| Industry | Retail |
|---|---|
| Fate | Liquidation |
| Founded | 1998 |
| Defunct | 2001 |
| Headquarters | New York City, United States |
| Key people | Joseph Park Yong Kang |
| Products | Online store, delivery service |
Kozmo.com was a venture-capital-driven online company that promised free one-hour delivery of "videos, games, dvds, music, mags, books, food, basics & more"[1] and Starbucks coffee in several major cities in the United States. It was founded by young investment bankers Joseph Park and Yong Kang in March 1998 in New York City, and was out of business by April 2001. The company is often referred to as an example of the dot-com boom.[2]
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Kozmo had a business model that promised to deliver small goods free of charge within an hour by bicycle, car, truck, or public transportation.[3] 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.[4] 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. 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.[5] The company raised about $250 million, including $28 million from a group of investors in 1999 which included Flatiron, Oak and Chase.[6] and $60 million from Amazon.com in 2000.[7] 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.[8] 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.[3] Kozmo had filed an IPO with Credit Suisse First Boston, but it never went public.[9] The writing was on the wall for Kozmo, as money woes and public relations mistakes continued to plague the company. Despite serious concern and many suggestions from its employees to require a minimum purchase and/or a delivery charge, Kozmo continued to use the same business model of free delivery no matter what the price, even if it were a $.50 pack of gum or candy bar.
The company was the subject of an April 2000 report by MSNBC.com reporters Brock Meeks and Elliot Zaret claiming that Kozmo was redlining sections of the cities it served that were populated primarily by African Americans. Kozmo denied that race played any part in its decision on what zip codes to deliver to, asserting that they choose market areas based primarily on Internet penetration rates.[10] The Equal Rights Center, the Washington, DC-based civil rights group referenced in the article, pursued the company about the allegations. Later in the year, the ERC announced a joint initiative with Kozmo, stated that "Kozmo's initial service area was not motivated by racial discrimination," and Kozmo committed $125,000 toward increased Internet availability for underserved communities.[11]
While popular with college students and young professionals,[12] 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.[13] Employees of the company in many of their 18 locations nationwide, found out about the shutdown only after arriving to work their scheduled shifts, and finding the doors locked. Those locations, as well as their Memphis distribution center, were soon liquidated by a veteran entertainment wholesaler from Florida. Company delivery bags and uniforms were sold to discount stores across the country and can still be found.
The documentary film e-Dreams, released in June 2001, depicts the growth and fate of the company. In April 2005, former CTO Chris Siragusa launched MaxDelivery, a Kozmo-like service in downtown Manhattan specializing in the delivery of food, wine, DVDs and essentials, still in business.[14][15]
Joseph Park, former co-founder and CEO, went on to co-found Askville in 2006, which is now part of Amazon.com. Park left Amazon.com in June 2009 to become president of BibleGateway.com, which is owned by Zondervan, a Christian publisher that is a unit of HarperCollins (which is owned by News Corp.).[16]
Yong Kang, former co-founder, returned to Wall Street, and as of June 2009 listed his occupation as investment banking at Lehman Brothers (now Barclays Capital).[17]