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Commentary: Same-day delivery faces high hurdles

Companies that support online commerce face an interesting dilemma: They offer a highly compelling service, but delivering that service profitably is extremely difficult.

    By Carol Ferrara and Adam Sarner, Gartner Analysts

    Same-day delivery companies that support online commerce face an interesting dilemma. They offer a highly compelling service, but delivering that service profitably is extremely difficult. To ensure their survival, companies such as Kozmo.com will have to work hard and form the right partnerships. In part, however, survival is, unfortunately, beyond their control.

    Same-day delivery is compelling because it brings to the Web some of the advantages of shopping at physical stores. People will continue to patronize physical stores because they can get shopping chores out of the way quickly. By contrast, when making a purchase

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    on the Web, it generally takes at least two or three days for the goods to arrive. In addition, handling charges and home delivery often come at such a high cost that so much of the attraction of immediate shopping disappears.

    Kozmo, on the other hand, brings Web commerce closer to impulse buying. Kozmo has helped to raise expectations for the level of fulfillment service that Web commerce sites should offer. For example, Barnesandnoble.com recently started an initiative to send books via bicycle deliverymen from stores to people's homes in Manhattan.

    However, providing same-day delivery of goods bought on the Web will prove quite difficult for young Internet companies to implement widely. Kozmo now serves 10 major metropolitan areas in the United States and delivers a limited number of goods in categories such as books, meals, electronics and household goods. Clearly, Kozmo does not reach the vast majority of territory in the continental United States or handle the full range of goods that people might want to purchase online.

    To achieve those objectives would require extensive, complex logistics networks, including warehouses and transportation. One measure of the difficulty is that Barnesandnoble.com, which has the advantage of an extensive chain of bookstores across the United States, has only recently felt ready to offer same-day service in a limited area. And, of course, bicycles can only go so far. Most likely, companies such as Kozmo will have to establish partnerships with major delivery firms such as United Parcel Service or Federal Express.

    Another challenge is that companies in other fields have targeted same-day delivery, including Web grocers such as Webvan, Internet retailers such as Amazon and hybrid retailers such as Barnesandnoble.com.

    Finally, same-day delivery companies face macroeconomic risks. Big-box retailers have done well because they can sell a greater variety of goods for much less than neighborhood stores. For example, big supermarket chains have driven out of business many corner markets, which used to deliver groceries to people's doors just as Kozmo does now. Today, this type of service appeals primarily to people who have more money than time to go shopping and will pay a premium for the convenience. If the U.S. economy falters, people may again cut back their spending on this sort of luxury.

    Entire contents, Copyright © 2000 Gartner Group, Inc. All rights reserved. The information contained herein represents Gartner's initial commentary and analysis and has been obtained from sources believed to be reliable. Positions taken are subject to change as more information becomes available and further analysis is undertaken. Gartner disclaims all warranties as to the accuracy, completeness or adequacy of the information. Gartner shall have no liability for errors, omissions or inadequacies in the information contained herein or for interpretations thereof.