Catching the Kozmo Craze

Late-night pizza and Chinese food have always been staples of life on college campus.

But with the advent of Kozmo.com--an free online service that delivers food, video rentals and retail items to customers' doors in less than one hour--the market for food deliveries on campus just got a little bit more interesting.

Kozmo, which aims to be the convenience store of the Internet, is revolutionizing the consumption habits of residents in select cities on the east and west coasts and is creating excitement in the campus communities that are just discovering they can order Ben & Jerry's ice cream at 12:30 a.m.

"It's such a great service," says Mass. Hall resident Rachana N. Shah '03, who first ordered a $10 compact disc from Kozmo earlier this year and continues to order from the site--despite living across the street from Store 24. "On really lazy nights when you're writing a paper and you don't want to go across the street, it's nice to have people come deliver stuff to us."

But while Kozmo.com is still not widely used at Harvard, the company couriers' bright orange bags are becoming an increasingly common sight on campus as the word spreads about the service.

Instant Gratification

Started in 1997 as the brainchild of former Goldman Sachs associates Joseph Park and Yong Kang, Kozmo.com attempts to bring immediate gratification to Internet consumers hungry to get their goods quickly.

This concept, according to the company website, sprang from Park's frustration at having to pay a delivery fee and wait three days for a book he ordered online.

The two partners began a gorilla marketing campaign handing out fliers during the day in New York City, all the while developing a workable business model. By night, the two employed a small group of bicycle couriers to make deliveries of the goods they were selling.

And their early work seems to be paying off--the Boston division of Kozmo.com just recently logged it one-millionth customer since it opened shop in August.

With distribution centers in five cities--Boston, New York, Seattle, San Francisco and Washington D.C.--and more in the works, Park and Kang's website now boasts an inventory that includes some 15,000 videos for rental and purchase, DVDs, video games and a "minimart" of snack foods.

As part of their plan to expand the business, Kozmo officials are actively courting the college market.

"Kozmo.com is the first company to deliver all of your entertainment and convenience needs directly from the Internet to your door, desk or dorm in less than an hour," the company advertises on its website.

According to William M. Weddleton, Kozmo.com's general manager in Boston, the service is perfect for cash-starved college students with odd cravings at even odder hours.

"We're the place to go in a bind," Weddleton says. "We want people to know when they order from us that they are going to get a middle of the road price on excellent quality merchandise. And we offer free delivery within an hour."

Philip M. Charland '00 says he began using the service several months ago, ordering primarily snack food items late at night.

He says he averages between $15 and $20 per order and has recommended the site to other friends and even his parents.

And for Alaina F. Aguanno '03 and her friends in Stoughton Hall, Kozmo is a convenient way to rent videos and buy food--even when walking outside is not an option.

"It was really good this winter when everyone was too lazy to walk to Store 24 in minus-40 degree weather," Aguanno says. "It's awesome."

In an effort to encourage students and area residents to rent videos, DVDs and video games from Kozmo, the company is giving customers flexibility in the way in which they return their items.

They can either call to arrange a pick-up, for a $1 fee, or return them to Kozmo drop boxes in the Harvard Square vicinity--located in Johnny's Luncheonette on Mass. Ave., Store 24, the Holyoke Center, The Wrap and Toscanini's.

According to Aaron Tarr, an assistant manager at The Wrap on Mt. Auburn St., the box in his shop averages about one return per hour. In the last month alone, Tarr says returns to the box are up significantly. At Store 24, a clerk who asked to remain anonymous estimated that the drop box there received between 20 and 25 returns per day.

And in order to keep its customers coming back, Kozmo.com says it puts a premium on customer service and treating its employees well.

The company employs a hub-and-spoke distribution system in which all orders are processed through the company's Allston-based distribution center, where bicycle couriers bring orders to customers' doors within an hour.

Couriers are given raingear, helmets, bags and cellular telephones to communicate with company dispatchers. They are also given both health and dental benefits.

"I love it…it's phenomenal," said one courier, who asked to be identified as "D," after his second day on the job.

On the Street

Although Kozmo.com is not a publicly traded stock, it is slowly becoming the darling of Wall Street firms that have embraced online vendors like Amazon.com and Ebay.

To be sure, the company faces competition from a growing group of Internet-to-home delivery companies like Homeruns.com, a home grocery delivery company. But Kozmo's advantage, some say, derives from the quick turnaround time between when an order comes in and when it gets delivered.

Moreover, since its inception, Kozmo has steadily expanded its product line to include profitable retail, electronic, snack and convenience products.

"Analysts are constantly looking at new products that will work within this business model," Weddleton says, adding that microwaveable foods and sandwiches are two likely areas for expansion in the near future.

This planning seems to be a recipe for success.

"Kozmo has the opportunity to become the Polaroid of e-commerce," said Danny Rimer, an Internet analyst with Hambrecht & Quist in a San Francisco Chronicle article, October 18, 1999.

With strong financial backing and new corporate management drawn from companies such as AT&T, Coca-Cola, FedEx, and UPS, Kozmo.com is well positioned to continue it impressive growth performance. In October, the company raised $28 million in its first official round of venture capital funding. Then in January, a group of investors led by Amazon.com pumped another $100 million dollars into the company.

Since the start of the New Year, Kozmo also managed to secure key corporate partnerships with Ticketmaster's Online-City Search and with Starbucks.

The alliance with Ticketmaster will make Kozmo the exclusive immediate delivery provider for the citysearch.com network of city guides. Information about Kozmo.com will also be featured prominently on the citysearch.com website.

The partnership with Starbucks also has tremendous potential, given the coffee chain's 2,400-plus U.S. stores in the United States and the fact that 90 percent of its customer base is online.

In addition to carrying a variety of packaged coffees and other Starbucks products, Kozmo.com is studying the possibilities of delivering hot beverages to customers.

Kozmo's Weddleton says the firm is serious about growth: The company plans to be in Chicago and Atlanta soon, and expects to cover 30 locations by year's end.

"We're very aggressive in our expansion plans both into new markets and in expanding the size of our existent markets," Weddleton said.

By next year, Weddleton says he envisions Kozmo.com having nation-wide prescence and brand recognition for Kozmo.com.