite many attempts, online grocery businesses remain a risky proposition, in part because the road to this potentially lucrative market is paved with proverbial skeletons of failed ventures.

Most notable among these cautionary tales is Webvan, the early dot-com era startup that famously spent $800 million in venture capital funding before shutting down after three years of operation.

Thanks to the recent expansion of the AmazonFresh service, many are looking at Amazon as the right player to rejuvenate an online grocery shopping market estimated at $568 billion annually.

But, while Amazon is understandably intent on avoiding the mistakes of the past, how exactly does the company plan to build on its fledgling service?

A new Business Insider report reveals that Amazon is rolling out a calculated strategy based on the following tenets that it hopes will help it avoid potential pitfalls on its way to eGrocery dominance.as it seeks to expand its market presence.  

Consult With Webvan’s Executives

Amazon is hoping Doug Herrington, Peter Ham, Mark Mastandrea and Mick Mountz, all former Webvan officials, can help them identify and fix potential problems that led to their initial company’s demise. All four execs now serve at Amazon, and the company has acquired Kiva Systems, a warehouse automation provider based on principles originally developed at Webvan.

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“We had a lot of Webvan DNA in the room and we drew on that experience a lot,” Tom Furphy, who helped start AmazonFresh before departing, told the media outlet. “That was a good formula for building the business responsibly.”

Amazon now even owns Webvan’s old address, webvan.com.

Analyze And Learn From Webvan’s Mistakes

Through its analysis, AmazonFresh believes it has uncovered the three keys that could have helped Webvan avoid its fate. The new division says it will expand slowly, only service areas with a high population density and focus on warehouse efficiency.

For instance, AmazonFresh currently serves just major West Coast markets in Los Angeles and Seattle. By the end of 2013, there will by one addition – San Francisco. In 2015, it is only expecting to be available in 20 markets. Webvan, by comparison, was operating in nearly 10 metropolitan areas before its second birthday.

Commentators like Gary Dahl, Webvan’s VP from 1997 to 2001, said his organization lost a lot of money delivering to the suburbs. Dahl suggests that by traveling in more highly concentrated areas, AmazonFresh can maximize its service and reduce the waste that contributed to Webvan’s collapse.

Rely On Its Existing Strengths

Unlike Webvan, Amazon can rely on its established network to bolster its delivery service. For example, the source notes that Amazon believes its other delivery services can defray the costs of its grocery service. Further, Amazon is attempting to extend this service at a time when most people are familiar with eCommerce and the costs of running an online business are comparatively lower, all of which potentially provide major advantages.

Read the full report here.