The Failure of Kozmo.com

History:
Kozmo.com was founded in 1997 by investment bankers Joseph Park and Yong Kang. The company began as a service that deliver videos by bicycle messenger to Manhattan customers who ordered them online.


Factor of failure:
Kozmo.com had raised more than $250 million, but the company was unable to generate enough revenue to cover its costs. In 1999, the company had $3.5mil revenue, compared to $26.4mil losses. The problem occurred when its business model included offering a costly home-delivery service for free. This offer covered a very small order such as a DVD and a pack of gum which it was impossible to turn a profit. As a result, it made the customer satisfied and excited, but it drew losses to the company.

At last, they began to charge $1.99 for every delivery of orders under $30, hoping that the company can escape from financial problems. However, it was too late to recover due to the huge losses encountered by the company.

“We built out a delivery system that worked,” recalls former Chief Operating Officer Skip Trevathan. He added that Kozmo.com was profitable in four cities, but there were seven more cities that made losses. Therefore the company faced financial crisis and closed down.

There are other E-commerce failure for instance, Webvan failed because it expanded its business too soon and Pets.com failed because of spending on high advertisement costs.