eBay's same-day delivery service faces challenges

This post was updated on 6/11/2014 to include comments from eBay Senior Vice President Christopher Payne 

The end may be near for eBay’s hard-fought same-day delivery experiment,

According to VentureBeat, which cites unnamed sources, including former eBay couriers, eBay Now is in trouble and is at risk of shutting down just two years after launching.

The business model, which promises one-hour delivery of purchases from a handful of retailers to just about anywhere in San Francisco, was likely never to be a money-maker for eBay. The delivery cost to the customer is $5 and each delivery took about an hour; meanwhile, eBay had courier wages to pay and covered expenses for their personal cars, and couriers got paid their hourly rate whether or not there were delivery orders.

But the whole aim of the program was to keep pace, and hopefully one day speed past, Amazon and Google, which have also rolled out same-day delivery services. And as eBay continues to pivot from a retail auction website to a tech company — with GPS-enabled shopping apps, apps for ordering from restaurants and mobile payments platforms — it wants to become the brick-and-mortar retailer’s best friend. eBay Now aimed to win over not just more consumer loyalty but also the partnership — and revenue share — of stores such as Staples and Target.

Gil Luria, an analyst with Wedbush Securities, said in an interview last year with this newspaper that eBay was unlikely to make money initially from same-day delivery, “but it’s part of a grander vision of helping brick-and-mortar retailers” reach online shoppers.

eBay executives have rejected claims that the one-hour delivery service will be scrapped.

“There are no plans to shut down our same-day delivery offering for eBay Now,” eBay Senior Vice President Christopher Payne told Fortune.

But while Google has created a network of drivers, warehouses and algorithm-driving delivery routes, aiming to bring the most product to the most customers in the most efficient way possible, eBay has kept a sort of personal courier business. In many ways, it was nice — customers got to know drivers and request a certain one, call and text with them and change orders at the last minute. They generally only handled one order at a time, so they could hit their one-hour delivery promise. It more closely resembled the courier services of the dot-com era, most of which failed spectacularly.

Google customers can’t communicate directly with their Shopping Express drivers and that company will only deliver to residences and businesses with a verified address.But eBay Now drivers were willing to deliver to parks, bars and alleys.

Luria has cautioned the Google is the biggest threat eBay faces: “They’re mammoth and they can outspend any company.”

What’s more, Payne revealed that eBay no longer has plans to expand to 25 U.S. cities by the end of 2014 — part of an aggressive expansion plan they announced last year. It delayed for months last year its expansion to Dallas and Chicago,  and has yet to deliver on its promise for scheduled delivery.

eBay Now was started after the San Jose company acquired Milo, a local shopping tech company that tracked real-time inventory, for $75 million in 2010. It kept some of the Milo team on staff to launch and run eBay Now.

eBay Now valet Audrey Zupancic shops at Office Depot to fill an order on Thursday, April 18, 2013 in San Francisco, Calif. Valets buy products from area stores for clients and deliver them in about one hour. Aric Crabb/Bay Area News Group

Heather Somerville Heather Somerville (237 Posts)

Heather Somerville is a business reporter covering venture capital and startups for the Bay Area News Group.