Does the sudden renewed interest in same-day delivery of online orders reveal a genuine underlying opportunity, or will these services fail spectacularly the way Kozmo.com, Webvan, Home Grocer and others did when the dot-com bubble burst more than a decade ago?
There is full-on hype over same-day delivery. Declaring that it’s “re-launching soon” Kozmo — which blew through $250 million promising to deliver small items free of charge within an hour by bicycle, car, truck or public transportation in major U.S. cities — has this to say on its Web site: “Remember us? We’re re-launching soon with the vision to fulfill your online order incredibly fast, and on-demand.”
There’s no doubt that Amazon is driving the renewed interest in same-day delivery. Its multibillion-dollar investment in a network of distribution centers near U.S. cities positions it to offer same-day delivery if it chooses. No longer able to avoid paying sales tax by shipping from non-sales tax states, Amazon has switched gears and now sees its competitive advantage through shorter delivery times.
Others have caught on and are making a play in same-day delivery, including Google, eBay and smaller players such as The Fancy, Zipments, Postmates and Deliv, according to Web-based media outlet The Verge.
But the question remains every bit as relevant as it was in 2001: Is there really a market for same-day delivery? I can’t see it. Maybe I’m not your typical consumer, but I have bought things in catalogs, on Amazon and other Web sites for years and rarely am willing to pay extra for faster delivery. I may not like having to wait five or more business days, but I suck it up.
More recently, with a baby having arrived last year, my wife began using Amazon Prime for “free” two-day delivery for $79 a year and now buys various household goods we used to shop for at supermarkets. We occasionally use a New York-based online grocer called FreshDirect that allows you to schedule your delivery for two-hour time slots during the next several days.
But that’s not same-day delivery, which is costly and must meet an urgent need to make economic sense. “People are more willing to wait for three to five days to get free shipping than to pay a premium to get second-day service, and they are reluctant to even do that,” said Satish Jindel, president of transportation consulting firm SJ Consulting.
Despite the sophisticated Web sites developed by same-day delivery operations, “You need drivers and trucks and cars, and they cost money,” he said. “The faster the service, the higher the cost.”
I can’t recall having a need for an item to be delivered the same day, unless it’s takeout. I can’t even imagine what type of item that would be. Same day is the ultimate in immediate gratification, an outdated idea in today’s more frugal age.
The more promising opportunity may be next-day. Many people place online orders at night, and the orders can be processed overnight and delivered the next day. Two examples of last-mile delivery companies specializing in next-day are LaserShip on the East Coast and OnTrac on the West Coast, Jindel said. “What is really the right opportunity is next-day, and that is going to be a great enhancement and opportunity for retailers,” he said.
The idea starts to make sense, to a point. I can see placing a next-day order but don’t want to pay. I’m a consumer version of the shipper who will do anything to avoid air freight.
But in my frugality, I have a friend in Amazon. Thanks to Jeff Bezos’ lack of interest in short-term profits, establishing traction with faster delivery enabled by Amazon’s DC network will force him to keep delivery prices low. Wal-Mart, which is desperately trying to gain a stronger foothold in e-commerce, and others surely will follow.
Jindel suspects some high-stakes smoke and mirrors is going on. Amazon signals it’s going after the same-day market. Others prepare to profit from this or defend themselves. But Amazon isn’t really going after this market, believing there isn’t really a market there to begin with. Instead, it sees the real opportunity in next-day.
“It wouldn’t surprise me if Amazon is talking a lot about same-day to create hype, to confuse the competition and let them run around and waste time and money while Amazon builds a next-day business,” Jindel said. Same-day operators, just like they did a decade ago, “are all going to lick their wounds.”