Same-day and on-demand delivery is all the rage among retailers and consumers these days. The rise of Amazon coupled with major moves by Google and others has put it front and center. But, to date, it has been mostly hype and—excuse the pun—no delivery.
Let’s take a step back and talk about the evolution of same-day and on-demand delivery. First, this is one of the oldest modes of delivery. Until recently on-demand was known as a courier service. You’ve heard the phrase “Neither snow nor rain nor heat nor gloom of night stays these couriers from the swift completion of their appointed rounds.” That saying is from the Persian postal system in 500 BC. Humans have and likely will always have a desire to get goods quickly.
Even in the modern era, UPS is a company more than a century old that got its start delivering parcels in Seattle. Since then there’s been a huge rise in same-day deliveries of all types, from companies like OnTrac to the thousands of couriers in every major city. Same-day and on-demand parcel delivery is a well-established market. Companies like OnTrac and LaserShip do large volumes for Amazon and other e-commerce companies. What's more, they do it at a very low price point—and have been for years.
All this is to say, we've had and will always have same-day and on-demand delivery. And, while there has definitely been innovation in this area in terms of food delivery, a la Instacart and Postmates, there hasn’t been that much innovation on the same-day and on-demand markets as it relates to e-commerce.
Why? Because the fundamentals of same-day are still incredibly challenging. Same-day and on-demand delivery take incredible amounts of inventory in EVERY area a company hopes to cover. In any city, there are between 10 to 1,000 options for getting goods from point A to point B. It can be done many ways, the problem is having inventory in every city. Take for example, Amazon’s recent launch, the Now app, offering on-demand delivery. The delivery is taken care of, but they’re only offering about 1,000 items.
Next, there's the issue of cost. Who’s willing to pay the full cost of on-demand delivery? Amazon treats shipping spend like marketing, and its content is losing $1 billion on shipping each quarter. There aren’t many companies willing to lose that, or more, on a per-package basis given lower volumes.
On the other side, there is the issue of consumer price tolerance. Look at Etsy Same-Day delivery, for example. The price point was $48. Postmates’s price point is similar if you factor in its markup.
These are incredibly high price points for something that would be free if you waited a day or two. E-commerce is a price and convenience decision. On the price side, it’s often cheaper online so people buy there. It’s also convenient since it comes right to us. And given the price for convenience is usually zero, since free shipping is the standard, it’s an easy choice.
When we look at the robust, efficient same-day market that has existed for decades, coupled with the realities of actual consumer demand for the service and ability to supply the inventory, there are serious challenges ahead for those looking to build companies based on same-day and on-demand alone.
As with all things e-commerce, it’s likely to grow with the industry’s great tailwinds and continue eating up slices of the retail pie, but it’s unlikely to stand out beyond that as a true hook into the market.
Photo by Stuart Miles/FreeDigitalPhotos.net
Jarrett Streebin is CEO of EasyPost.