Upstarts: Internet Convenience Services
Making E-commerce Easier
The massive consumer rush to buy stuff online has created some real-world logistical problems -- problems these start-ups hope to solve
Shopping on the Web is pretty simple. You just point and click -- and wait.
Sure, the Web gives you endless variety, terrific deals, and 24-7 convenience. But when it comes to actually delivering the goods, E-commerce isn't quite as fast and painless as the hype would have us believe. For some consumers, ordering on the Web just isn't worth the hassle. 30% of Internet shoppers have cut back on their online purchasing because they don't like having to wait for orders to be delivered, reports the Yankee Group.
With such a big chunk of the E-commerce market at stake, there's plenty of incentive to make Internet delivery radically simpler and quicker, and a new crop of Web-based start-ups is aiming to do just that.
I want it, and I want it now
In the brick-and-mortar world, instant gratification is something we take for granted. You walk into a store, and you walk out with the merchandise you want. So it's no surprise that consumers want the same immediacy with E-commerce. Call it the Kozmo.com phenomenon, after the well-known Internet service that delivers snack food, videos, books, and CDs within an hour to time-starved -- or maybe just lazy -- urbanites.
Kozmo.com isn't the only start-up focused on shrinking delivery times. Sameday.com, based in Los Angeles, strives to give any Internet retailer a way to deliver products to customers on -- you guessed it -- the same day those products were ordered. In 1998 founder, president, and CEO Alex Nesbitt, with backing from Bill Gross's Idealab, launched what was then called Shipper.com to offer next-day delivery to E-commerce companies. He changed the company's name and focus after realizing that the demand for same-day delivery was even bigger.
To deliver that quick turnaround, Nesbitt has bet on a system of large, centralized warehouses in which the company's customers maintain inventories of their most popular products. The company launched in Los Angeles last year and now, with 36 warehouses around the country, offers ultrafast delivery in New York, Chicago, San Francisco, Memphis, and the Dallas-Fort Worth area.
When retailers link their E-commerce sites to the Sameday.com site, Sameday.com becomes one of several shipping options that buyers can choose from. Sameday.com also has its own Internet mall, where Web shoppers in Los Angeles, for instance, can order baked goods, books, music, toys, gifts, and electronics from the company or its partners. Picking, packing, and shipping charges are in the $6-to-$8 range, a slight premium above traditional second-day shipping. The start-up also charges retailers additional fees for receiving and storing inventory.
As Nesbitt sees it, aggregating deliveries from one central warehouse is the key to keeping delivery prices low. But rolling out the service hasn't been cheap. So far he's raised $25 million in three rounds of venture capital; he aims to break even sometime in 2002. To do that, he says, Sameday.com will have to gross $200 million from 20 million deliveries a year.
On a recent Thursday in Los Angeles, the company made just 200 deliveries. But Nesbitt is confident that demand for his service will grow. "The question for E-commerce companies is, how do they make that instant gratification available at a cost point that consumers find attractive?" he says. "We bring the cost of speed down dramatically."
The online strip mall
Whereas Sameday.com is about time, WhyRunOut.com is about convenience. Grocery shopping, dry-cleaning retrieval, film drop-offs, video pickups and returns -- WhyRunOut.com aims to unburden people of the mundane tasks that so often eat up a perfectly good Saturday morning. Unlike most Internet grocers such as Webvan or Peapod, however, WhyRunOut.com offers same-day delivery: order by noon at the WhyRunOut.com Web site, and you get your groceries and other goodies in the afternoon or evening.
And unlike Sameday.com, WhyRunOut.com manages speedy response without a central warehouse. Instead, the company teams up with local merchants. WhyRunOut.com's professional "shoppers" fill orders at a number of stores, then deliver goods and services straight to the customers.
WhyRunOut.com collects fees from retailers and charges consumers for each delivery. "Our target segment, busy suburban families, would rather trade money for time," says founder Dan Frahm. What about the cost of paying people to roam the aisles and wait in checkout lines? Frahm admits that his model misses some of the efficiencies of a central warehouse. But, he points out, grocery stores are already fully stocked with merchandise and located close to consumers' homes. "Yes, there's some labor there, but it's half what you have if you set up your own warehouse system," he says.
Frahm started WhyRunOut.com in 1998 with $50,000 in savings, at first doing the shopping and schlepping himself to hone the concept. Lately, the company has been operating in beta-test mode, with 30 employees and fewer than 1,000 customers in its home territory of Orange County, Calif. Currently, Frahm is seeking venture funding to underwrite a marketing campaign.
One thing that's helped, he says, is being able to ride the coattails of some better-known Internet grocers. "Customers know that home delivery is out there, and other Web grocers helped make it an acceptable way of life, which we could never have done on our own."
Look, Ma, No PC
These days you don't even have to have a computer to shop the Internet. At least that's the aim of Vistify. Founded in Phoenix in April 1999 and now located in San Francisco, the company focuses on the household-replenishment market -- or, in plain English, goods such as groceries, personal-care products, and housewares.
Instead of ordering on a PC, users can choose products by touching pictures on the screen of an Internet appliance that might sit on their kitchen countertop. (Vistify has developed its own streamlined, Jetsons-esque prototype. The company also plans to offer its service on TV screens, among other media.) Vistify itself won't sell products or deliver them, says chief marketing officer and cofounder Menekse Gencer; instead, it will offer goods through partnerships with other providers, such as Internet grocers and delivery services. At press time, the company was planning a trial rollout for the end of the year, in Colorado.
For those who can't wait for their Internet appliance, there's Quixi, launched in New York City in October 1999 by Evan Marwell and Robert Pines. Quixi lets users shop the Web through their cell phone and a live, human intermediary who searches for information and makes purchases online using the subscriber's stored (and privacy-protected) credit-card number and delivery information. Users pay $19.95 a month, plus some additional transaction charges. Quixi receives 5% to 10% of revenues from each online sale that it processes.
Employing human helpers isn't cheap. But Pines says that Quixi's back-end technology is designed to minimize the time that live helpers spend on any particular transaction. The company has contracts with outside call centers, limiting its investment in infrastructure, although Quixi might eventually save money by bringing the call centers in-house, Marwell says.
With around $28 million in venture capital under its belt, the company began a beta-test phase in June, offering the service free during the summer before its official September launch.
In its current form, Quixi is something of an interim solution, admit Pines and Marwell. Eventually, its human-mediated Internet interface may be rendered obsolete by voice-recognition software or ubiquitous personal digital assistants. So Quixi hopes to gain a foothold in those very markets through partnerships with companies that are developing those technologies or by developing such applications itself. At the same time, says Marwell, Quixi's intended market is people who value convenience more than the dubious prestige of being early adopters. "We almost view ourselves as being a bit of a gatekeeper for customers, not forcing the technology on them before they're ready," he says. --E.B.
Is there any there there?
Onna Iucolano, vice-chairperson of Shop.org, an Internet retailing trade organization, and former chairperson of its research committee, spoke with Emily Barker about the recent expansion in same-day delivery services.
Inc.: Are there a lot of same-day delivery start-ups out there?
Iucolano: There is a great deal of focus on delivery and fulfillment, and I would say that has come about as a result of activity in the last 18 months. Most Internet retail was very much focused on the front-end activities -- the look and feel of the Web site, taking and processing an order -- and in reality that was 50% of the battle with respect to what the customer wanted. The stumbling block was on the back end, with respect to being able to actually deliver the finished product to a consumer.
Inc.: Then is the potential market the whole of Internet retail?
Iucolano: I don't think it's that big. It's sort of like the FedEx model of a few years back. You used to put a package in the mail, and it got there when it got there. Then FedEx in its brilliance convinced us that we had to have it overnight. So it created a market. It's really interesting how a lot of these products and services create their market just because they exist.
Inc.: How's that?
Iucolano: Given the choice of having a book in two days or having it in an hour -- well, you probably never thought of having it in an hour, and all of a sudden it's available to you. Right now the market for same-day delivery is probably relatively small, but it's one of the fastest-growing areas of opportunity. Internet companies are all taking and processing orders, but they're all spending a ton of money to do that. It's too early to tell who the winners might be.
Inc.: What do these companies need to succeed?
Iucolano: Customer demand. The customers have to be convinced that they really need things the same day, outside of the floral business and the gift business. Video and food make a lot of sense. Anything else that's going to work will be products that consumers latch onto and say, "I need that right now!" whether they really do or not.
Getting and Sending
A selection of start-ups that focus on two of the most common headaches for Internet shoppers: packages that arrive when you're not at home and purchases that need to be returned
Company: PaxZone, in Chicago
Business concept: Establishes a local network of businesses to which residents can have their E-commerce purchases delivered. Also offers consumers a drop-off service for merchandise returns. Recently expanded to San Francisco.
Competitive advantage: Services are free to consumers; PaxZone charges a fee to retailers since its service reduces the extra charges incurred when carriers are required to make repeat trips to residences.
Major hurdle: Service may not be easy to scale up. PaxZone must sell its concept not just to consumers but also to retailers, delivery services, and the local businesses that serve as drop points.
Company: Brivo Systems Inc., in Arlington, Va.
Business concept: Markets software that works in tandem with a "smart box" for home deliveries. When a consumer makes an Internet purchase, the order generates a unique Brivo password that the delivery person uses to open the customer's wireless-controlled drop-off box.
Competitive advantage: Brivo's software can be adapted to open garage doors and other receptacles too. It also handles "reverse" deliveries from the consumer's home, such as returns or dry-cleaning pickups.
Major hurdle: Since consumers are likely to balk at having to pay subscription fees to receive deliveries, Brivo is developing partnerships with online retailers that will pay for the service.
Company: The Return Exchange, in Irvine, Calif.
Business concept: Offers Internet retailers online software and services for handling returns. Customers register their returns on the retailer's Web site. The merchandise goes to a Return Exchange processing center, where it is either shipped back to the retailer for resale or resold through an online auction such as eBay.
Competitive advantage: Since the Return Exchange handles all phases of a return, it provides turnkey service for Internet retailers who don't want to deal with returns themselves.
Major hurdle: There's no lack of competition in this space, from both E-start-ups and brick-and-mortar companies that specialize in handling returns.
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