From...

September 14, 1999
Web posted at: 1:23 p.m. EDT (1723 GMT)

by Kenneth Li

(IDG) -- Idealab has never been afraid of funding companies that take on entrenched competitors. One of its newly funded startups, Shipper.com, proves the point.

Shipper.com is looking to help Internet retailers offer customers in select metropolitan markets same-day delivery at less than half the cost of Federal Express' overnight service.

"People are generally not satisfied with the solutions to date," says CEO and cofounder Alex Nesbitt. "Consumers want more control over when products can be delivered to their home."

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A 15-year veteran of Boston Consulting Group, Nesbitt has assembled a team of executives from blue-chip companies, including Citibank, Federal Express and Nissan, to build what he calls "a new supply chain for e-commerce."

Shipper.com is taking a Webvan-like, decentralized approach to order fulfillment. It plans to spend $150 million to build fulfillment warehouses in 10 markets, including Baltimore, Los Angeles, San Francisco and the state of New Jersey. The warehouses will carry high-volume products from retailers in strategic geographic locations.

Retailers generally have to charge customers around $4 for shipping via ground delivery and $15 for next-day delivery. But stocking products known to sell well in particular regions – such as surfing books in West Coast warehouses – will help bring delivery costs down. Companies can rely on quick ground deliveries rather than having to pay for expensive air-freight deliveries from a centralized warehouse.

Shipper.com joins a growing legion of same-day delivery companies hoping to rejigger the traditional mail-order catalog supply chain formula. While it has launched a demonstration store – InstantShip.com, in the Los Angeles area – the core business will come from signing up Internet retailers. Unlike Webvan, NetGrocer and Streamline, which stock and sell their own grocery store inventory, Shipper.com sees itself more as a facilitator for other e-commerce businesses.

The company will have to sign up retailers fairly quickly to defray the cost of building expensive warehouses in each of the different markets, says Jupiter Communications analyst Ken Cassar. "It's a business model that's determined by scale," he says.

If Nesbitt pulls it off, the company stands a chance to snap up a chunk of FedEx's consumer business.

A Federal Express spokesman counters that the business-to-consumer market makes up only a small percentage of its business. FedEx offers a relatively obscure same-day delivery service, but only to corporate clients, and for substantially higher fees.

While Shipper.com's value to businesses and customers is largely self evident, real-world execution could turn into a logistical nightmare. Unless retailers replicate their inventory for each market where they plan to offer same-day delivery, guaranteeing that an item will be in stock at the appropriate warehouse for same-day delivery, for instance, will be tough. And since customer acquisition costs are quite high, just one bad shopping experience will send shoppers clicking elsewhere.

Alternatively, retailers could replicate their inventory for each market where they plan to deliver same-day service, in order to better provide guarantees. But that strategy may prove costly.

The biggest challenge, however, will be signing up Internet retailers. Some retail CEOs, Nesbitt says, "don't understand what fast means."