Tech Industry

Commentary: Kozmo's IPO delay was no big shock

The online retailer really did not have any choice but to wait until it could prove profitability.

By Geri Spieler, Gartner Analyst

Kozmo.com's decision to postpone its initial public offering should come as no surprise. Since the dot-com bubble burst this spring, the market has received a wake-up call that some boring, old-economy concepts really do matter--like profits, for instance. Kozmo really did not have any choice but to wait until it could prove profitability.

Kozmo's reported attempts

See news story:
Kozmo bags IPO--for now
to take over rival Urbanfetch are not surprising either. Although the instant-gratification delivery model has a place in the industry, it is unlikely that the market will support more than one such company. Kozmo has an average delivery cost of $10 and an average order size of $15 to $20. With a 30 percent margin, you cannot scale this to a profitable business.

The challenge here is how to increase order size to make instant delivery worthwhile. The other part of the equation is how to extend the model. How many people will use this service daily? It is largely an evening and weekend business. Although partnerships with the online grocery companies are one option, they will not resolve all issues.

Together, Kozmo and Urbanfetch would have a better chance of going public. However, joining forces does not fix the order size and frequency problem that will continue to plague the instant-delivery marketplace.

The answer to all the one-hour and same-day delivery models is multiple channels of revenue, many with much larger margins of profit to offset the thin margins. With clever logistics, regional reach, automated processes and scalable pricing, instant gratification could find its way into the middle market, which could solve some significant capital investment questions.

(For related commentary on why successful e-commerce needs a manufacturing and distribution infrastructure, see TechRepublic.com--free registration required.)

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