InformationWeek

Let's warm up with a simple multiple-choice question. New research proves that ordering goods and services over the Web instead of in person will a) kill the commercial sector as we know it, b) end random social interactions, c) turn us into cyber-hermits, or d) all of the aforementioned. The correct answer is d, although--speaking of social interactions--are you usually enriched by the experience of chatting with strangers or stock clerks in a checkout line?

But never mind the sociopolitical ramifications of E-commerce. We're talking about supply-chain opportunities and exploding business models. Here's the business model of the new decade: a company that delivers groceries, dry cleaning, books, CDs, and videos directly to my doorstep, preferably at 6 p.m. And while we're dreaming up this model company, please ask it to stock the latest YETTY (young entrepreneurial techie-type) pet food.

The longest mile in E-commerce is the one that leads to your door. Federal Express, United Parcel Service, and the U.S. Postal Service dominate the package-delivery market, but their business models are beginning to look a bit '90s. Still, a hearty Hoo-Ya! to the Big Three for their awesome logistics innovations such as online order-tracking, nifty handheld devices, and GPS gizmos on delivery trucks. Here's the rub: the Big Three may have brought their trucks to suburbia, but they haven't extended their supply chain to the 'hood. A new breed of dot-com companies is bringing same-day or next-day deliveries of Web-ordered, ambient, and nonambient (frozen, chilled, or hot-cooked) items. And, of course, they're shipping it out from local storage facilities. Wake up, Memphis!

By year's end, the majority of the nation's largest metropolitan areas will enter the era of local fulfillment and personalized courier services. The local fulfillment market is a business model that marries the best of bricks and clicks. Unlike national distribution or even regional models, local fulfillment leverages locally stored or provided services--without retail outlets. Amazon.com has seen the light, having pumped $60 million into Kozmo.com, an urban delivery outfit that peddles videos, ice cream, coffee, or books to your door in about an hour. Webvan Group has amassed a $700 million war chest through venture-capital and equity offerings. Webvan isn't just planning to be an online grocer; the company, led by former Andersen Consulting managing partner George Shaheen, is aiming to dominate the "last mile" of commerce and services.

Granted, UPS isn't quaking in its brown boots over instant book deliveries in urban areas. But that's because it's missing the larger picture: groceries. Research shows that everybody eats. And quite a few of us are busy people. And--just a guess--many of us would rather watch Tiger Woods chase David Duval on the back nine than rush out to the grocery store for Doritos on a Sunday afternoon.

The home grocery business is about to pop. Jupiter Communications forecasts that it will grow from a tadpole into a bullfrog in the next several years--predicting a boost from $233 million in 1999 to $3.5 billion in 2002, a 131% compound annual growth rate. The business should be profitable, too: Webvan says it enjoys a 12% profit margin, about 4% higher than the brick-and-mortar grocery industry norm. The key to Webvan's profitability is that it employs about half the number of workers needed to handle a similar volume at grocery stores.

Another key edge that Webvan, Kozmo.com, and others in the business-to-consumer space enjoy is customer knowledge. Webvan, HomeGrocer.com, Streamline.com, and others maintain a shopping list for you. If you run out of paper towels every two weeks, you can schedule regular deliveries. Using personalization tools on the Web, these services can target discounts and other offerings directly to you.

To compete, FedEx, UPS, and the Postal Service will have to a) blow up their business models, b) acquire one of the aforementioned companies, c) spin off a new subsidiary and seek venture capital, or d) none of these. But standing pat doesn't seem like a viable long-term solution to the substantial threat posed by the upstart delivery services.

Companies such as Webvan, HomeGrocer, Streamline.com, Kozmo.com, and Urbanfetch.com may pale in size compared with the Big Three deliverers. But thanks to these next-generation companies' use of customer-knowledge technologies and the Web, they're no local yokels.