Silicon Valley loves reviving the dead. Whether it's propping up publishing or resuscitating mobile app incubators, investors are hellbent pumping money into yesteryear's financial fiascos. And no where is that Culture of Resurrection quite as apparent as it is in the on-demand delivery market.

Venture capitalist Fred Wilson is wary of backing the new breed of delivery startups, the New York Times reports. As one of the investors who got burned by Kozmo's crash during the dot-com bust, the New York-based financier is not confident the numbers are in favor of startups such as Postmates and Instacart.

And yet, the delivery "space" has returned as Silicon Valley's current obsession, with fresh-faced wantrepreneur's scrambling to stake-out some "Uber for X" turf. Now you can get all of life's essentials, from weed to pizza, shipped to your door within minutes by way of a bespoke app—delivery fees gladly subsidized by speculative investors in the name of "user acquisition." Even Kozmo is threatening to make a comeback.

It seems the Valley is rallying for ruin. But, as the New York Times reports, the delivery business model has shifted since the days of the dot-com frenzy:

John A. Deighton, a Harvard Business School professor who wrote a case study on Webvan, likes to compare the delivery business to shining shoes. "You make as much profit on one shoe as you do on a thousand shoes," he said. "There's just no scale." In years past, it was difficult for Deighton to even teach his students about Webvan, because its fatal flaws were so obvious. They didn't understand how the euphoria of the dot-com boom could have obscured its shortcomings. But in the last year, he has been asked to teach it three times. "Something has changed," he said.

That change is the shift from distributor to middleman. Whereas Webvan built out massive warehouses, Instacart shops at existing markets. Apps like Push for Pizza don't have to worry about furnishing their own kitchens: Instead, they simply facilitate an order with an existing restaurant, and scrape a few quarters off the top of the bill.

But the cost of delivery remains high, even if the rate charged to customers is low:

Instacart charges as little as $3.99 for grocery shopping and delivery. Yet [Instacart's general manager Aditya Shah] said its shoppers make about $20 an hour, plus tips, which makes profitability seem unlikely, even with the smartest algorithms routing shoppers through grocery stores and city streets. When I told him that, he sounded a lot like Borders back in Webvan's heyday: "We're really well funded, so that is not something we're as worried about," Shah said. "Growth is the most important factor."

To charge that little, Instacart has relied on $54.8 million in outside funding to maintain it's operations. It's hard not to wonder if another economic downturn will quickly extinguish money-burning startups.

According to the Times, it's exactly that fear keeping Wilson from investing in more delivery startups. No one quite knows how much people will pay to be lazy, and if they'll pay enough for delivery apps to turn a profit. "I wish we knew the answers to these questions," he told the paper. "But we don't."

If one of the most prominent investors in tech can't figure out if on-demand apps can ever become profitable, and endless rounds of investment are necessary to maintain operations, why is no one listening?

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Photo: Dan Paluska