Thursday, October 11, 2012

E-commerce same day delivery

It's interesting to see so many e-commerce businesses warming up to the idea of same day delivery. tried a more ambitious version of the idea (1-hour delivery) back during the tech bubble, and failed when the bubble burst, but now,, ebay, and Walmart are all looking to offer it to their customers. There are significant and expensive logistical hurdles involved in offering same day delivery, even for a brick-and-mortar like Walmart. It remains to be seen how online businesses who choose to offer this service will negotiate these difficulties.

If anyone is up to the challenge, its Amazon. For the time being, they STILL don't have to collect sales tax in most of the states. They've even worked out deals with some states to delay collection of sales tax for several years into the future, in exchange for building vast warehouses that employ thousands in these states. These warehouses will, in turn, serve as the logistical backbone that allows Amazon to ship products even quicker to their customers.

The benefits of offering same day delivery are quite clear. It is the holy grail of convenience shopping. Shoppers have had to choose between buying online for a lower price and waiting for delivery, or driving to a brick-and-mortar and getting the product right away. With same day shipping, online retailers offer even more instant gratification than their offline counterparts. Imagine you completely forget that its your SO's birthday. You order her a gift and a nice card while you're at work, and its waiting for you at your home (or Amazon locker) by the time you get back. You don't even have to spend time and gas driving to the store.

Its still unclear, though, if same day delivery will be worth the effort for a general retailer like Amazon. Already, Amazon's position as a cost leader is eroding. No doubt, adding huge warehouses stocking tons of products across the country won't help lower expenses. Amazon's acquisition of Kiva systems could potentially cut expenses considerably - we'll have to wait and see. Most importantly (in my opinion), for many products Amazon sells, convenience isn't a huge factor. Do you really need to get a book or a TV delivered right away, or would you rather wait and get the lowest price?

That's not to say I think same day delivery is a bad idea - in fact, depending on the product, I think its a great idea. Groceries and drugstore goods, for instance, fit the model well. Time-sensitive purchases also work (e.g. air conditioners, last minute buys, and broken important stuff). Even managed to be profitable in a few regions before it closed down. And while Amazon doesn't really sell these types of products yet, it wouldn't be the first time Amazon jumped into new retail sector. Will definitely be keeping an eye on what Bezos decides to do.

Anyone got any thoughts on the issue? Will same day delivery work (and if so, how), or is it over-hyped?


  1. Like you said, it really depends on the product. Can't see it being profitable for anything other than daily necessities and small goods.

    However, if we get automated cars like the ones Google/Stanford are working on, combined with Kiva, we could potentially have a completely automated logistics chain. That would be epic.

  2. Same day delivery is awesome, but I think's 1 hr delivery is even better (though it failed). I think its a fantastic idea, though probably limited to just the most commonplace essentials (soap, milk, etc) and not large purchases like televisions and furniture.

    Freshdirect and Amazon have made it super easy to get deliveries of basics and necessities, but I think a big step up would be if you could get those deliveries in 3-4 hours, 24 hours a day instead of having to schedule a delivery or wait until the next day. It's a pain in the ass when I run out of milk after 10pm, which is when the supermarket next to me closes.

    By limiting the breadth of your inventory and establishing yourself in a small city, I don't see why this can't be done. Tons of small business owners are already doing this - just look at Seamless and Grubhub.

    1. hmm. i think amazon (as a "digital walmartish" model instead of middleman) is different from a seamless/grubhub model (middleman), and these differences are mainly limiting and discourage a 1 day/hrs delivery model.

      ie. instead of working out a deal with small business owners to deliver, they need to deliver themselves. which is a lot harder because they have 1 centralized warehouse ve small business = spread out around the city so it's much closer to delivery location.

      and also now you need to stock a billion things. vs multiple small business owners combine to give the diverse offering.

    2. The model is very different, and I hadn't thought of Middleman vs giant warehouse model. Still, I don't think this is out of reach.

      Imagine a Duane Reade website that allows you to order delivery from Duane Reade. It would work like this:
      1. You place an order online, selecting the goods that you want.
      2. An online system figures out the closest Duane Reade to your delivery location for each item in your order, and informs that store's employees of the part of that order they need to fulfill.
      3. After your order is assembled in a bag or box (possibly at multiple Duane Reade locations), it is delivered via bike/car/moped to your door, within minutes (or hours depending on distance and order traffic) of your order.

      While I think there are some difficulties in this model (Duane Reade now needs an online order system, deliverymen and people to package deliveries) I still think its feasible. Steps to improve could be: 1) online-only (no brick and mortar store, just a warehouse) 2) locations throughout a city, but more sparse than Duane Reade, 3) minimized inventory which will make everything easier for storage, distribution, 4) automated item collection and packing because its cheaper and faster.

    3. Duane Reade is a bad example. They already have market share leadership in Manhattan, so the potential for reaching more consumers is limited. As a convenience store, it's unlikely that existing consumers will buy *more* products than they already do, since you don't really need extra basic necessities.

      I really like the middleman/warehouse distinction. One-stop shop warehouses (Walmarts/Amazon/Freshdirects of the world) are probably most likely to get same day delivery first, since it's simply a matter of automated logistics.

      What's more interesting is the middleman model. I was thinking what if someone could find a way to market and sell a simple to use inventory and booking software (just like Opentable's table booking system) and decentralize and outsource delivery people/vehicles/machines... but then I realized I was just describing