In its second-largest acquisition, Amazon buys the company for $970 million.
In spite of the demise of national same-day delivery services Kozmo.com and Webvan, same-day delivery start-up Ensenda Inc. has had no trouble getting investment money.
The ink was hardly dry on the obituaries of the same-day delivery services when a new service suddenly sprang to life. Ensenda Inc., a delivery service founded by former Webvan Group and DNet delivery company executives, comes to market armed with a $3 million investment from Alloy Ventures and deals to shoot orders for same-day delivery to 75 courier services around the nation. All it needs is a retailer.
True, it is conducting a pilot with Kepler’s Books in Palo Alto, Calif. But success with Kepler’s is no guarantee of success in the market. Kepler’s was the bookseller that supposedly proved the concept at DeliverEToday, a same-day delivery service that went defunct last year.
But founders Chris Mannella, who was at Webvan and consulted for DNet, and Rob Howard, who was at DNet, are convinced they have a better system. “Ensenda is well positioned to pick up on last mile delivery by aggregating the existing assets of courier services around the country,” Mannella says. “We’re using technology to build a delivery fleet on someone else’s dollar.”
Keep lid on costs
Ensenda’s model is the same as DNet’s, which ceased operations last year when investors decided the company couldn’t create a sustainable business. It contracts with couriers in local markets, then feeds orders to them. Online retailers fill the orders from their store shelves. Couriers pick it up at the store and deliver it.
Don’t hold DNet’s failure against Ensenda, says Chris Moore, former president of DNet. “We had a black cloud hanging over DNet that had more to do with market timing than with the business model,” Moore says. Furthermore, DNet was trying to develop other businesses as it was working on its same-day delivery mode, Mannella says. “As long as Ensenda keeps their expense rate very modest until they get market validation of their business plan they’ll do fine,” Moore says.
Other veterans of the last mile battles are skeptical that validation will come. For one thing, says Roger McDonell, former head of DelievrEToday, retailers have their attention focused on making their web sites profitable. Frills like same day delivery will come later. For another thing, dealing with a network of local couriers does not provide the visibility into order fulfillment that online retailers require because couriers all work with different technologies. And finally, “Picking from the shelves is a major issue,” he says. DelverEToday conducted a test of pick-from-store-inventory with a Gymboree children’s clothing store. It didn’t work because there was not enough volume to make it a routine procedure and because, claims to the contrary notwithstanding, retailers don’t have a clear idea at any given moment of what they have on their shelves. “Ultimately, it all comes down to demand and the demand just isn’t there,” McDonell says.
Ensenda requires its courier partners to operate dispatch systems that are always available to receive orders over the Internet, or to be always on a web site where they can retrieve delivery orders. When an order arrives, Ensenda will insert it into the local courier’s dispatch system or post it to a web site where the local courier can pick it up. In either event, Ensenda requires that the courier acknowledge that it accepts the order. If Ensenda does not receive acknowledgement within a set period, it will pull the order back and assign it to another courier. Couriers with the best performance will get additional orders, which is what will keep the quality of the service at a high level, Mannella says.
Because the orders are incremental to a courier’s business, Ensenda believes that delivery prices will be very competitive with overnight delivery. Furthermore, he doesn’t expect retailers will mark the cost up a lot because there is a marketing benefit to offering affordable same day delivery. “Fifty percent of online shoppers would buy more often from a retailer who offers same day delivery,” he says.
In spite of the well publicized crashes of same day delivery companies, including Webvan, there was little resistance by investors to this concept, Mannella says. “Within the investment community, there was concern about another capital-intensive approach to same day delivery,” he says. “This is not a capital-intensive approach. It required some explanation, but not a very long one.”