Delivery service Kozmo gets Amazon boost

Investors led by Amazon.com Inc. are pumping $100 million of venture capital into Kozmo.com Inc., a fast-growing company that delivers movies, snacks and other items purchased over the Internet, generally within an hour.

The latest financing comes just seven months after Kozmo began expanding outside its original New York City market. Kozmo (www.kozmo.com) also offers its service in Seattle, San Francisco, Boston and Washington, D.C. The company plans to enter 21 more markets by year end.

Closely held Kozmo doesn't disclose its finances, but people who have looked at its books say it isn't profitable. The start-up doesn't have nearly the polish or logistical smoothness of carriers such as FDX Corp.'s (NYSE: FDX) Federal Express Corp. or United Parcel Service Inc. (NYSE: UPS)-- most of Kozmo's deliveries are carried out by an arsenal of more than 1,000 messengers, most of them on bicycles.

But in the general ebullience about the Internet and its impact on traditional ways of doing business, Kozmo has become somewhat of a darling among strategists thinking about new ways to get goods to consumers. "Someone like Kozmo could partner with a lot of different merchants to provide the immediacy and convenience that people demand right now," said Ken Cassar, an analyst at New York research firm Jupiter Communications. "Now, if you order from Amazon you live on the whim of UPS."

Amazon's big bet on distribution
Amazon (Nasdaq: AMZN) officials declined to spell out their reasons for investing in Kozmo or even to confirm the investment. But people involved in the financing said Kozmo is raising $60 million from Amazon and nearly $30 million from an affiliate of Softbank Corp. of Japan, which has been an active backer of Internet businesses. The identities of the remaining investors weren't available.

Until now, Amazon's big bets on distribution have focused on building giant warehouses in Nevada, Kansas and other rural locations -- and then using UPS or the U.S. Postal Service to make most deliveries of books, movies, tools and other goods a few days after orders are placed. Amazon officials have said that strategy makes more sense than trying to run giant warehouses in costly urban areas, closer to where most customers are based.

But Amazon last year also bought a sizable minority stake in HomeGrocer.com Inc., a Bellevue, Wash., company that provides next-day home delivery of groceries ordered online. While that service hasn't been integrated into Amazon's main businesses, the two investments in HomeGrocer and Kozmo suggest Amazon may want a faster-delivery option in some urban areas.

Amazon's $60 million is purchasing about a 23 percent stake in Kozmo. All told, the new investors are acquiring one-third of the company. As a result, Kozmo is being valued at $300 million after the capital infusion. Even in Internet circles, that is a remarkably fast rise. In October, the company snared $28 million from venture investors including Flatiron Partners of New York; Oak Investment Partners of Palo Alto, Calif., and the Chase Capital Partners affiliate of Chase Manhattan Corp., New York. Kozmo was valued then at less than $100 million.

A public-relations agency hired by Kozmo declined to comment on the new investment.

Delivery growth
Kozmo was founded by Joseph C. Park, a 28-year-old former employee of New York financial-services concern Goldman Sachs Group Inc. Recently, the company hired executives from Federal Express, of Memphis, Tenn., and Ethan Allen Interiors Inc., a Danbury, Conn., furniture maker and retailer, to handle the logistics of its growth. Kozmo also has been expanding its product mix. While the service initially focused on books, music, video and digital-video-disk rentals, Kozmo has branched out to offer everything from batteries to Tylenol and Krispy Kreme doughnuts.

If Kozmo is to achieve profitability, analysts say, it must increase customers' average orders and create a dense enough route structure that messengers can make multiple deliveries on something approaching a door-to-door basis.

"They'll never be profitable if each time a delivery person leaves the warehouse they take one order," Jupiter's Cassar says. "They may be able to achieve the scale in some densely populated cities, but in the vast majority of the country that delivery person is going to be driving an awfully long way."

-- Kara Swisher contributed to this article.

Investors led by Amazon.com Inc. are pumping $100 million of venture capital into Kozmo.com Inc., a fast-growing company that delivers movies, snacks and other items purchased over the Internet, generally within an hour.

The latest financing comes just seven months after Kozmo began expanding outside its original New York City market. Kozmo (www.kozmo.com) also offers its service in Seattle, San Francisco, Boston and Washington, D.C. The company plans to enter 21 more markets by year end.

Closely held Kozmo doesn't disclose its finances, but people who have looked at its books say it isn't profitable. The start-up doesn't have nearly the polish or logistical smoothness of carriers such as FDX Corp.'s (NYSE: FDX) Federal Express Corp. or United Parcel Service Inc. (NYSE: UPS)-- most of Kozmo's deliveries are carried out by an arsenal of more than 1,000 messengers, most of them on bicycles.

But in the general ebullience about the Internet and its impact on traditional ways of doing business, Kozmo has become somewhat of a darling among strategists thinking about new ways to get goods to consumers. "Someone like Kozmo could partner with a lot of different merchants to provide the immediacy and convenience that people demand right now," said Ken Cassar, an analyst at New York research firm Jupiter Communications. "Now, if you order from Amazon you live on the whim of UPS."

Amazon's big bet on distribution
Amazon (Nasdaq: AMZN) officials declined to spell out their reasons for investing in Kozmo or even to confirm the investment. But people involved in the financing said Kozmo is raising $60 million from Amazon and nearly $30 million from an affiliate of Softbank Corp. of Japan, which has been an active backer of Internet businesses. The identities of the remaining investors weren't available.

Until now, Amazon's big bets on distribution have focused on building giant warehouses in Nevada, Kansas and other rural locations -- and then using UPS or the U.S. Postal Service to make most deliveries of books, movies, tools and other goods a few days after orders are placed. Amazon officials have said that strategy makes more sense than trying to run giant warehouses in costly urban areas, closer to where most customers are based.

But Amazon last year also bought a sizable minority stake in HomeGrocer.com Inc., a Bellevue, Wash., company that provides next-day home delivery of groceries ordered online. While that service hasn't been integrated into Amazon's main businesses, the two investments in HomeGrocer and Kozmo suggest Amazon may want a faster-delivery option in some urban areas.

Amazon's $60 million is purchasing about a 23 percent stake in Kozmo. All told, the new investors are acquiring one-third of the company. As a result, Kozmo is being valued at $300 million after the capital infusion. Even in Internet circles, that is a remarkably fast rise. In October, the company snared $28 million from venture investors including Flatiron Partners of New York; Oak Investment Partners of Palo Alto, Calif., and the Chase Capital Partners affiliate of Chase Manhattan Corp., New York. Kozmo was valued then at less than $100 million.

A public-relations agency hired by Kozmo declined to comment on the new investment.

Delivery growth
Kozmo was founded by Joseph C. Park, a 28-year-old former employee of New York financial-services concern Goldman Sachs Group Inc. Recently, the company hired executives from Federal Express, of Memphis, Tenn., and Ethan Allen Interiors Inc., a Danbury, Conn., furniture maker and retailer, to handle the logistics of its growth. Kozmo also has been expanding its product mix. While the service initially focused on books, music, video and digital-video-disk rentals, Kozmo has branched out to offer everything from batteries to Tylenol and Krispy Kreme doughnuts.

If Kozmo is to achieve profitability, analysts say, it must increase customers' average orders and create a dense enough route structure that messengers can make multiple deliveries on something approaching a door-to-door basis.

"They'll never be profitable if each time a delivery person leaves the warehouse they take one order," Jupiter's Cassar says. "They may be able to achieve the scale in some densely populated cities, but in the vast majority of the country that delivery person is going to be driving an awfully long way."

-- Kara Swisher contributed to this article.