Merchant Innovation

Is Delivery Finally Ready To Deliver?

2014 is shaping up to be the year that the internet decided the best thing it could do is make sure that consumers never had to wait for anything again. Delivery-on-demand for just about everything is now available—Amazon and Google are both going after grocery, Uber is getting ready to branch out from delivering people to delivering things to people, and just about every service in the world that specializes on bring something to someone’s door is now labeled as the “Uber of X.”

And while it is exciting to live in a world where one could feasibly never have to leave his or her home again, it may also be a case of everything old is new again—as 2014 is not the first time the world has fallen in love with the idea of delivery on demand.  In 1999 Kozmo and Webvan didn’t just fail, but failed so spectacularly and completely that in their crashes to earth they created rule 35 of the internet—delivery on demand doesn’t work because the structural and logistical issues prevent it from ever being profitable.

“You make as much profit on one shoe as you do on a thousand shoes,” Harvard Business School professor John A. Deighton told The New York Times. “There’s just no scale.”

So is 2014 so different from 1999  in that on demand delivery can make money—or is Silicon Valley just in-love with an old bad idea?

As of now, there is no fact of the matter.  On the one hand, the world is much more wired than it was in 2014, and it is much easier to be decentralized.  Services like Webvan failed trying to build warehousing for all the goods it wanted to deliver.  Services like InstaCart just pay shoppers, and save themselves that cost.

On the other hand, shoppers have to be paid, and currently they are paid around $20 per hour at some services, presenting a problem to companies trying to keep the cost of delivery to less than $5—people’s incentive to pay to not go to the store diminishes as the cost of not going oneself goes up.  When faced with an obvious gap between offering the service and making money doing it, the responses reflect Silcon Valley’s enthusiasm for expansion over profitability.

“We’re really well funded, so that is not something we’re as worried about,” Shah said. “Growth is the most important factor,.” InstaCarts Aditya Shah told The Times..

The question is, will consumers share investor’s enthusiasm?


Featured PYMNTS Study: 

With eyes on lowering costs to improving cash flow, 85 percent of U.S. firms plan to make real-time payments integral to their operations within three years. However, some firms still feel technical barriers stand in the way. In the January 2020 Making Real-Time Payments A Reality Study, PYMNTS surveyed more than 500 financial executives to examine what it will take to channel RTP interest into real-world adoption. Here’s what we learned.

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