on Apr 20 2015
Swapbox started because we saw that missed deliveries were a big pain point in E-commerce. E-commerce is growing fast, but a large portion of people especially in urban environments are missing their deliveries. It creates a ton of friction in the shipping process. So we came in and we were like, if we can solve the last mile delivery problem we can make the entire e-commerce process function better.
Initially, we started with an app called Swap. We didn't have any hardware at that point. Buyers could essentially designate other people to pick up packages for them, it was working, but coordination between buyers and the pick-up person was too much of a challenge. Pretty quickly we figured out that we could automate the coordination challenge by making the dropoff point a Kiosk that buyers could pick up their packages from whenever was convenient, and thats how Swapbox was born.
We have grown to about twenty-one kiosks. They are installed in 7-11s, Shell stations, and other places that are part of people's daily routines so they can pick up packages while doing other chores. Coming up we have Safeway (agreement signed), and some other very large chains of retailers. We notify customers on our our mobile app when they have a package waiting and they can pick it up whenever is convenient.
Receiving is a complicated problem for e-commerce. The data we have from UPS and FedEx say that in urban areas almost 40% of packages miss their first attempt, and that doesn't include stolen deliveries. When you factor in suburban areas, that number drops to around 20%, but is still a large problem.
They are really expensive for carriers. On average it costs them around $15.00 for the first missed delivery attempt, which is often more than what they are paid by the e-commerce sites. An article came out recently where the CEO of UPS said, “it costs three times as much to deliver packages to a home than to a business, which receive more packages in a single stop.” Carriers are actually going to start charging a different rate for residential deliveries, a surcharge which will make it pretty expensive to receive packages at home. Then, in sort of a nod to us, basically said that the future for residential deliveries will be centralized delivery locations i.e. lockers, where people can pick up packages as part of a community. That’s our big advantage, to get as close to as many consumers as possible so that we can be the primary provider of a centralized shipping location. That's the problem in a nutshell.
The problem right now is synchronicity. You as an end-consumer have to be around at a given time to pick up your package. You’re tied to your apartment or home for hours at a time and usually during the day. That is where Swapbox comes in. We solve the synchronicity problem so you don’t have to be around. You can pick up whenever it is convenient for you, on your way home from work, or on your way to do chores.
While we charge end-customers right now, we are actually moving towards a model where consumers won’t have to pay anything. The real winners with Swapbox are the carriers and e-commerce sites. They never have to worry about the costs from missed deliveries when we can guarantee first time delivery at one of our Kiosks. Our ultimate goal is to have them pay.
If you are, let’s say, Etsy or eBay and your customers are missing a lot of deliveries, they are not happy with you. There is a consumer study that says that 43% percent of consumers actually associate the delivery process with the e-commerce site, even though the sites have no control. So, there is a loss of consumer satisfaction.
This is already happening. E-commerce sites are being charged higher rates for shipping, because their shipping process is not as efficient, and carriers don’t want to shoulder the cost. We can guarantee that 100% of deliveries will succeed on the first attempt when customers use Swapbox. So carriers are going to charge sites lower rates for our customers, and the e-commerce sites can share some of those cost savings with us. Carriers and e-commerce sites will ultimately be the ones paying us. Our end customers will not only get our service for free, but their shipping rates will actually go down.
They already are. The big guys need us to have more coverage before a technical integration at check-out makes sense. We probably need around two more geographies like New York and LA or Chicago. But even now, we’ve started testing in the San Francisco market to see what a wider rollout would look like. A very large e-commerce player for example is going to send an email to their San Francisco buyers and sellers to promote Swapbox, and give them a promotional rate. This is a pretty big deal for us when it comes to customer acquisition, and we’re excited to see how it works.
We already have a partnership in place with UPS. The first step has them delivering directly to our Swapboxes. The second step, is a technical integration into UPS’s power user program called My Choice, and the UPS Access Point Program that would allow members of those programs to designate Swapboxes as an endpoint for their packages. Basically customers will be able to set Swapbox as the default drop off location for all their packages, and be notified when packages arrive through our app. Not only will that drive a lot of new customers to us, but it will also be a new revenue stream, because customers will pay for that convenience. Every time we deliver a package for them, we would get paid. Step three is the really cool one. It is the Holy Grail. If the driver tries to deliver to the persons home and they're not available, the automatically dropoff at the closest Swapbox. We are working on setting this up with FedEx and USPS as well.
There is also a new alternate delivery program for USPS which they put an RFI out for. We’re the only startup in contention. It’s about 10-15 companies; most of them are bigger companies that are bidding to be alternatives to the physical Post Office. The philosophy behind it is that, if USPS opens up the program, everyone on that list is going to try to become partners. The cool thing is that we are the only ones that operate in retail settings, which I think is going to be huge for USPS. Having a Kiosk where retailers can dropoff packages after the Post Office closes at three of five p.m. So, operating in retail settings is actually huge, because they are open till ten or eleven or 24/7.
They’ve all tried. DHL did it in Germany and because they handle most of the domestic packaging within Germany, it made sense for them. The challenge has been that they don’t have enough market share in other geographies to make it work, which is why the carriers in general can’t do this business.
UPS, FedEx, and USPS have also tried their own lockers. None of them have taken off because consumers don’t want to have different pick up processes for each of the carriers. Customers don’t know which carriers are shipping their packages and don’t want to pick up from multiple locations. Swapbox can be set as the delivery point for any carrier which is what the end consumer wants - one pickup location. The carriers are realizing that they can partner with someone that is not a competitor, have the best end user experience and save money. They don’t even have to invest any capital up front, so it's a win-win for them.
We launched an outbound shipping product in September 2014 after a lot of customer requests. Essentially you can now drop off your items at a Swapbox rather than going to the post office. You drop off your item, tell us where it is going, how fast you want it there and we will pack it up and send it for you with the cheapest carrier.
We will do all of the heavy lifting for you: pick the best carrier, charge you their standard rate plus two dollars, pack it up, and send it for you. We are removing the first-mile friction points of shipping, which is really just dropping something off to be sent. We will make shipping very friendly for consumers and we are getting a lot of buy-in from the carriers because we are essentially taking over the broken front-end and making it more suitable for the modern day consumer. It has been growing very quickly. We have done hundreds of shipments in just the first few months.
We don't have any marginal costs when carriers deliver to Swapboxes. For shipping we are doing the pick-ups ourselves, which is why we will ultimately partner with the carriers. When we have the partnerships with the carriers, we will notify them that a compartment has a delivery for them, and have a label pre printed at the Swapbox. The carrier then picks up the package with the label and ships it off. We’re close to that simplicity.
The competitor we think most about is Amazon, even though they want to partner with us right now. They already have their own locker service and obviously have tons of resources, but thats not always an asset for them. For example, Staples killed the deal they had in place with Amazon because they didn't want to support their main competitor. We can get to all those locations and get closer to the end user.
Amazon is making a big bet on Amazon lockers, they have about 5,000 worldwide, but they are having trouble getting into a number of premium locations, and for that reason, they may want to work with us in certain geographies and locations. To some extent, that makes them a possible partner rather than competitor. At the end of the day, they are big, and they have a lot of power. They are the ones that we are most afraid of.
Until recently we manufactured them ourselves. We built all the IP which is pretty cool because a lot of the coolness of Swapboxes is in the technology. One of the things we discovered in the process is that modularity is really important especially as demand grows. Since our kiosks are completely modular, you can either add modules as demand grows, or take one apart to move half the modules to a new location nearby. The power of that choice is powerful.
Early on, we knew that for us to grow fast, we either needed the kind of capital that Amazon has access to or a financing partner. So a couple of months ago we signed a deal with a huge manufacturer.
They bought in to the Swapbox product and how it's gonna blow up and make money, so they are going to finance the boxes for us. We don't have to worry about any upfront manufacturing costs and just pay them a monthly revenue share on each box. This will allow us to scale without a lot of capital upfront and we can expand our footprint much faster. The other cool part about the partnership is that they are really interested in franchise opportunities if we decide to go that route down the line. They would hit cities that we don't want to focus on upfront which would allow us to grow up even quicker.
We've gone from 1 to 22 boxes in our first market, San Francisco in 2014. We have been able to prove that each of them work and we're going to keep growing. We will have 100 boxes by end of the year and just keep going from there. We can get a lot of boxes in each city and still make them all work.
We’re starting to get better locations now with better partnerships in place. We’ve worked mom and pop coffee shops that have good locations, done deals with 7-11, Safeway, Shell and have several other national chains in the pipeline. For national chains, we start with a pilot and expand from there. For example we started with two 7-11 stores, and when we renew the upcoming contract we'll expand to about 10 in San Francisco. 7-11 obviously has their footprint. We look at their footprints, and the customer demographics that they track and then site boxes where it will overlap well with our customer demographics.
Right now consumers pay $2 per delivery. Most of our customers are not sensitive to the cost, because convenience is the key value for them. If you think about it, if they’re paying $40, $50 to get something online, it doesn’t do them any good if they never receive it at the end, not to mention the hassle of coordinating new dropoffs. So we actually provide a lot of value for the price. We could charge more and probably get away with it, we just haven’t done that yet.
Kiosks grow in revenue as we find more customers for them, topping off at around $1000 a month. It used to take us 18 months to get up to high revenues. Right now our second batch of installations took about 9 months, and now we’re able to project 5-6 months now to get to pretty high revenues.
Right now we are looking at $500 LTV for our customers. We make about $8 a month on average from our customers and have almost no churn.
We try to keep our cost of acquisition to a fraction of our LTV. When we started, our most expensive channels were costing us about $100 or $200 per customer, now we're down to $60 on average per new customer online. That's using channels like Facebook. However, we get really cheap online acquisition through Twitter.
Also, because we have an in-store presence with a really cool device, we have a ton of exposure to valuable foot traffic, and if you are in that store shopping, its probably a good location for you to pick up packages. Redbox followed this model, and the former CEO is one of our advisors. They designed RedBox to capture the attention of anyone within three feet, and we designed ours with the same philosophy, so we have pretty high conversion at the kiosk.
For sure. We recently signed a deal with an apartment complex in SF. They also pay us upfront which is nice, and guarantee us a monthly minimum. So right after the Swapbox is installed, we start making money. If this pilot goes well then they will expand to their other properties.
The current state of office delivery is something that employers hate since its added load on their existing admin staff, and customers have a bad experience. If you work in a corporate office, especially in financial services, the mail room might delay your packages which is frustrating, and if you get packages delivered to your desk then everyone can sort of see your spending habits and see what you're buying which lots of people like to keep private. When you get something sent to a kiosk at your office, it gives you the same convenience as a delivery to your desk, but solves problems that both employers and customers have.
That's why offices are essentially doing our marketing for us. We contact them with an offering, and HR usually blasts it out to all their employees. We've started this pretty recently. So far we've already gotten Twitter, Opentable, Lyft, and we'll continue to grow that.
It gets pretty big. One Swapbox can serve 100 to 120 users especially dense in urban markets where misdeliveries are most prevalent.
So when we look at market size, we look at just how often there are misdeliveries in receiving packages which amounts to 1.5 to 2 billion packages annually in the US. Add in the other deliveries that we can charge for and the revenue from consumers plus carriers and we're looking at around a $8 billion market just off receiving packages. Its hard for us to size the market for the shipping portion of our business since we are so new at it, so we don’t even include that in our market size number.
We can pretty comfortably site about 8 thousand Swapboxes in just the top ten metropolitan areas, which gets us to around $100M in your revenue right there.
With our $2/package fee we make 40% margins when you include the rev share for our financing partner and the location fee. This isn't great but as we get the fulfillment cost taken away, and add revenue streams from the carriers, we are getting 70%, and that’s really exciting.
The best way to look at this is revenue/kiosk. When we started in the beginning of 2013, rev/kiosk was pretty small, especially since each kiosk took about 18 months to get to it’s revenue potential. We’ve grown about 30% sustained MoM and if we take a typical kiosk that we can get up to profitability in 4-5 months and full revenues in 9-12 months. As we install more units, the network effects are making the newer units grow faster, which is why we can ultimately project it down to about 5-6 months rather than 9-12 months. That's why we look at cohorts and how the units are doing. The more units we have the more revenue we get. It works like Lyft or Uber, the more “drivers” we get on the road, the more money we’re making and since we’re automated and don’t require manpower to get a “driver” on the road, our doubling factor is quite quick.
Absolutely. All of the the shipping and receiving that we manage is processed through our own internal API. We architected it that way because we know that in the future, as the network grows, people will have ideas about how to use the Kiosks that we haven’t even thought of, and the technology is there for them to build applications on top.
One example is intra-region delivery. What happens in most cases is that one guy transports the packages between cities, and another meets up with that courier to handle the last mile delivery. Swapbox gives city to city couriers a place to drop off packages without having to synch up with the last mile couriers.
We’re testing a few other services internally and will eventually have a suite of services that use our network and interface to make their offering better!
Amazon is always at the back of my mind. They're a big company. They're doing a lot. There's a lot of mitigating factors that mean they probably won't ever enter our space or wouldn’t be able to crush us if they did, but they are Amazon so that's always a competitor that has to keep you up at the night or you're kind of stupid.
Short term we'll need to figure out if there is an artificial limit to Swapboxes in a given city that we don't know. That's one of the reasons why we want to create density in one city and just keep going. We can prove that even in one city we can have a ton of Swapboxes operating and there's enough demand for it. But so far, even in our small sample size of 20, there's more demand than we have capacity to meet. People are requesting a bunch of different zip codes. There is a precedent saying we're fine, but at some point we will have a thousand Swapboxes and won’t be able to get to a thousand and one within a given city.
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