Have you guys used this service? What a joke:"
Kozmo.com to Get $100 Million
From Investors Led by Amazon
By ANDREA PETERSEN and GEORGE ANDERS
Staff Reporters of THE WALL STREET JOURNAL
Investors led by Amazon.com Inc. are pumping $100 million of venture
capital into Kozmo.com Inc., a fast-growing company that delivers movies,
snacks and other items purchased over the Internet, generally within an
hour.
The latest financing comes just seven months after Kozmo began
expanding outside its original New York City market. Kozmo
(www.kozmo.com) also offers its service in Seattle, San Francisco,
Boston and Washington, D.C. The company plans to enter 21 more
markets by year end.
Closely held Kozmo doesn't disclose its finances, but people who have
looked at its books say it isn't profitable. The start-up doesn't have nearly
the polish or logistical smoothness of carriers such as FDX Corp.'s Federal
Express Corp. or United Parcel Service Inc. -- most of Kozmo's deliveries
are carried out by an arsenal of more than 1,000 messengers, most of them
on bicycles.
But in the general ebullience about the Internet and its impact on traditional
ways of doing business, Kozmo has become somewhat of a darling among
strategists thinking about new ways to get goods to consumers. "Someone
like Kozmo could partner with a lot of different merchants to provide the
immediacy and convenience that people demand right now," said Ken
Cassar, an analyst at New York research firm Jupiter Communications.
"Now, if you order from Amazon you live on the whim of UPS."
Amazon officials declined to spell out their reasons for investing in Kozmo
or even to confirm the investment. But people involved in the financing said
Kozmo is raising $60 million from Amazon and nearly $30 million from an
affiliate of Softbank Corp. of Japan, which has been an active backer of
Internet businesses. The identities of the remaining investors weren't
available.
Until now, Amazon's big bets on distribution have focused on building giant
warehouses in Nevada, Kansas and other rural locations -- and then using
UPS or the U.S. Postal Service to make most deliveries of books, movies,
tools and other goods a few days after orders are placed. Amazon officials
have said that strategy makes more sense than trying to run giant
warehouses in costly urban areas, closer to where most customers are
based.
But Amazon last year also bought a sizable minority stake in
HomeGrocer.com Inc., a Bellevue, Wash., company that provides
next-day home delivery of groceries ordered online. While that service
hasn't been integrated into Amazon's main businesses, the two investments
in HomeGrocer and Kozmo suggest Amazon may want a faster-delivery
option in some urban areas.
Amazon's $60 million is purchasing about a 23% stake in Kozmo. All told,
the new investors are acquiring one-third of the company. As a result,
Kozmo is being valued at $300 million after the capital infusion. Even in
Internet circles, that is a remarkably fast rise. In October, the company
snared $28 million from venture investors including Flatiron Partners of
New York; Oak Investment Partners of Palo Alto, Calif., and the Chase
Capital Partners affiliate of Chase Manhattan Corp., New York. Kozmo
was valued then at less than $100 million.
A public-relations agency hired by Kozmo declined to comment on the
new investment.
Kozmo was founded by Joseph C. Park, a 28-year-old former employee
of New York financial-services concern Goldman Sachs Group Inc.
Recently, the company hired executives from Federal Express, of
Memphis, Tenn., and Ethan Allen Interiors Inc., a Danbury, Conn.,
furniture maker and retailer, to handle the logistics of its growth. Kozmo
also has been expanding its product mix. While the service initially focused
on books, music, video and digital-video-disk rentals, Kozmo has
branched out to offer everything from batteries to Tylenol and Krispy
Kreme doughnuts.
If Kozmo is to achieve profitability, analysts say, it must increase
customers' average orders and create a dense enough route structure that
messengers can make multiple deliveries on something approaching a
door-to-door basis.
"They'll never be profitable if each time a delivery person leaves the
warehouse they take one order," Jupiter's Mr. Cassar says. "They may be
able to achieve the scale in some densely populated cities, but in the vast
majority of the country that delivery person is going to be driving an awfully
long way." |
