Remember when you could order two CDs for $20 delivered to your door in a half hour with a free cookie? No? Well that was part of the failed business model of Kozmo.com, which once upon a time bought an ad during the 1997 Super Bowl and which Wired has referred to as "the frothiest disaster of the first dot-com bubble." Their proposition was speedy delivery of magazines, CDs, and snacks for virtually no charge, and it's a wonder they went under.
Well, now there's a whole new crop of delivery services springing up like Caviar (recently acquired by Square), Instacart, SpoonRocket, and Yummy.com (which has actually purchased the Kozmo name) that either signals the onset of the current tech bubble bursting or the overall economic health of the country and the viability of on-demand delivery. You decide.
When Los Angeles-based Yummy.com announced the relaunch of Kozmo.com last fall, Slate laid out the multiple reasons why businesses like Kozmo deserved to be revived not the least of which are Amazon and Walmart's well publicized desire to get into the same-day delivery business. Of course, Amazon is huger than huge now, and Walmart already has stores everywhere, so the problems of warehousing and overhead that put Kozmo and Webvan quickly under is already solved for those companies. (Webvan alone blew $375 million in a rapid 8-city launch, a planned 26-city expansion, and some 2,000 employees.)
The New York Times Magazine today points to the rapid demise of Rewinery a recent San Francisco startup that attempted to make a business of delivering $10 bottles of Chardonnay by bike messenger for a small fee as evidence that we're facing another crop of frothy disasters. There's also the recent up-cropping of pricey booze-delivery services like Saucey and SF Room Service, for every spontaneous party-thrower's no-budget needs.
Is the laziness of urban dwellers enough to build an Uber-sized business on? Companies like Instacart will argue that they don't have the unsustainable overhead of an Amazon or Kozmo, and they're just providing a service utilizing other businesses' inventory in the case of Instacart, it's $4 delivery for groceries within two hours, $6 if you want them in an hour; and Caviar does the same for restaurant food, with $5 delivery on your first order. Also, as venture capitalist Nabeel Hyatt tells the NYT, the "network effect" makes all the difference between today's market and the one of 15 years ago, when only half of Americans had Internet connections, and most of those were slow. Now, customers have multiplied and everyone has a smartphone, enabling greater ease of use for customer and delivery person.
But what about the fact that few actually want to pay all that much for something to be delivered? And the fact that small delivery fees don't do much to cover the cost of a delivery guy who might have to make a 45-minute round-trip to get to someone's far-flung home and back. And the minute you raise those fees, you lose customers. Rewinery's founder, speaking from a place of failure, observes, "If they charge a lot, it loses the appeal. If they charge less, it has a lot of appeal, but at the same time, they are running on losses."
Right. So everyone's probably running on a loss in a bid to become the next Uber. Meanwhile Uber, being the logistics engine they already are, is highly likely to enter this quick-delivery business themselves in the future, with the built-in bonus of an already established fleet of vehicles roaming around hundreds of cities and a brand that's growing in popularity.
Sorry to say it, Instacart, SpoonRocket, and the rest: The recent past has taught us you're not all going to make it. So don't blow your wad on any Super Bowl ads before you decide to "pivot" with all that VC funding.