This is part four of a Re/code Special Series about the new instant gratification economy. In five days of stories, photos and videos, we are exploring the explosion of tech startups that cater to our every need and desire, on demand.
“Instant gratification” was the mantra of Kozmo.com founder Joseph Park in 1999. “Customers want it now,” he said, over and over again to anyone who would listen. And people did — the press loved the story, and “instant” caught the fancy of a suddenly Internet-infatuated nation.
At the time, Kozmo was offering within-an-hour deliveries of movies and snacks via bike messenger to 30,000 customers in its hometown of New York and in Seattle. It was free. People loved it. Some spent thousands of dollars per year so they could watch movies and fill their bellies without leaving their couches.
Joining Kozmo in the heady hype, cash frenzy and frothy overexuberance was a cluster of other new delivery companies, such as Urbanfetch, Webvan and Pets.com.
It wasn’t just about delivery, of course. But at that moment in time, it seemed like all you had to do was pick a noun, add “.com,” and you were in business.
As a sign of the times, one company called Computer.com spent half its $5.8 million in venture capital airing Super Bowl ads on the day it launched a site purporting to teach people about using computers.
And there were parties, legendary parties, where the likes of Elvis Costello and Beck and the B-52s played, sponsor banners bedecked the walls, and many of the revelers collected their mountains of swag while having no idea which company was even throwing that night’s bash.
Even if Kozmo and its cohort had a chance at a business model that worked, they were all spending more money than they could possibly earn on advertising and parties and weird promotional tie-ups to return movies at Starbucks.
As we all know, that boom went bust in 2000. The period’s most famous flameouts — Pets.com, Urbanfetch, Kozmo, Webvan, even Computer.com, somehow — were all gone by 2001. What’s left — a cautionary tale and some mascot dolls for sale on eBay.
It’s hard not to hear the echoes of the first dot-com boom in today’s same-day delivery companies.
Fifteen years later, along comes another New York startup, called WunWun, which is doing virtually the same thing as Kozmo back in the bubblicious day.
There’s reason to believe that Kozmo was ahead of its time. Today, companies like WunWun can make use of much broader Internet access, improvements to mobile location and online payments technology, and the flexible workforce provided by the so-called “sharing economy.”
Or, WunWun could just be repeating the rise and the fall of history.
Many people who remember the dot-com bust, or who know how to do math, are skeptical that same-day delivery can be a sustainable business. But you know who thinks reliving the instant-gratification boom again is a good idea? The people who did it the first time — even after they crashed and burned in millennium-ending style.
It’s true, their Y2K-era lifespans were shorter than short — essentially three years each from launch to failure. Kozmo, Webvan and Pets.com went from a glimmer of an idea, to hundreds of millions of dollars in funding, to a singing sock-puppet Super Bowl ad and two IPOs, to bankruptcy and layoffs and liquidation.
Yes, the people who created and ran those three companies remember the past all too well. But they’re not scared off by it.
Today, Webvan founder Louis Borders has a stealthy new same-day delivery startup known as HDS — and it has already raised funding. Pets.com CEO Julie Wainwright has a new startup called TheRealReal that offers same-day service in some markets.
And none other than Kozmo co-founder Joseph Park, who is still working in e-commerce, says he is convinced that his original vision is finally happening now, and it might actually have staying power.
Book-selling entrepreneur Louis Borders launched Foster City, Calif.-based Webvan in 1999. The dot-com online grocer spent a billion dollars in three years before going bankrupt. At one point, it was valued at $7 billion.
These days, the only relics that remain are color-coded packing crates that former Webvan members have held on to: Yellow “totes” for dry groceries, green for refrigerated goods, blue for frozen.
Borders is back at it again. His new startup HDS is an “an online mall that delivers,” as Re/code first reported in April.
While Borders declined to talk about how he views the current same-day delivery market, there’s plenty of information about HDS on his startup incubator’s website.
Key to the new plan is automation. HDS will offer free delivery within two hours, using robot fulfillment centers and retailer supply chains.
A source said that HDS expects to open six of these distribution centers in the San Francisco Bay Area, before trying to expand infrastructure rapidly into other markets.
Investors in HDS’s $2 million seed round include venture capital titans Andreessen Horowitz. The firm confirmed the round.
The dot-com era was a different time. Ask former Pets.com CEO Julie Wainwright what lessons she takes from that experience for her new e-commerce startup, TheRealReal, and she’ll laugh at you.
“There’s no correlation to what happened at Pets,” she tells me. “There were, like, 200 million people on the Internet then. So there’s nothing to be drawn from there.”
Next question. What has changed since the dot-com era?
It’s all about convenience, says Wainwright, whose new venture, TheRealReal, is an online consignment shop. Based in San Francisco and with offices in New York, the company has roving vans that pick up new allotments of high-end used clothing within two hours.
Same-day service is the single-biggest wave in e-commerce, Wainwright says. The single best experience she had shopping online was when she forgot to pack a certain special black cashmere sweater before flying to New York for a business trip.
Wainwright says she realized the sweater was missing at 11 pm, when she unpacked her bag at the hotel. But it was still posted on the online retailer Net-A-Porter, where she originally bought it, so she placed another order and it was delivered to her office at 10:30 the next morning by a deliveryman in a bellboy suit bearing an iPad for her signature.
“It was absolutely the most amazing thing,” Wainwright says. “It was like $25, it was nothing. Now, the sweater wasn’t cheap — but it was the exact same sweater I had left on my bed.”
Wainwright believes that people are willing to pay for fast shipping experiences like that.
“Free same-day shipping is a concept that’s never going to make sense,” she said. “Honestly, Amazon shipping isn’t free. The truth is, you pay on a yearly basis. That’s a myth.”
Webvan board member Michael Moritz has a pick in the next online-delivery horse race: The San Francisco-based grocery-delivery service Instacart. He’s a board member there, as well, and his venture capital firm Sequoia has led two rounds of funding for the grocery delivery startup. He even makes personal grocery deliveries on occasion.
Instacart seems to be doing quite well. It is available in 12 cities and has hundreds of thousands of dollars in revenue per day, according to CEO Apoorva Mehta.
Mehta tells a funny story. “I had one meeting with a VC where he [handed me] a floppy disk and said, ‘You should go home and open this, because this has the Webvan business plan,'” he says. “I didn’t know how to find a floppy drive.”
The big reason why Instacart can be more viable than Webvan is crowdsourcing, according to Moritz and Mehta.
Crowdsourcing is “a way to escape the enormous capital infrastructure burden that was one of the things that was so tricky and complicated about Webvan,” Moritz said at a recent Fortune conference. “Think of Instacart in a similar manner to a company like Uber, where you have a lot of independent contractors who, instead of driving cars, will attend to your grocery-shopping needs.”
Moritz’s firm Sequoia Capital has also put money into the farm-fresh grocery service Good Eggs and restaurant delivery service DoorDash.
Today’s era of smartphone-enabled instant-gratification startups may be new, but it has already had its own share of flops. And like their dot-com ancestors, some of those recent failures have already returned to the game to give it another try.
Just within the last few years, there was Cherry, the Uber for carwashes (“acqhired” by Lyft). Exec, the Uber for TaskRabbit (refocused on housecleaning, sold to Handybook). Zaarly, an Uber for anything you want now (pivoted a few times, now also focused on home services). Rewinery, the Uber for wine (shut down). And Prim, the Uber for laundry (shut down).
Cherry’s premise was that workers would show up wherever your car was parked, and rinse and scrub it until it sparkled, for $30. “Cherry scared the shit out of us,” Andreessen Horowitz partner Jeff Jordan tells me. “There was a Cherry carwash every hour outside my window.” Ultimately, Jordan suppressed his interest and didn’t pursue the investment. “For us, it was the poster child of ‘That works on Sand Hill Road,'” he says, referring to the Menlo Park, Calif., boulevard where much of the world’s venture capital makes its home.
Former Cherry co-founder and CEO Travis VanderZanden told me recently that Cherry was “actually kind of working — it was just a small opportunity.”
Why? “People don’t value their time as much as they should.”
Cherry did successfully raise funding: $5.25 million, to be exact. It only existed for a year and a half. When it became clear that it wasn’t going to go big, VanderZanden refunded the rest of the money to his venture capitalists.
Then he joined the ride-sharing service Lyft, where he’s now the chief operating officer. Others from the Cherry team now run Lyft’s operations and data groups in San Francisco. At Lyft, VanderZanden’s big contribution has been to use the same virtual and data-driven local operations strategy he had dreamed up for Cherry.
Its an interesting idea — instead of sending employees to launch new markets, experienced independent contractors mentor each other.
And it works a lot better with a service that’s more broadly popular.
Though Kozmo is now a dot-com-surreality punchline, if you ask Joseph Park, it all could have gone very differently. “If we had gone public, I actually believe we would still be around today,” he says of his seminal one-hour delivery startup.
For memory’s sake, Kozmo filed to go public in March 2000, disclosing to the market that after raising more than $200 million, including a big chunk from e-commerce darling Amazon.com, it had a paltry $3.5 million in revenue in 1999, with losses of $26 million. The balance sheet wasn’t pretty.
Kozmo delayed the IPO indefinitely, conducted multiple waves of layoffs to cut its crazy $30 million-per-month burn rate, removed Park from the CEO role, and raised emergency cash. It wasn’t enough. Kozmo shut down in April 2001.
For the past year, Park has been running e-commerce at Forever 21. He’s not currently working on same-day delivery projects, though he acknowledged it would be a nice fit for the fast-fashion brand.
Park believes on-demand delivery is a viable business — then and now.
“We actually were cash-flow positive in three of our 11 markets,” Park says. “Even back then, when we didn’t have smartphone penetration, or even broadband penetration. Unfortunately, we were caught under the dot-com bubble bursting financially, so we couldn’t get out or raise additional capital. But even back then, I would say the model worked.”
Park explains the last era of e-commerce as focused on value — selling books at 50 percent off, buying music for 99 cents.
He believes that the next five to 10 years will be about convenience, especially as it’s enabled by a mobile workforce, like Uber.
“We’ve just scratched the surface on the convenience-based economy,” Park says.
His advice for up-and-coming instant-gratification startups?
“I think the key thing is, number one, you need to make sure you have a service that is delighting your customer. And number two, make sure you’re focused on getting to profitability as quickly as possible, so you can control your own destiny.”