Why We Invested in Deliverr

Dec 4, 2018

Dec 4, 2018

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Last month we announced our investment in Deliverr, the next-generation e-commerce fulfillment platform. Deliverr provides e-commerce marketplace sellers with a simple self-serve platform to optimally warehouse their inventory and ship it efficiently to their customer. Deliverr’s core focus is to use advanced AI and analytics to give sellers an Amazon-grade fulfillment technology, thereby reducing fulfillment costs and shipment times to 2-day (or less). Since this is such a big and important space, I wanted to share why we invested in Deliverr and why we think it’s an important new platform.

Fulfillment is a large and growing industry in the United States. Companies spent $1.5 Trillion in the US on shipping costs in 2017 alone. Parcel delivery, a component of fulfillment spending, is estimated to be $99B a year and it is growing at 15% annually — a rate likely to be sustained over the next 2 decades. The global numbers are at least 3x these American figures.

It’s also very clear that except for Amazon, the fulfillment industry is broken. Sequestered data pools prevent most companies in this massive industry from making data-driven decisions. Decisions on where to put freight, which 3PL warehouses to use, and which carrier to select for a given order are made in isolation because each market segment is fragmented and no players have integrated across the various verticals. Obscure, localized decision-making inevitably makes supply-chains inefficient.

The fulfillment industry is broken with fragmented segments and no integration across verticals.

A good analogy is taxis before the advent of Uber. Each taxi company operated in a kind of informational vacuum. Consumers in San Francisco would wait for long times to get a taxi, but taxi drivers in Marin — just north of San Francisco — would sit idle trying to find a ride. Uber and Lyft orchestrated demand and supply so folks in both San Francisco and Marin could more quickly flag rides and travel to their destinations.

Fulfillment today is like the taxi industry in the 2000s. Merchants, warehouses and carriers all suffer through grinding inefficiencies because no one is orchestrating demand and supply, and ultimately transfer the costs of economic friction to end-consumers in longer shipment times and higher fulfillment costs.

To-date, Amazon is the only organization that has tackled this problem head on, and consequently Amazon has built the world’s most sophisticated e-commerce fulfillment engine. All freight, 3PL, and shipping decisions employ end-to-end data analysis. First, freight is shipped in from overseas and is segmented to be placed at warehouses (“integrated”) across the country. Next, warehouse inventory is optimized to store goods closest to the consumers who will order them, varying on the time of year, regional tastes, the local language, etc. Ultimately, these calculations reduce transit times and carrier costs. The cheapest and fastest carriers are selected to bring goods to your doorstep.

The results speak for themselves: Amazon is growing at a frenetic pace while eBay is stalling.

Source: https://www.statista.com/statistics/233761/year-on-year-revenue-of-amazon-and-ebay-since-2006/

Consumers are feeling the difference. Amazon delivers a large chunk of products under 2 days while the rest of the world is still stuck at 3–5 days. Less than 5% of Walmart’s products are enabled for 2 day shipping.Amazon packages travel a fraction of miles to the end consumer from the warehouse compared to other marketplaces like eBay. Amazon has over 2 million sellers who utilize their all-inclusive fulfillment services while the rest of the world must coordinate piecemeal with trucks, warehouses, and carriers to hold their delivery times and costs down.

Like most industries, the fulfillment industry needs to transform into a smart enterprise. The fragmented supply-chain is begging for a player that can orchestrate logistics between all three segments to ensure network-level efficiencies are achieved.

As venture investors, we look for large industries that need to be fixed, and it’s rare to find such a large industry which lacks a fundamental coordination layer. New companies can often only be built when fundamental shifts occur to unearth new market opportunities. The growth of 3rd-party marketplaces and e-commerce have created a prime opportunity for a new player like Deliverr to provide top-tier logistics orchestration to the fulfillment industry.

Deliverr’s approach appeals to us for multiple reasons:

a. Data driven– Harish has collected vast amounts of data from transit times to demand maps. He and his team have analyzed millions of data points to formulate their thesis, and then interviewed over 70 potential customers with fully detailed interview notes before writing the first piece of code. We liked that a lot. It is obvious to us that the ethos of Deliverr is data and the founding team wants to build things are going to create value from day 1 for their customers. As founders of Palantir we understand the value of data powered smart enterprise, which is exactly what is needed to repair this massively inefficient industry.

b. Revenue driver vs cost center– Deliverr’s thesis is that fulfillment is a revenue driver, but is rarely treated this way. They have built the entire software stack with this thesis in mind. Today merchants can enable their items on fast shipping programs with both Walmart Free 2 Day Shipping and eBay Guaranteed Delivery, which is helping double their sales.

c. Extreme transparency– Like most industries with a low net promoter score (NPS), fulfillment is plagued by poor transparency. Deliverr was built from day one to shed light on merchants. Whether the fulfillment costs or real-time location data on shipments, Deliverr’s data empowers merchants to run their businesses more efficiently.

d. Self-Service– Interestingly, Deliverr’s entire platform is “self-serve”. I watched them analyze their pilot users’ full stories to determine where users became confused, and make the user interface completely intuitive. They took it upon themselves to make one of the hardest processes (sending physical products) accessible to any merchant, and today a merchant can sign up in a few minutes without talking to anyone. Deliverr’s team constantly obsesses over every single frustrated user session to simplify the complex process of coordinating fulfillment. This big investment will pay off and allow Deliverr to scale easily.

As venture investors, we’d rather back entrepreneurs who think at scale. We only win when the companies we back are genuinely revolutionary. Deliverr’s data centric approach and their focus on user experience convinced us that they will be able to fix the entire fulfillment industry.

As market dynamics shift, a good team will rapidly iterate on various solutions to the problems at hand. The team of seasoned engineers, data scientists, and fulfillment operations professionals that Harish and Michael have assembled could not be better suited to this massive challenge. With hires from Amazon, Google, and other top companies, Deliverr’s team has both unique hands on e-commerce fulfillment experience and experience building large-scale, software platforms.

Harish’s modus operandi is to hire smart people with high self-esteem and low egos. We are impressed with how cohesive Harish’s team is, and the high degree of cooperation they exhibit.

We are very excited to partner with Deliverr to fix the fulfillment industry.

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