Door-to-door war: how Amazon ignited a boom in same-day delivery services

In order to compete with the online giant, retailers are embracing courier services

During the height of the dot-com bubble, a gaggle of services like Kozmo, Webvan, and UrbanFetch promised to let customers order anything off the internet and have it delivered in less than an hour. It didn’t matter whether you ordered five bags of groceries or a can of Coke: there was no extra charge. These companies raised gobs of money, expanded like mad, and went kaput faster than a bike messenger could hand-deliver you a pack of gum. They became a cautionary tale of hubris and excess, the punchline of a startup joke.

But in the last year the market for rapid, same-day delivery has suddenly heated up again. Big names like Amazon, Google, and eBay all expanded these offerings to shoppers and even small e-commerce startups like The Fancy, which has just 50 employees, now offer same-day delivery in 100 cities around the globe. A host of companies like Zipments, Postmates, and Deliv have scored more than $16 million in funding to help any business, no matter how tiny, offer the same rapid-fire delivery as the tech titans. And Kozmo rose from the dead after a decade-long hiatus, promising to "fullfil your online order incredibly fast, and on-demand."



Is this the sign of another bubble in tech startups or has the technology and infrastructure to deliver this dream finally come of age? Actually, the biggest motivation behind the on-demand delivery renaissance is being driven by a massive change in strategy from the 800-pound gorilla of e-commerce, Amazon.

For years Amazon held a big advantage over its brick and mortar competitors: it didn’t have to pay sales tax, because it didn’t have a physical presence in most states. This let it offer items at cheaper prices. Numerous politicians and interest groups had pushed to force Amazon to pay these taxes, but it always resisted. Then strangely, in the middle of 2012, it stopped putting up a fight. It was the sign of a major shift in strategy. Rather than placing its warehouses in cheap, out-of-the-way places, Amazon would pay sales tax, and build its distribution centers right next to major metropolitan centers. Instead of a few huge warehouses around the country, it would build one in most every state and heavily populated region. And it would go after the Holy Grail of retail: cheap or even free delivery for online purchases in 24 hours or less.

"TO SURVIVE, THEY HAD TO OUT AMAZON AMAZON."

"For a lot of the country's biggest retailers, this was absolutely terrifying," says Greg Bettinelli, a tech investor with Upfront Ventures and commerce veteran who worked at Nordstroms and eBay. "Their biggest competitor was going to be offering same-day delivery, or even within hours, at low cost around the nation. They realized that to survive, they had to out Amazon Amazon. And that meant finding a way to compete on this kind of instant gratification."

Traditional retailers still held one advantage. "Organizations like Sears and Walmart have inventory within five miles of 95 percent of the American population via their brick and mortar stores," Michael Hart, an Amazon veteran who now works for the startup Deliv, told Venturebeat. "In the literal race to get packages to shoppers, this actually puts them at a massive advantage over the online-only players which typically have either state-based or regional-based distribution centers."

Google and eBay are two of the most aggressive new players in the on-demand-delivery space. They both allow customers to pick out any item and send out individual couriers, who purchase the goods and deliver them to customers. While they charge $5 per order, it's still pretty close to the experience offered by Kozmo. "That didn’t work then, and it won’t work now, unless you’re a tech giant who doesn’t mind losing money to win over consumers," says Rick Heitzmann, a tech investor with FirtMark Capital and backer of Zipments. "But for them it's not about making money on the delivery service. It’s about getting people’s payment info into their system so that shopping with them will be seamless in the future."

FOR TECH GIANTS THESE SERVICES AREN'T ABOUT MAKING MONEY, THEY ARE ABOUT COLLECTING INFORMATION ON POTENTIAL CUSTOMERS

Google and eBay have both set up partnerships with dozens of the major offline retailers trying to stave off Amazon. And they speak in the same language of warehouses and logistics. "Traditional retail is transforming. More consumers are combining both online and in-store experiences to shop," said Deborah Sharkey, eBay’s VP of Local. "We’re able to use our technology and services to help local stores use their location and their inventory to create mini distribution centers."



The new model for companies like Deliv and Zipments, says Heitzman, is closer to profitable companies like Seamless and FreshDirect. "Being the technology platform that connects the merchant and the customer over the web and mobile can be a good business." Google and eBay have the expertise in algorithms and logistics to make this model efficient.

There are a few startups still trying to deliver on Kozmo’s big promise of fast, free delivery. One of the most aggressive of these new delivery services is WunWun, which lets users order anything and have it delivered for free and in less than an hour. Users can pick the brand or store they want, but they can also let WunWun pick the store or try out a deal on an alternate brand. When that happens, WunWun gets a cut of the sale. There are a few caveats, of course. WunWun only delivers in Manhattan below 99th street.

GEOGRAPHY IS PROBABLY THE BIGGEST LIMITING FACTOR

Geography is probably the biggest limiting factor for the majority of these services, which could become the default in big cities, but ignore most other locales. Google’s Shopping Express only works in San Francisco. Ebay Now works in San Francisco and New York. Postmates has expanded beyond the Bay Area to New York, Palo Alto, Seattle, and DC, while Zipments works in New York, Chicago, and Grand Rapids, Michigan. All these startups say their new funding will be used to expand nationally, and eBay says it's eager to add Dallas and London to its roster.

Even in densely populated areas, however, these kinds of services can inspire skepticism. After following an eBay Now courier around for a day, Fast Company’s Austin Carr wondered how a trip to buy nail polish — which took 22 minutes of walking, 24 minutes of in-store browsing, two calls to the customer, and assistance from four Kmart employees — could possibly pay off at a purchase price of $6.72. But for eBay, this kind of service is really a loss leader to get people shopping through its site.

And enthusiasts, like Altimeter Group analyst Jeremiah Owyang, think this kind of instant gratification is going to become standard as peer-to-peer commerce expands, allowing retailers to find a legion of eager couriers. He points to services like UberX, which are already delivering rides. "I imagine that Uber will expand beyond town cars and ice cream trucks and activate the crowd to become couriers at the local level. Anything you need, on-demand, with a push of the button will be made available."