Can Same-Day Delivery Succeed This Time?

The couriers delivered the packages one by one to my San Francisco office on Halloween. First came the bag of jelly beans, followed by candy corn, then a bottle of sparkling lemonade—each in a crisp, white bag decorated with a hot-air balloon—and finally a pack of bubble gum, tucked neatly into a matching plastic envelope.

I had ordered the goodies from Google Shopping Express, the same-day delivery service that the search giant launched in California’s Bay Area this September. My goal: to understand why major Internet companies are again spending millions in order to deliver just about anything inside a couple of hours.

Besides Google, I could have ordered from Amazon, eBay, or a slew of startups like Postmates and Instacart. All are spending lavishly on speedy-delivery necessities like couriers, delivery vans, fulfillment centers, and advertising in a way that brings to mind the heady days of the dot-com boom, when Internet investors poured millions into delivery companies like WebVan and Kozmo.com.

Those companies eventually went belly up. But consumer habits and expectations have changed since then. Technology companies seem to think local delivery will finally be sustainable—or perhaps just strategically useful. Online retail is a $262 billion business in the U.S. and is growing fast. Delivering things more quickly is one way to stand out.

“Everything in retail revolves on price and availability. Price is price, and availability is a measure of how fast I get it after I click on my phone,” says Jeremy Levine, a venture capitalist at Bessemer Venture Partners who invests in e-commerce companies. “A lot of the big guys are trying to crack that code.”

It did feel a bit like trick-or-treating to press buy on Google’s Shopping Express app and then have a delivery person show up with my purchases less than two hours later. Google actually sends couriers to stores including Whole Foods, Target, and Walgreens to pick up the items. The delivery price is $5 for each store they pick up from, although Google is waiving the fees for the first six months.

The process had some glitches. My four orders were delivered by four separate Google couriers—and I had to wait around because it wasn’t clear when they would come. But Google’s phone app gives some clues as to the company’s strategy. It offers a column called “Reorder Your Essentials” (in my case, candy, hot sauce, and ibuprofen). The idea is that you would keep ordering these items from Google and stop going to the store.

Not everyone is convinced. “Is this really something people want?” wonders David Bell, a marketing professor at the University of Pennsylvania. He thinks the rush toward same-day delivery might be less of a great business idea than a by-product of furious competition by wealthy Internet companies. As more states charge sales tax on online orders, he notes, Web retailers need new ways to set themselves apart.

I also tested eBay’s year-old local delivery service, eBay Now, which promises to bring stuff to you in an hour in New York, San Francisco, and Chicago. EBay has been working to revamp its image from fusty auction site for vintage goods into your first choice for buying just about anything. Deborah Sharkey, eBay’s vice president for local, told me the company intends to expand same-day shipping to 25 more U.S. cities as part of its plan to make eBay “the most convenient way” to get any item.

Unlike Google, eBay encourages larger purchases because it has a $25 minimum. I was considering buying a couple of cheap iPhone cases using the eBay Now app, but ended up splurging on a $40 Orla Kiely-designed case from Best Buy. It came in about an hour, delivered by a cheerful female messenger, or what eBay calls a “valet.”

One reason that online commerce hasn’t yet wiped out American malls is that shopping is a form of entertainment. It’s something to do. But I found that technology can make shopping into a fun experience. Once you place an order on eBay’s app, you can track the progress of your valet. You can even call the valet, as I did to check on the sizing for two pairs of cashmere socks I purchased from Macy’s.

I also tested returning items, like the socks, which, I discovered, were not 100 percent cashmere. It proved easy: I sent an e-mail to eBay Now, and was asked to provide my contact information and preferred pickup time and location. Another valet arrived promptly at the suggested time and whisked away my socks.

I think eBay probably lost money on that order. Building a delivery service is enormously expensive and challenging, because of the capital costs of warehouses and delivery fleets. To be profitable, delivery services need not only a lot of customers, but ones who keep coming back. And that’s where same-day delivery might fall down. It was nice to have such convenient shopping experiences. But I wasn’t clamoring for the service in the first place. The two-day delivery I get as a member of Amazon’s Prime shipping service (free once you’ve paid to join) is generally fast enough, and I would miss my weekly trip to the supermarket. 

I don’t think I’m alone. Research by Sucharita Mulpuru of Forrester has found that there’s something consumers consistently prefer over fast shipping: free shipping.