Kozmo.Com

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Case Study: Kozmo.com

Kozmo.com

History Of The Company

Joseph Park and Yong Kang founded Kozmo.com in 1997. They both left their jobs on Wall Street when Joseph ordered a book on Amazon and did not like that he didn’t receive it on the day the order was made (MIT). The two then launched Kozmo and delivered videos, CD’s, books, DVD’s and other items such as magazines, food, beverages and even had a contract with Starbucks at one point in time. Their plan was to be in more than 35 cities in the United States by the end of 2002, with their start being in New York City. Park and Kang’s business model included delivering these items to customers in the area within an hour of ordering online, and did not charged a delivery fee. Some analysts, stating that the delivery of certain small objects or small orders would be very expensive, and a profit could not be possible, criticized it (Wiki). In 1999, Kozmo had approximately $3.5 million in revenues and lost $27 million with delivery costs running $3.3 million. In 2000, Kozmo’s revenues increased to $30 million with a net loss of $120 million an delivery costs of $35 million (SEC).

Kozmo had two main objectives when it came to a business strategy: “to be the leading online provider of entertainment, food and convenience products with free delivery in under and hour, and to enhance the usage of distribution by providing select detailers an expedited delivery option.” Kozmo served a total of eleven locations, operating from Distribution centers in those areas. The following (MIT) are the cities that Kozmo served and the dates on which it launched:

Kozmo MarketCommenced

New York CityMarch 1998
SeattleJune 1999
San FranciscoSeptember 1999
BostonSeptember 1999
Washington, D.C.November 1999
Los AngelesFebruary 2000
ChicagoMarch 2000
AtlantaApril 2000
PortlandMay 2000
San DiegoApril 2000 – Closed, Feb. 2001
HoustonApril 2000 – Closed, Feb. 2001

Kozmo decided to shut down the San Diego and Houston markets less than a year after the opening due to lack of demand. The distribution centers in each market were approximately 10,000 square feet. The size provided the capacity to expand its product offerings. Their investors included Amazon.com, Chase Venture Capital Associates, DreamWorks, Liberty Media, Starbucks, Twentieth Century FOX, Universal Studios, Softbank Capital Partners, Columbia TriStar, Flatiron Partners, Oak Investment Partners, and Warner Brothers.

Due to the net losses that occurred during the first few years of Kozmo’s existence, they decided to impose a minimum of $5 order size as of the summer 2000, and introduced a $2 delivery charge on all orders after 3:00 p.m. in December 2000. It’s focus had shifted from building strong brand awareness to maximizing operational efficiency.

The company failed soon after this new introduction, and shut down all operations in April 2001. It was noted that several of the 1,100 staff and employees of Kozmo did not find out about the shut down until arriving to work their scheduled shifts and found the doors locked. The company was later liquidated. (E-DREAMS)

Industry Analysis
Five Forces Model
Competitive Force 1: Rivalry Among Existing Firms
At the time and still today, there is not a single company that did what Kozmo had intended to do, but there were several businesses that you could still consider competitors in certain branches or areas of what Kozmo did. Urbanfetch was probably the most competitive to Kozmo. This company had the same concept as Kozmo: one-hour delivery and no minimum order or delivery charge. They are only primarily in New York City and are still in business today. Several other businesses such as PDQuick.com, located in San Francisco, and SameDay.com, located in Los Angeles, had the same delivery concept, although one strictly delivered consumer goods, and the other delivered packaged and prepared foods. These...
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