Kozmo.com, an online store and delivery service, promised fast, friendly delivery of almost anything, from movies to snack food, such as a DVD rental, a bag of groceries, or just a single pack of gum and even a candy bar. It was a great idea that you could order a wide variety of products, and snack foods were undoubtedly their top seller. Kozmo.com was very convenient and it refused to charge delivery fees. It was founded by young investment bankers Joseph Park and Yong Kang in March 1998 in New York City. The Company had a business model that promised to deliver small goods free of charge, by using bicycle messengers. The company boasted “from the Internet to your door in under an hour” and its attractive rates helped rapidly draw thousands of customers. Even though the company raised more then $250 million, but it was unable to generate enough revenue to cover the costs. In 1999, the company had revenue of $3.5 million , with a resulting net loss of $26.4 million. It also entered a five-year co-marketing agreement with Starbucks in February 2000, and it agreed to pay Starburks $150 million to promote its services inside the company’s coffee shops. However, Kozmo.com ended its deal in March 2001 after paying out $15 million.
The main problems that Kozmo faced which included offering one-hour point-to-point delivery of small goods is extremely expensive, since it was free of delivery charge and it was impossible to turn a profit. The greatest error that Kozmo made with their customers was when they stopped catering to their main client base of middle class college-student, in order to target more upscale clients who would order expensive goods. No matter how the company put effort to boost orders and stop the delivery losses, still didn’t stop it from shutting down in April 2001 and laying off its staff of 1,100 employees.
The cost of the small-time deliveries contributed to the demise of this great idea.
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