I think at some level this is taking advantage of people willing to use their free time as gophers. At some point it seems they realize that they, the drivers, aren’t making as much as they thought.

It seems business schools have graduated a slew of young minds just wanting to get a piece of the action as middlemen. As they come to realize the associated costs, they struggle to be profitable.

Jet’s CEO recently said, “Brick-and-mortar stores aren’t doomed, but they’ll definitely face increasing pressure as it becomes cheaper to get consumables delivered to your door than it is to go out and buy them.”

Cheaper for consumers, but someone, from the VCs to the gophers willing to work for peanuts, are paying the cost.

At some point it all catches up.

I’ve been watching this with a certain amount of fascination. Uber “disrupted” the market not just by applying technology to make it easier to connect riders and people giving rides. The customer experience is better. I don’t have to chase a car down to catch an Uber. I don’t even have to pay at the end — I just get out of the car. But “Uberizing” delivery has no impact on the customer experience. I still end up with someone showing up with a box. Maybe it’s faster. But the reality is, shipments still have to obey the laws of physics. You have to physically relocate a product from one place to another, and very often the only way to make it more efficient (cheaper) is to have it take longer. It is very, very difficult to get it both fast and cheap (and whole). It seems like a lot of these companies are running into these cold hard realities. Sure, you can disrupt taking the order and committing to the shipment. You can even disrupt… Read more »

Nothing in life is free … NOTHING!

Someone has to pay the freight for the delivery, especially for the last mile. In the current stock market, investors will not be patient with companies who can’t make a profit. Rapidly growing more share at a loss is not going to work in these economic times.

Right now, the start-up delivery business is facing the downward death spiral of “commoditization” — lowest cost for delivery. The ultimate winners will have to be able to differentiate service in ways that create enough perceived value that consumers (or brands or retailers) will pay enough for the service to be profitable.

I’m going to once again use the milkman analogy for the challenges of last-mile delivery. Many of us born in the ’60s or before remember getting milk delivered to our homes once or twice a week. Even my family, owners of a small group of supermarkets, used this service.

Gradually, however, shoppers began buying their milk and other dairy products from supermarkets and convenience stores and the milkman was delivering to fewer and fewer homes. At some point, perhaps when only 40 percent of a neighborhood was buying from the milkman, it was no longer economically feasible for the dairy to continue the service. Now think of this analogy in reverse. Only when a certain percent of people in neighborhoods start routinely buying from a home delivery service will the economics of the model start to become feasible.

How many delivery companies can a metro area support? With Amazon selling almost every product made and Uber becoming ubiquitous, is there room for four to six other delivery services? In order to make money through delivery, a company need to have order volume, low gas prices and customers who are willing to pay a delivery fee. I don’t see delivery being successful outside the major metropolitan areas.

The USPS have now missed the wave twice. They first missed the delivery wave created by Amazon and online purchasing that was captured by FedEx, DHL and UPS. I became a true believer when I ordered and had a snowblower delivered by UPS to my front door within 48 hours of my online purchase. The next wave is rapid local delivery. This could have been another opportunity explored by our tax sponsored USPS but alas, this opened the door for delivery start-ups. I believe this will be a successful service that will be dominated by Uber. They simply have established a brand and a service that is clearly valued globally by shoppers. They have disrupted the status quo and despite efforts to corral their success, this genie has left the bottle and customers have spoken with their wallets. I predict the third-wave in this delivery evolution. Given the reduction, and in many cases elimination, of profitable margins for overnight delivery service from FedEx, DHL and UPS, you’ll see brands leverage enabling technologies to use these… Read more »

In a word — consolidation. Somebody may get it right, but there are issues.

Look, the truth is that the economics of delivery are perilous. There are just a lot of things that can go wrong and costs can escalate without warning. For one thing, we still needs to map out the speed bumps of the on-demand economy. Uber is rapidly becoming a poster child for what can go wrong in a pure on-demand model.

And there is still a swamp of issues out there beyond cost and service, security being the first one. One well-publicized rape, robbery or murder could do in a whole industry.

And finally, and perhaps most importantly, there hasn’t been enough work done on the social engineering of the delivery models. Sure, most people will indicate they like the idea of convenience, but they appear to like it a little less when it moves from the abstract into the real world.

There will absolutely be a wave of consolidation. The addressable market for these services is large and growing, but supply far outstrips the demand. Given the current fundraising environment, I suspect weaker players will be forced to retract, merge or shutter over the next six to 18 months.

Additionally, the unit economics necessary to eventually reach profitability assume exponential growth in demand and an eventual transition from land-grab discounting to full-freight convenience charges to consumers and steep transaction fees to retailers, neither of which is a given.

Still, though the players will consolidate, delivery services are likely to be a key factor over the next decade. Despite some volatility, the trend won’t go away.

Whether you’re talking about groceries, restaurant meals or anything else, there is only so much space in any given market for competitors before the weakest or most underfunded performers get squeezed out. Even bigger players like GrubHub (full disclosure: my son works there) face competition as Amazon and Uber move into these businesses. And there is always the threat from grocery or non-food retailers who verticalize their own delivery instead of outsourcing it.

So — short answer — yes, there is likely to be fallout among the startups who fail to develop a compelling reason to be, other than wanting to jump on the bandwagon of a fast-growing category.

Consolidation and fallout? Yes. This is a difficult process on which to base a business model. Amazon has been working on the delivery model — timeliness, security, price, and profit — for decades and continue to innovate. Amazon does not deliver all products using the same model. New companies have to compete with this expertise when they start and be profitable. In addition they need to continue with innovation. Newcomers have a high hurdle.

Most of these firms will crash and burn as before. Early home delivery companies spent their money on advanced warehouse systems for volume they never achieved. The current group is trying to increase the drop size, but are incurring increased pickup costs. These new efforts should study the foodservice distributor delivery model. The components are stem time out, in route travel, stem time in and drop size.

I don’t see consolidation as the answer or likely path forward. Competition is reduced through companies willfully exiting the delivery business — it’s especially in the nature and risk of start-ups.

That said, the future will be about aggregating demand quickly and efficiently and then matching with available resources for delivery in a business network model. Scale is necessary to make it work as is optimization and machine-to-machine communication. It’s only a matter of time.

On the surface, this business model seems unable to scale. There are certain and specific urban areas where it makes tremendous sense (NYC, Chicago, etc.). Beyond those, it’s very hard for me to see where there’s a business plan that works.

And it seems that since those urban areas are also hot media markets where the media gurus themselves are likely satisfied customers, the mere idea gets far more media play than the business model justifies. In other words, that it ever became a “hot idea” is more an accident of media markets than the result of it being a solid, scalable national business idea.

But time will tell.

Closures are far more likely than consolidation. I don’t see any point in a surviving local delivery company acquiring a failing one. What assets would there be to acquire? Super-fast local delivery is a niche business that can work in high-density, upscale communities. To succeed, it takes four things, I think: 1. A book of neighborhood merchants like restaurants, florists, bakeries and dry cleaners who are willing to sacrifice some transaction margin in exchange for a promise of higher volumes. 2. A willing base of customers who are more convenience oriented than price sensitive. 3. A cadre of reliable freelancers willing to make the deliveries for a modest fee. 4. A well-configured software platform that can tie the first three together with a high-degree of reliable automation. There’s relatively limited scale economy to be created here. Despite the investor hype, I see this as a business of delivery instances where costs cannot easily be squeezed down as the numbers climb. There may be a couple of survivors in cities where the geography and demographics are… Read more »

Fallout is one way this might go. But I have trouble seeing this as a survivable industry. Starting something new is good. When you are competing against the “big boys,” even Uber, there is no where to go unless you are hugely funded. Time is not on your side when investors are looking for a return.

Doesn’t this industry feel a lot like the first tech bubble? When the seed money slowed down, the companies had to actually make their business model work. (Amazon always excluded of course.)

I think the most successful will be a company like Uber or even Amazon that will have a model that works because they supported a primary revenue stream, and then they outsourced it for scale. Amazon did it with the cloud. Someone will do it with delivery.

Your are in sync with Techcrunch. Here’s an interesting article that covers Ron’s Milk Man model and more — the “point to point approach” and the distributed node approach seem to be the most promising models.

Delivery start-ups will soon be a thing of the past. Not efficient, too expensive.

Getting into this business will be tough for all of the reasons mentioned in this article and more. The start-ups will compete with Uber, Amazon and other established companies (who are probably struggling with Uber and Amazon). So, the model must be different. I have two words for the companies/start-ups getting into into this business: Good luck!

Very crowded market right now. For long-term viability, these delivery services need areas of dense population that have lots of disposable income. College students and those just out (who have grown dependent on these service until they hit the brick wall of financial reality) create their market. GrubHub and a few will make it, but this level of surcharge will limit growth. If they can leverage Uber and other 3rd-party resources, they may be able to extend reach.

Companies will find a way to maximize the revenue and profit curves in this emerging business that has real potential for consumers. I also believe there is a great opportunity for mature, traditional shippers to take advantage of the demand via agile infrastructures.

Just got back from vacation, and this topic appears. As I have said in the past, it is extremely difficult not only turning a profit doing this, but also getting the product to the homes on time, and SAFELY, which is another story. I helped on a delivery start up for 3 years, before realizing the pitfalls of trying to make this work in rural areas, which dominate our country. Most consumers will not pay the fee for delivery if it exceeds 7-10 dollars, and even at that price, it is difficult to turn a profit. Labor will never go down, and costs on everything else continue to rise, so the question always raised here is about free delivery, as if that is possible. It is not. The high-end urban areas can work, but even there, the smaller start-ups have no chance against Amazon and Uber, who have more capital to stay in business. You can bank on the fact that the government is going to get involved with new regulations requiring companies to purchase… Read more »

Many of the challenges that the delivery start-ups are facing are driven by a lack of consistent technology across the ecosystem. Signing up drivers, signing up restaurants/providers and managing orders are all managed mostly manually at this point. As technology become more widespread, acceptance will grow as well. Opentable is a good example of this.

Delivery gains enormous efficiencies with scale and as such there will only be a few winners in the space and they won’t likely be startups. The current crop of startups has a short grace period while Google, Amazon, Uber, UPS and the like develop their on-demand delivery services – and then they are likely to find themselves priced out of competition.

Absolutely!

There are not enough cities in America where the concept profitably applies. The concept either has to be global or the delivery organization must incorporate other commodities to make the core investment scaleable.