Kozmo.com

Kozmo.com's 2001 shutdown after burning through $280 million demonstrated that on-demand delivery economics don't work without minimum orders, surge pricing, or delivery fees. The company delivered snacks, DVDs, and convenience items in under an hour, charging no delivery fee and accepting orders as small as $1. Customers loved it; unit economics guaranteed death. The mechanism failure was subsidizing convenience without path to profitability. Kozmo's model required dense order concentration to make deliveries efficient, but the company expanded to 11 cities before proving the model in one. Each delivery cost several dollars; many orders generated cents in margin. This is negative fitness at scale—the company became weaker with every transaction. Kozmo raised money easily in the dot-com boom but couldn't raise money after. When funding dried up, the company had no path to break-even and shut down entirely. The irony: on-demand delivery eventually became viable through Uber Eats, DoorDash, and Instacart—but only with delivery fees, surge pricing, and restaurant commissions that Kozmo had refused to charge. Kozmo was right about consumer desire for convenience but wrong about willingness to pay.