Why eBay Will Succeed in Same-Day Deliveries

Same-day delivery and home delivery were once utopian retailing concepts, but might soon become almost banal. Many large retailers, both online as well as brick and mortar types, have their own versions of same-day delivery. Online purveyors in particular, including Amazon and eBay , seem to have perfected the art of instant gratification for customers who want their goods delivered almost instantaneously at the push of a button. But old retailers, such as Wal-Mart and Target , have now jumped into the bandwagon and want a piece of the same-day delivery pie too.

Although Amazon is the undisputed leader in this arena with its highly popular Amazon Prime service, eBay might soon be making waves too. Amazon Prime subscribers spend about 2.5 times as much as the average Amazon shopper. eBay recently upped the ante by acquiring a major competitor in the space, U.K.-based start-up Shutl in October 2013. Shutl has been wildly successful in same-day deliveries, and eBay will no doubt benefit from its expertise.

eBay announced that it intends to roll out its promising eBay Now same-day delivery service to 25 cities across the U.S. in 2014. The giant online auction site sweetened the deal even further by announcing that it intends to soon allow its eBay Now customers to schedule the exact time of delivery of their merchandise. A Mom working on a 9-5 job will be able to order using eBay Now during the day, but delay the delivery till 6 pm when she's finally home. eBay Now has been offering same-day delivery in New York and San Francisco for about a year now.

Who needs same-day delivery?
A lot ofinvestors have been wondering if there is any real demand for same-day delivery to justify the high costs associated with this business model. Many still avidly remember the highly public failures of WebVan, and Kozmo.com, the poster child of same-day delivery, which went belly up about a decade ago.

Perhaps the best real-life case argument that aptly demonstrates that there is a real demand for same-day delivery is the ringing success of upstarts such as Instacart and Postmates. Instacart operates a same-day grocery delivery service in Chicago and San Francisco. Postmates, on the other hand, is a bike courier service that delivers customers' merchandise right at their doorsteps on the same day it is ordered. Postmates operates in Chicago, Seattle and San Francisco. Yummy Foods, the international quick-service restaurant chain, is reportedly looking to bring from the dead the Kozmo brand sometime next year.

In its defense, eBay can probably afford to gamble a little with same-day delivery. Its gross margins are among the highest for both online and old retailers. 

But of course there has to a better reason why the company is doing it- and there is. eBay CEO John Donahue recently pointed out that the company is more interested in growing its overall revenues, even if it ends up just breaking even with this service. eBay will charge just $5 for the service, hardly enough to cover the cost of delivery. In the eyes of investors, revenue growth in this space seems to trump earnings, at least in the near-term. The price (and valuation) changes of companies operating in the retail space seem to closely mirror their revenue growth.

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