Free Enterprise Staff  | January 26, 2016

The battle of the delivery startups

A delivery battle is brewing in San Francisco (and other cities across America) and the outcome will be decided not by government officials, but by local businesses.

 

Just as the Internet revolutionized online shopping, on-demand startups transformed the delivery process by creating new ways to provide same-day service. Companies like popular ride-hailing app Uber are just one of the many businesses that are trying to woo merchants by offering low-cost, same-day delivery services, complete with tracking services. The winners in this growing market will hold sway over the burgeoning on-demand delivery industry.

An employee of Navette-Tezman Holding uses a smartphone to access the app used by the UberBOAT taxi service, a unit of Uber Technologies Inc., on the Bosporus strait in Istanbul, Turkey, on Friday, Aug. 28, 2015. The service will appear on the smartphone app when a user stands near the coastline of the city's central waterway. Photographer: Kerem Uzel/Bloomberg

Uber started its delivery service known as UberRUSH in 2014, joining services such as Amazon Flex and third-party delivery systems like Deliv, which delivers retail items ranging from toys to clothes. The services charge as little as $5 per delivery, much lower than the prices many traditional shipping companies or government delivery systems charge.

Meanwhile, companies that rely on these delivery programs also benefit by offering their customers products they want when they want them. “We saw that approximately one in 12 orders in Shopify merchants’ stores are made by buyers within a 20-mile radius of the seller, so efficient local delivery options are important for our merchants,” says Niko Downie, business development manager for Shopify, which last year announced they were partnering with Uber for their deliveries to drop off products customers order online. “It provides them with an affordable, same-day delivery option for their local customers without the merchants needing to invest a single dollar in delivery infrastructure.”

The same-day market has never had so many contenders before. “On-demand is the norm now,” says April Conyers, a company representative from Postmates, another on-demand delivery service that delivers everything from balloons to hamburgers in under an hour. Postmates, which has partnerships with companies such as Starbucks, 7-Eleven, Walgreens, Chipotle and Apple stores across the country, plans to expand its reach to Canada and the U.K. in the coming months.

Conyers sees the increase in on-demand services as the next step in the rising expectations customers have for online businesses. “On-demand delivery has taken off because consumers are not willing to wait for certain items. Smartphones have really changed the game. They allow us to have everything with a push of a button—cars, groceries, dinner, drugstore items, even doctors.”

Delivery startups—unlike established delivery corporations such as Amazo —are often able to deliver a variety of products instantaneously because they have a host of drivers available at the push of a button. They save a lot of money by not having to pay for warehouses that house the products they ship, vehicle maintenance, or even benefits to their workers, who are categorized as freelancers and paid a percentage of each delivery.

Shopify Inc. signage is seen at the entrance to the company's headquarters in Toronto, Ontario, Canada, on Wednesday, Nov. 11, 2015. Shopify, the Canadian e-commerce software maker that sold shares in an initial public offering in May, raised its revenue forecast after beating analysts’ estimates in its second quarter as a listed company. Photographer: Kevin Van Paassen/Bloomberg

Shopify can attest to how these startups have changed the delivery business. Thanks to its new delivery service relationship with Uber, the company has seen same-day shipping rates offered for as low as $5 to $7, a price which Uber sets itself. Shopify has also largely eradicated a lot of the headaches associated with scheduling pickups. “With UberRUSH, there are no waybills (documents that outline the product, package routes and charges) or a back-end process for the local retailer to prepare and send a package to the local merchant,” says Downie. “The product is purchased, readied by the merchant, and picked up by the UberRUSH driver.”

Still, there are challenges brewing in the new freelance economy. Most delivery startups rely on freelance workers to deliver packages in order to keep prices low, which has landed companies in regulatory hot water.

Uber drivers are currently challenging the company’s business model in California. The ride-sharing business uses the same freelance model as the one used by UberRUSH and generated international headlines for its reliance on on-demand workers, who aren’t entitled to the same benefits as full-timers. Currently lawyer Shannon Liss-Riordan is spearheading a class action lawsuit against the company, claiming it illegally classified its drivers as freelancers instead of employees, which prevents them from being reimbursed for expenses and doesn’t entitle them to overtime pay. The lawsuit has highlighted the ambiguous status workers in the on-demand economy hold and the legal grey area in which startups that rely on “the gig economy” operate.

Even with big questions about how workers will be compensated and classified in the future, more and more startups are entering the on-demand delivery business. Conyers, however, isn’t worried about increased competition.