Kozmo.com is Founded
Kozmo.com was a venture-capital-driven online company that promised free one-hour delivery of anything from DVD rentals to Starbucks coffee in the United States.
It was founded by young investment bankers Joseph Park and Yong Kang in March 1998 in New York City. The company is often referred to as an example of the dot-com excess. The documentary film e-Dreams (2001) portrays the fate of the company.
Kozmo had a business model that promised to deliver small goods free of charge, typically by using bicycle messengers. The model was criticized by some business analysts, who pointed out that one-hour point-to-point delivery of small objects is extremely expensive and were skeptical that Kozmo could make a profit as long as it refused to charge delivery fees. The company countered in part that, in their target markets, savings due to not needing to rent space for retail stores would exceed the costs of delivery.
Its headquarters were located in New York City. The company raised about $250 million, including $60 million from Amazon.com and $28 million from a group of investors which included Flatiron Partners, Oak Investment Partners and Chase Capital Partners. It entered a five-year co-marketing agreement with Starbucks in February 2000, in which it agreed to pay Starbucks $150 million to promote its services inside the company's coffee shops. Kozmo.com ended its deal in March 2001 after paying out $15 million. In July 2000, at the height of its business, the company operated in Atlanta, Chicago, Houston, San Francisco, Seattle, Portland, Boston, New York, Washington, D.C., San Diego and Los Angeles.
While popular with college students and young professionals, the company failed soon after the collapse of the dot-com bubble, laying off its staff of 1,100 employees and shutting down in April 2001. 18 locations nationwide and their Memphis distribution center were liquidated by a veteran entertainment wholesaler from Florida. Kozmo had filed an IPO with Credit Suisse First Boston before the layoffs, but it never went public. According to documents filed with the Securities and Exchange Commission, in 1999 the company had revenue of $3.5 million, with a resulting net loss of $26.3 million.
The shining example of a good idea gone bad, online store and delivery service Kozmo.com made it on our list of the top 10 tech we miss. For urbanites, Kozmo.com was cool and convenient. You could order a wide variety of products, from movies to snack food, and get them delivered to your door for free within an hour. It was the perfect antidote to a rainy night, but Kozmo learned too late that its primary attraction of free delivery was also its undoing. After expanding to seven cities, it was clear that it cost too much to deliver a DVD and a pack of gum. Kozmo eventually initiated a $10 minimum charge, but that didn't stop it from closing in March 2001 and laying off 1,100 employees. Though it never had an IPO (one was planned), Kozmo raised about $280 million and even secured a $150 million promotion deal with Starbucks.