Four years ago, Amazon.com, Inc.
(NASDAQ:AMZN) began offering same-day delivery in select markets. eBay Inc
(NASDAQ:EBAY) rolled out a similar service last fall, and Google Inc
(NASDAQ:GOOG) jumped into the ring earlier this year with its Shopping Express program. Slate magazine is calling same-day shipping
“the glorious future of shopping,” and a London-based startup named Shutl hopes to push things even further with same-hour fulfillment
And yet courier services are nothing new, and neither are tech companies that think they’d be great at running one. Kozmo.com was one of the more spectacular experiments of the dot-com era, and it failed. The company burned through $250 million in three years, going belly-up in 2001 and dashing the hopes of countless bicycle messengers.
A quarter billion is not a sum to scare today’s tech giants, though, and what’s more, each of them believes that they bring something special to the table.
Amazon’s strength lies in logistics. It boasts a large network of warehouses that has only expanded since the company introduced Prime, a membership program offering unlimited two-day shipping. In order to make Prime practical – and to prepare for eventual one-day shipping – Amazon has invested heavily in new infrastructure. This means higher overhead, and the company’s profit margins have all but disappeared in the face of rising fulfillment costs, which now soak up $.11 of every dollar earned versus $.09 two years ago.
It’s a marked shift for a firm that began life as a modern-day Sears Roebuck, offering deep discounts to customers who could afford to wait a week. Low capital costs and a lack of brick-and-mortar stores (and of course, no sales tax) were what made Amazon so different. These days, it’s beginning to resemble the retail establishments everyone thought it was going to replace. Wal-Mart Stores, Inc.
(NYSE:WMT) already owns a vast network of warehouses – sometimes called stores – and over Christmas, it began testing
a same-day delivery option of its own.
eBay’s approach is a little different. The online auctioneer has partnered with retail stores like Target Corporation
(NYSE:TGT) and The Home Depot, Inc.
(NYSE:HD), pairing them with local courier services. The company hopes to find greater efficiencies by using excess shipping capacity in and around cities; CEO John Donahoe has floated the idea
of employing newspaper trucks during off-hours. One can imagine an eBay marketplace where businesses rent out their logistical equipment to nearby retailers. One can also imagine the New York Times
balking at the idea of toiletries being dispensed from its trucks and countless other problems with this sort of lend-lease shipping program. eBay will probably end up right where it started – with bike messengers.
In contrast, there’s a good chance that an item bought through Google’s Shopping Express program – currently limited to the Bay Area – will arrive in the hands
of a green-shirted Google employee driving a green Google truck. The US Post Office will attest that this is an expensive and not-very-profitable form of corporate advertisement -- and if you’ve sent a package recently through UPS
(NYSE:UPS) or FedEx Corporation
(NYSE:FDX), you know that door-to-door delivery isn’t cheap. When it comes to trucks and drivers, and the hard factors of time, distance, and gasoline, Google has to deal with the same realities as everyone else. To boot, the shipping industry is unlikely to become an exciting growth opportunity for mature tech companies.
At some point, they will all run up against the same basic fact: Rebranding a service doesn’t make it any cheaper. Couriers and shipping companies have been around for decades. Large warehouses and retail establishments are nothing new. The only difference today is the presence of Silicon Valley – of companies with big cash balances and auras of invulnerability.
Customers, meanwhile, continue to prefer low prices. A survey of US consumers
by the Boston Consulting Group found that “only 9%… cited same-day delivery as a top factor that would improve their online shopping experience, while 74% cited free delivery and 50% cited lower prices." And lower prices can frequently be found in stores. The retail scene has changed a lot since the dot-com days; many franchises have disappeared, and those still around tend to be highly efficient like Wal-Mart and Target, or willing to take losses like Best Buy Co., Inc.
(NYSE:BBY) and Barnes & Noble, Inc.
For eBay and Google, same-day shipping may prove to be little more than an experiment in marketing, and an effort to prove to investors that, despite their growing cash hoards, these companies aren’t bankrupt of ideas for expansion and reinvestment. For Amazon, the issue is more serious. As traditional retailers have adapted to take advantage of Web efficiencies and "the Internet of Things," and as e-commerce falls under the scope of sales taxes, Amazon has lost much of the pricing advantage it once had. Same-day shipping is less about extending the company’s dominance than about salvaging it. This strategy may well be the "glorious future of shopping," but it’s not so different from the recent and unfortunate past, and tech companies are liable to discover the truth of the old saying: Some things never change.
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