As early as 1988 Kozmo.com made headlines with a highly innovative and daring online business idea:
The company would ship key on-demand items to various locations across the United States. Kozmo wouldn’t charge anything for these services.
Ultimately, customers would enjoy unparalleled convenience at no additional cost.
But Kozmo’s idea failed. Things didn’t work out as planned.
What led to this massive modern business disaster?
So Kozmo.com is prepared for a guaranteed failure
At the beginning of the story, Young Kang and Joseph Park, two investment bankers based in New York City, started the famous Kozmo.com in 1998.
The company was essentially a venture capital funded company. The investment capital was $ 250 million. This came from market leaders like Amazon, Chase, and Flatiron. As mentioned earlier, Kozmo.com, later renamed Kozmo, was a daring company that promised quick deliveries of goods on demand to select locations across the United States.
Kozmo promised to do it in 1
Abseiling in Starbucks
Over time, Kozmo even shipped Starbucks. This deal was the result of a co-marketing agreement between the two companies. It was worth $ 150.
On the deal, Starbucks would do their part of the business by stocking Kozmo film return boxes in their nationwide stores.
Note: When Kozmo started operations, the company did not charge delivery fees. There were also no minimum purchase requirements.
As a rule, bicycle messengers delivered most of the orders. They weren’t allowed to take tips. How on earth would such a strategy work?
Why Kosmos winning strategy and target group no longer work
Initially, Kozmo employed around 3,300 people. These employees delivered goods to selected urban areas with high internet connectivity. These cities included Chicago, Boston, Houston, Atlanta, New York, San Diego, Los Angeles, Washington, and San Francisco.
Most of the target customers were tech-savvy teenagers. Significantly, most of them were unemployed. So the customer base could be expanded quickly. However, with free deliveries, the goose was already cooked. Kozmos’ bank account ran out quickly with every purchase and delivery.
Then came the year 2000 with the telltale dot.com bust. There was little capital. Nobody wanted to put money into online businesses. Like most tech companies of the day, Kozmo was bleeding money and struggling to survive. The company desperately groped for investors. Attempts have even been made to merge with a delivery service in Los Angeles.
Eventually, Kozmo drastically cut operations, added items with higher margins, and introduced a delivery fee late. The company also changed its strategy to target older, wealthier people. In a desperate move, Kozmo deviates from his original line of promoting online shopping. It sent out catalogs and encouraged people to place their orders over the phone.
Soon the inevitable happened: Kozmo began to fire his employees. By last year Kozmo had grown the customer base to 400,000 (up from 150,000). The minimum order size increased from $ 10 to $ 25.
However, it was too late. Kozmo finally closed its virtual doors in April 2001. Today’s Titanic had finally sunk.
As the facts show, Kozmo’s great business idea is notoriously outraged but has proven to be a successful idea with modern day companies like InstaCart and Uber. However, Kozmo lost a staggering $ 280 and eventually followed suit. Sometimes timing is everything.