That said, I can't help but wonder whether the company will find a business model with sustainable economics. A lot of really smart people have tried and failed to accomplish this sort of thing before. For example, Amazon invested $60 million in Kozmo.com back in the late 90's, and they couldn't make it work. (Kozmo.com ended up raising a quarter billion dollars before shutting down.)
The main challenge is that same-day, point-to-point delivery is very expensive -- a complex problem. (Most delivery systems in use today rely on some kind of hub-and-spoke design.) Perhaps the wide adoption of smart phones will make point-to-point delivery economically viable for Instacart -- e.g., by giving the company cost-effective access to underused delivery vehicles as needed to satisfy the ebbs and flows of consumer demand.
I'm curious to see if and how Instacart can pull it off.
Specifically, Kozmo.com was founded in an era where you could IPO without having profits. Having that mentality from day one allowed them to make huge concessions to users such as give them free delivery on everything, and not have a minimum order. For example, you could pay $1.50 for a gum on Kozmo and get it delivered to you within an hour. WebVan, on the other hand spend $1B on building it's own warehouses and fulfillment infrastructure.
Learning from those companies, we have done a lot of things differently. For starters, there is a minimum order of $10. There is a delivery fee of $3.99 for 3 hours and $9.99 for 1 hour. (Would you not pay $4 for someone to do all your groceries?) And, we do not hold any inventory - all of it is sourced directly from local retailers.
It is also important to mention that the time that we live in is very different. People are a lot more comfortable adding their credit card information on web/mobile. Not to mention, the access to smart phones that people have gives customers the ability to shop from anywhere - office, couch, next to the fridge.
We believe we are different from the companies that have tried this in the past. And, we hope we are live in your hometown very soon.
(edits to follow)
The logistical challenges look daunting to me. My recollection is that the problem of coordinating and optimizing deliveries in such a point-to-point system with time constraints is NP-hard (I could be wrong about this, but that's my recollection). Then one has to deal with all sorts of real-world problems like order-fulfillment errors and substitutions (intentional and otherwise), constant shrinkage of merchandise, etc.
Obviously there's some price at which the service can be profitable, but I'm not sure it's $4. (Consider that the former CTO of Kozmo, Chris Siragusa, has been running a one-hour, point-to-point $3 delivery service for a number of years, MaxDelivery.com, but he has kept the service restricted to a relatively small, dense area in lower Manhattan, making the economics worthwhile.)
In any case, I sure hope you're right!
That is too high level. Let me explain more clearly for one specific case of order substitution. Since we are focusing on a niche (groceries), our system has already calculated the substitutes of items. We know how to substitute a Store Brand Ketchup to Heinz IF needed.
A lot of what I know about logistics is from my time at Amazon Supply Chain, where I dealt specifically with the challenge of fulfilling packages to the customer from AMZN FCs (aka warehouses). And, at Instacart we believe we can have the same efficiencies IF we model the stores in a city just like AMZN modeled warehouses across the world.
My supply chain experience comes almost entirely from third-party shipping (somewhat) similar to this. In my opinion it's considerably harder and more problematic than dealing with your own fulfillment centers. You give up a lot of control.
There's a whole slew of problems:
* Integration with other people's systems, which are often horribly dysfunctional, require manual intervention (such as re-keying), and can't give you the data you need (e.g. stock levels)
* The fact that you have to rely on staff that don't work for you, and either don't care about you, or in some cases deliberately sabotage your orders
* You're often relying on a vendor who is also a direct-competitor in this or other channels
I think a good model is Seamless. They act as the middleman just as you do, however it's the restaurant's name you see, rate, and attach reputation to. This gives them the incentive to provide good service. If you're shielding your vendors from the effects of providing bad service, then there's less incentive to provide good service.
I think it's an interesting problem to solve. Though here in NYC we're spoiled by a large range of next-day options; I personally use services such as Fresh Direct, Amazon (Prime and "Shop 'n Save"), Soap, and USQ Wines.
I have to take my hat off to you guys for attempting this!
What will you do if all your drivers are busy? Will I be able to book an order for an hour-long slot in the future, or is delivery now or never?
I wish you luck.. that is a super cool business you get to design.
Depends on the city. In large metropolitan areas like NY, Chicago, the VA-DC-MD corridor, etc., potentially tens or hundreds of thousands at certain times of the day (e.g., 7pm, when people get home from work).
Yes, it's different this time. Just ask Groupon.
Also, and maybe you have a lot more insight into the business model than I do, but I just do not see how this scales, as your marginal labor costs have got to be a very high portion of your revenues. How many deliveries per hour can an employee handle?
For example, assume you are paying $8.00/hr. If you have one person shopping, and they can compile 4 orders per hour, and one person can deliver those, which is a big if, you are just breaking even on labor costs.
(The important part of what you quoted was not "you can no longer IPO without profits" but "the ability to IPO without profits harmed kozmo, and we are not making the same mistake". It's not particularly important whether or not IPOing without profits is actually still possible.)
"I can get it in 2 days free with amazon, or $4 today... is that worth it?" People will spend huge amounts of time and effort to not pay delivery charges, even when the total price ends up being the same!
Real-time operations are costly to manage even though the software has become easier to build. Not being Amazon and not being able to control inventory, and access to that inventory, hurts. However, probably a bigger issue is establishing consumer habit - triggering that need to order at the moment the user wants it. This comes down to establishing a brand (expensive) and also evolving consumer behavior (more expensive). And, these consumers will have to be in the < 200 geographical regions of the US that are dense enough to facilitate < 4hr delivery profitably (its probably less than 50 regions where you could fulfill on 1-hr delivery profitably at any substantial volume).
You could say Uber is a counter example of succeeding in this space. I would argue that they replaced an existing consumer habit with a better one. I don't see that in the same-day delivery space - thus the need for education.
There have been a few generations of these services (Webvan / Kozmo; Licketyship; Ecourier / Shutl; Postmates). Eventually, the cost of tapping into consumer habit vs the small margins of brokering a delivery will create an amazing opportunity. In the meantime, the cost of educating and acquiring users is a big deterrent and if you can build the kind of company innovative enough to solve this problem, its likely you have a prohibitively high opportunity cost.
It'd work something like this:
You go online.
You want to buy a new A/V receiver
You find the one you want on Amazon at 9 am
Amazon then asks you where you live
Amazon taps into a database of willing stores that might carry the product. Most big-box stores have web-based inventory checks, so syncing their inventory with Amazon's system would (hopefully) be easier. Amazon offers the service to more specialized outfits; Smaller stores would get support in integrating the inventory system. Amazon would have to make a deal with these stores to make this work.
Using a partnership with UPS/FedEx/et.al., Amazon figures out which locations are still due for visits from a logistics company. Most make residential shipments as the last part of the day.
Amazon tells the store, "A customer requested this receiver, please put it in box size A1 and hand it to the UPS dude with this shipping label."
Amazon pays the retailer below retail, but above cost. The retailer takes it because they want the business; Amazon recoups because same-day shipping is a premium.
Box goes on the truck, truck comes to your house.
Voila, new item by EOD same day.
I swear a friend of mine years ago was getting under $4/delivery? Might've misremembered.
Paying a guy to sit in the robovan and run the packages to the door isn't going to be appreciably cheaper just because he sits in the passenger seat.
There aren't any technical unknowns left. Obviously the algorithms will continue to be tweaked and improved. Importantly it can operate in the existing environment - there is no need for every car to switch to driverless at once.
Remember that anyone locally would also need to spend a similar order of magnitude in fuel (and likely more) if they went to get things themselves.
I don't think people have fully thought through the impact of this yet.
A year ago I dared to suggest on HN that self-driving cars could potentially cause congestion (because it would be cheaper for an electric car to sit stationary traffic rather than paying for a park).
Back then I was downvoted to oblivion. I hope now people think it through a bit more.
I reckon self driving cars will also lead to significantly less car ownership. Taxis will become cheaper, more flexible and more plentiful (political shenanigans aside). The Zipcar model works too as the car can come to you.
And of course the cars can be coordinated to alleviate congestion. For example the system may work out that a particular car going at 29mph for a stretch instead of the limit of 30mph would avoid a glut of traffic 5 minutes ahead, or take a different route, or tell it to wait 5 minutes when it is empty.
Both companies need to figure out how to best deliver items locally. This is a big logistical challenge (but luckily it's well researched). In addition, Amazon needs to predict demand locally and ship items to a local distribution center. Instacart can leverage existing supply chains but has to pay a premium for it. If Instacart is willing to operate at a loss for a while, they might actually have an advantage over Amazon and can fully focus on getting the local delivery part of the equation right.
Very exciting stuff and congrats on the launch!
Disclaimer: I met Apoorva a few weeks ago and have been happily using the service since. I'm extremely impressed by how he managed to do all of this essentially alone and can't wait to see what's next.
Regardless, there are a lot of dead companies that litter the path for a product like this. I'd be surprised if Instacart succeeds.
disclaimer: my company is in the same YC batch and I know Apoorva personally and was happy to get early access to service.
Deatil of what I see (on the left) vs what I probably should see (on the right, after zooming manually):
Also, to add to the conversation.It all about timing, right? Now with Amazon being as big as it is and we see companies like Rewinery, Exec, Postmates smashing into this on-demand local delivery space. The time seems ideal for a company like Instacart. I do miss WebVan though.
Awesome to see a startup rising to the challenge.
This will be interesting.
They also deliver other things using this system. I received a CD via Amazon Fresh on Sunday, that I'd ordered on Saturday, whilst still paying for Tuesday delivery (free with Prime)
If Amazon can make this scale, they are absolutely competing with them directly. If Amazon can't make this scale, then it's unlikely to be a profitable business model for anyone else.