Kozmo.com: Free One-Hour Delivery, a $150M Starbucks Pact and Locked Doors

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Kozmo.com launched in New York City in March 1998, founded by two young investment bankers, Joseph Park and Yong Kang. The promise was simple for customers: video games, DVDs, music, magazines, books, groceries and eventually hot Starbucks coffee delivered within an hour with no delivery fee, using bike messengers dispatched by two-way pager. The founders argued that skipping expensive storefronts for cheap warehouses would save enough on rent to pay for delivery. Investors agreed: the company raised roughly $250 million in venture capital, including $28 million in 1999 from a group with Flatiron, Oak Investment Partners and Chase Capital, and $60 million from Amazon in 2000.

The math never worked. In 1999 Kozmo had about $3.5 million in revenue and a net loss of $26.3 million. In February 2000 it agreed to pay Starbucks $150 million over five years for co-marketing and video return drop boxes in up to 500 stores, and by July 2000 it operated in 11 U.S. cities. An MSNBC investigation alleged redlining of predominantly African American neighborhoods, which Kozmo denied; the Equal Rights Center later said the service areas were not racially motivated, and Kozmo committed $125,000 to improve internet access in underserved communities. The planned IPO with Credit Suisse First Boston never happened, and in April 2001 the company shut down and laid off all 1,100 employees.

• Kozmo was losing nearly $8 for every dollar of revenue it brought in during 1999.
• The Starbucks deal collapsed in March 2001 after Kozmo had already paid out $15 million of it.
• At many of its 18 locations, workers arrived for their shifts to find the doors locked with no warning.
• The 2001 documentary e-Dreams chronicled the company's rise and fall.
• Kozmo's former chief technology officer launched a similar but hyperlocal service, Max Delivery, in Manhattan in 2005.