I dedicated a recent Boston Globe column to covering this new wave of experimentation, and the impact that it could have on retailers.
And if you are old enough, you may remember Kozmo.com, which promised not just same-day delivery of ice cream, razors, and DVDs — they promised delivery within an hour. (Delivery was free for most of Kozmo's existence.) I happened to visit Kozmo's Allston warehouse on the day in 2000 that the company filed to go public.
Here's the piece I wrote for the Globe.
Return to Sender
— May 1, 2000
Note the time and put the body on ice. The “Sell-a-Dollar’s-Worth-of-Merchandise-for-Fifty-Cents-and-Make-It-Up-On-Volume.com” business model is dead.
Which makes this a pretty unfortunate time for Kozmo.com, the New York-based urban delivery service, to be going public.
You’ve probably heard the raves about Kozmo, which operates in six cities, including Boston. Place your order for a pint of Ben & Jerry’s, a copy of People magazine, or a home pregnancy test on their Web site, and a Kozmo courier will bring it to your door within an hour – no delivery charge. It’s truly wonderful – a Kozmo cyclist brought me two DVDs (no rental charge, thanks to a Kozmo marketing postcard I was handed on a street corner) just an hour before I had to head to Logan so that I could keep myself entertained on a long flight.
Trouble is, Kozmo loses money on just about every delivery run they make, even when they’re not acquiring new customers like me with postcards. And the plan is to increase delivery hours (they’re currently 10 a.m. to 1 a.m.) and expand to ten more cities by the end of the year, so that they can lose money even faster.
Guys: Nasdaq don’t play that no more.
I happened to visit Kozmo’s Boston operation on the day in March that they filed to raise $150 million in an initial offering. Inside the 10,000 square foot warehouse, a handful of couriers are lounging around on couches, watching TV and waiting to be dispatched. It’s a Tuesday afternoon, and Kozmo is busiest on weekends, when demand spikes for Cheetos and Cameron Diaz movies. In one corner, employees are unpacking new videos from cardboard boxes. In another, printers are spitting out order sheets, which are then filled from rows of tall metal shelves packed with books, video games, deodorant, and Nutter Butter Bites.
Once the orders are assembled and checked, they’re assigned to a driver. If the order is going to a dense, downtown address (like my home in the North End), the driver ferries it to the edge of the city, then uses a radio to link up with one of Kozmo’s cyclists, who carries it in a bright orange messenger bag the rest of the way.
Will Weddleton, Kozmo’s general manager in Boston, invites me to go on a “representative” delivery run. Weddleton is a straightforward, likable former Navy submarine officer with black hair and a neatly-trimmed mustache. Before taking the job with Kozmo last August, he was a vice president at EG&G Technical Services, living in Boston but working with Defense Department accounts in the Washington area. Weddleton explains that of Kozmo’s 150 employees in Boston, about 60 percent are full-timers, which means they get stock options after 90 days of employment. “They’re crucial, because they’re the ones who interface with the customer,” he says.
We hook up with Celso Grassi, a driver who has been with Kozmo since its first day of operation in Boston last October, and we collect two orders for our delivery run. Weddleton drives his own minivan, and Grassi navigates.
The first stop is an MIT fraternity house on Bay State Road. The order, $12.06 worth of Air Crisps, Snackwells, and Doritos, is supposed to be there by 3:45. We’re early: it’s 3:32. The next delivery, to an office on Mass Ave just outside Harvard Square, is early, too. It’s a $4.73 DVD rental. (Kozmo customers get to keep movies for three days, though, and can return them at drop boxes throughout the city.) The whole delivery run takes about thirty-five minutes in light, pre-rush hour traffic. While Kozmo doesn’t yet deliver during the morning commute (it will start in mid-May), I can’t imagine what it must be like to try to make runs between 4:30 and 6:30 p.m.
But Kozmo’s problems don’t stem from tardiness, or customer demand. Weddleton’s crew seems to be able to deliver on time consistently, and Kozmo says that its customer base has been growing at 30 percent a month.
The biggest problem is that there’s simply no way for Kozmo to make money delivering for free. First, Kozmo imagines that customers will want to buy high-margin items like DVD players and Sony Playstations and have them delivered in an hour, but its selection is limited, and prices are lower elsewhere. Second, if the average size of a customer’s order increased to the point where it might make sense for Kozmo to deliver it -- say, $50 -- Kozmo’s bicycle couriers wouldn’t be able to handle them. Kozmo runs into this same capacity problem if order density -- the number of orders in a particular zone in a particular time – increases. They’d simply have to hire more couriers and drivers, and their operating costs would rise.
Other problems: Kozmo is being sued in Washington for refusing to deliver to predominantly black areas of the city. In Boston, Kozmo had to withdraw its application for a liquor license because of objections from area universities.
And bowing to Boston’s puritanical mores, Weddleton decided not to stock adult videos, a popular rental category. While there’s no XXX section on Kozmo’s Boston site, I did manage to find something called “The Erotic Witch Project.” The description reads, “The lusty, lesbian encounters uncovered on tape shocked the authorities. Now let them shock you.” Tellingly, it was out with a customer at the time.
The one bright and potentially profit-generating spot in Kozmo’s future is what the company calls its fee-for-service offering. That means that other Web merchants might use Kozmo’s warehouses and delivery fleets to fulfill customer orders in an hour, and pay Kozmo for the privilege. But while fee-for-service means Kozmo doesn’t lose money on the delivery, the merchant would have to cover the considerable cost of stocking and warehousing the goods and assembling and delivering the order, or pass it along to the consumer.
“We’re in this to provide an excellent service, and also to make money doing it,’” Weddleton says. He contends that Kozmo’s biggest competitive advantages will be “this trust-based relationship with our customers” and the fact that Kozmo saves people time.
It’s easy to build a great relationship with customers when you’re giving them something for nothing. But investors don’t like that story anymore, and they’ll be a tough audience for Kozmo’s Nasdaq debut.
I hate to be the bearer of bad news, but someone has to tell Celso Grassi and the other Kozmo employees with stock options: Sorry, but you won’t be the first messenger millionaires.
Post-script: The following month, Kozmo postponed its IPO and laid off some of its employees. Within a year, the company had ceased operations.
About Scott Kirsner
Scott Kirsner was part of the team that launched Boston.com in 1995, and has been writing a column for the Globe since 2000. His work has also appeared in Wired, Fast Company, The New York Times, BusinessWeek, Newsweek, and Variety. Scott is also the author of the books "Fans, Friends & Followers" and "Inventing the Movies," was the editor of "The Convergence Guide: Life Sciences in New England," and was a contributor to "The Good City: Writers Explore 21st Century Boston." Scott also helps organize several local events on entrepreneurship, including the Nantucket Conference and Future Forward. Here's some background on how Scott decides what to cover, and how to pitch him a story idea.
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