Postmates and the Fallacy of the $1 Delivery
San Francisco based start-up Postmates (www.postmates.com) recently announced an $80 million round of funding and plans to offer $1.00 on-demand delivery (http://blogs.wsj.com/digits/2015/06/25/postmates-raises-80-million-in-push-toward-1-deliveries/ ). It’s a good thing they raised more money because they’re going to burn through cash quickly offering 1-hour delivery at that price point. Considering both the steep path from where they’ve built their business (food delivery to consumers) to their ultimate goal (on-demand package delivery for the masses) and the reality of delivery economics, a $1 delivery is an impossibility. And let me present my unique same-day credentials: I have designed and implemented high-volume same-day and local delivery programs for huge retailers such as Amazon, IKEA, OfficeMax and Home Depot.
Postmates assumes that drivers collect tips to supplement their payment from Postmates, which is about $0.80 per $1.00 of delivery fee they collect. It’s highly doubtful drivers will get tips from delivering a package. When was the last time you tipped your UPS driver? This is particularly true in a B2B environment (where most of the current local delivery volume lies). Postmates is applying their current food delivery model, where tipping is the norm, to a package delivery model. Wishful thinking.
Postmates also mentions the creation of density as their path towards $1.00 delivery nirvana. Even the highest volume, best-run shippers in the world are unable to reduce costs to the point that $1.00 delivery is viable. Amazon, for example, pays couriers about $2.75 per package for their basic same-day delivery program and 2 to 3x higher for the equivalent to Postmates on-demand service level. It seems implausible that Postmates will ever come close to attaining this type of scale and, even if they did, they would still need to heavily subsidize delivery. Postmates would need to collect other fees from retailers, which would be counter to the $1.00 delivery claim, or they would be well down the path to an unsustainable economic model, which their investors are unlikely to support.
Why is Postmates making this $1.00 delivery offer? Marketing and PR.
It’s a highly questionable ploy to entice retailers into conversations and stir up the national media with an outrageous, seemingly impossible (because it really is) claim. This approach runs the risk of alienating potential retailers once the real fees come out and also begs comparison to Kozmo and other dot.com silliness, which is not good for their brand or for the tech industry as a whole.