Uber, Postmates Agree on $2.65B All-Stock Deal
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I worked at LivingSocial in 2012/2013. We used to joke that “we lose money on every transaction but make it up in scale.”
Takeout and Delivery was one of the last bets the company made. Basically food delivery. The customer service load is huge, the services aren’t really differentiated, and you have to both pay the driver enough for it to be worth it and keep prices low for the consumer to think it’s worth it.
Attracting customers on either side of the market means spending money to undercut your competition. As soon as you stop giving free delivery promotions or introductory no-fee periods for restaurants, they can instantly churn with little to no pain. Not to mention reaching small restaurants is incredibly time consuming. They’re not all just hanging out online. They’re running a business. They take a lot of expensive (human) outreach.
Margins are terrible, if they’re ever positive. It’s just a bad business.
And yet people keep trying. None of these companies have made a net dollar. But it’s a simple enough pitch and a common enough use-case that investors think, “yeah, that makes sense!”
But it doesn’t. It just doesn’t.
Like you said teaching small businesses is hard, and you need to undercut competition to grow.
Well you don't need to teach someone who has been using grubhub and postmates already.
I understand it sucks to not get your ranch, but come on...
If you spend too long going back and forth with a customer, the salary-based calculation of what it costs the company doesn’t make sense. So you give it to them free. But then it’s not like you have any margins that those come out of.
I’m kinda surprised (and happy) that all these delivery startups haven’t figured out that bs customer service can be a way to make money.
Folks who demand free food do it regardless of if it can be done or not and most everyone else just shrugs their shoulders and doesn't want to talk to anyone about their experience.
Certain countries I've been to, it's perfectly normal to assume the opposing party is lying for selfish gain, and in return you expect it and act accordingly. In these places, there are no stores with return policies that will just take a customer's word for it.
Certain places have a higher trust society, and that allows some stores to be able to offer returns for refunds leniently...as long as the proportion of scammers stays low. However, even in these "high trust" places, I see that while people are hesitate to lie for selfish gain in small transactions, there is plenty of unscrupulous behavior in large transactions concealed by plausible deniability, aka white collar crime. A lot of it is in the form of you scratch my back, I'll scratch yours with someone else's money. There's almost no way to prove it unless it happened to be written down or recorded on audio/video.
Though the people who claim that doesn't happen enough to be significant for other pizza delivery systems seem to know more than I do.
There is no social pressure when you're alone on the phone with some faceless customer service employee.
I absolutely feel social pressure when I’m alone on the phone with some faceless customer service employee. If you do not, that’s your choice, but it’s not universal.
Dear Company, if you cant do your job you shouldnt exist
Self promoting tip: hire people who feel this
The reason being people will actually stop ordering Domino's if they're upset at a mistake in an order. Even something as silly as not getting ranch dip you paid $0.50 for. Making it up to them with a free item way more valuable than the mistake almost made the customer feel guilty. After using their free pizza credit, a customer was almost guaranteed to order Domino's again within 2 weeks, and would generally order twice as often as they normally would for the rest of the year or longer.
My very first delivery ever, I opened up the heatbag and their whole order slid out and fell onto the floor outside their front door. Maybe still one of my most embarrassing moments ever, I was sure I was going to get fired. When I told my manager about it, he said "This is going to be more powerful than a hundred TV commercials"
Oh, and they have all your orders and previous free credits saved in the computer system that handles orders, tied to both address and phone number (or online account). So if you tried taking advantage of this thing they would just permanently ban you from ordering from our store. This only happened once or twice in my couple years there.
I got an Indian meal delivered without the rice I ordered. I rang up and they apologized and refunded me straight away... but I still didn't have the rice so the meal I intended on having was ruined. I probably will never order from them again (there's plenty of other Indian food places near me)
The only recourse I had was to use the app’s help feature and mark it as “incorrect dietary restrictions” and select which item in the order was wrong.
Deliveroo instantly gave me credit for it, which isn’t a refund but I’d use the credit sooner or later so not a big deal.
But now the problem is that I have a neat filled burrito that I can’t eat. I’ve once again accidentally ate meat through no error on my part, so my entire meal is ruined because my mood is ruined. There was a desert I could eat, but that’s it. I ended up waiting 30 minutes for a delicious meal only to end up with just a desert and now I have to spend time to cook my own meal.
If the restaurant would have delivered me another meal then I’d probably still consider ordering from them again, but with the way the app is set up, that I got a measly €10 credit for one part of the meal (still had to pay for delivery, the dessert that I didn’t eat, and a tip cause it was raining). This just meant I’ll never give that restaurant another chance.
Would not be surprised 30y from now most homes won't have kitchen anymore. You'll have an access where a drone can come in an deliver whatever you ordered.
I suspect you vastly underestimate how cheap and time effective cooking at home can be. My girlfriend and I just mealprepped 8 meals for $30. Took 15min of active work.
The whole week we both get a healthy balanced meal that takes 2min to prepare.
No delivery company can compete with that. Drones or no drones.
Edit to answer questions below:
We don’t mind eating 4 identical lunches. Saves you thinking about it. We use dinners and snacks for variety. This week it’s a pork roast with string beans and fingerling potatoes. Put potatoes in a baking pan, stick roast on a rack above the taters, stick in oven for 45min. Cook the beans in water.
About 15min of active prep time, another 5min to portion it out, 5min to stick dishes in dishwasher. Watch netflix or hangout while food cooks itself.
In the meantime, you can microwave some frozen jasmine rice, veggies, or a mix of both. You can make baked sweet potatoes on the same air fryer though those take ~30 mins until they're nice and soft.
I personally air on the side of making large portion of a meat, say chicken, and just making different variations with that pre-cooked meat through out the week. Shouldn't take more than 10 minutes a night with pre-cooked chicken to do something like chicken and pasta, chicken quesadilla, chicken salad, chicken on top of salad, chicken sandwich etc. Unless you're making a multi dish or complicated meal cooking really doesn't take that long.
Last thing, I love doing sous vide and it takes actual prep time down a lot. I'll throw a steak in when I go to work, turn it on while I'm not home and it will be done when I get back; sear it for a minute and it is good to go.
I could make this in bulk and freeze it, but there's no point, because it's so quick to make.
Meals made this way aren't the most exciting thing, but they're as tasty as you can be bothered to make them, are reasonably healthy, and extremely easy.
Spaghetti carbonara is also very quick to make.
I'm a well paid software engineer, so I can afford to pay like $20 surcharge on laziness, but it doesn't really make sense.
The ghost kitchen burger isn't thaaaat much better than fast food and 2-3x the price. The ghost kitchen burrito is actually worse than the local Mexican street food, just will be delivered to me door.
It's like relying on a miracle. It's not a valid business plan.
- Create robots capable of handling pickup and delivery automatically - a very hard technical problem that were far from solving
- Manufacture these robots at scale
- Purchase and deploy these robots at scale
The timeline for all of these things together is years, even decades into the future. Even if you get the tech down, creating factories that can churn out hundreds of thousands of these robots will take years (see Tesla's example - and that's for tech we already understand, like cars). It will also require massive amounts of cash to buy and deploy all these robots.
Robot-led delivery isn't happening for a long time.
mobile does increase availability slightly and reduces friction a little, but those weren't the core problems that needed solving to make a successful business in the space. even uber's outsourcing of capital costs wasn't a major problem that needed solving to unlock the market.
you can't beat last-mile logistics by throwing more marketing at it.
That's simply false. A lot of profit is made in the space and as soon as you have some significant market share it becomes a cash cow.
Yes, it might not always work to start up in a already saturated market, but that shouldn't be a surprise.
I hadn't gotten that impression.
I worked in a food delivery company of the Just Eat group ~5 years ago, for 1.5 years. They take a comission of ~12% of the order price just by providing the platform to place orders. The technology is simple, then you have a sales team to acquire restaurants as partners and a customer service team to support when orders get lost or to update the menus.
Yes, there can be cut-throat competition in a market where a lot of money is sunk into marketing and the business is operating at a loss. But there are also consolidated markets where one platform captures >80% of all online orders and generates endless profits.
Just because a few VC-backed companies burn their many millions in a short time doesn't mean that there aren't large and very profitable food delivery services.
Basically there is a "cash cow" if someone can monopolize the market, not have competition, and if people are willing to pay more.
What isn't a cash cow under those circumstances?
Ooof, I remember that from 2000. Does anyone look at unit economics?
PT Barnum made a book called "the art of money getting" - which could help many, worth the read.
I can order Chinese From halfway across the city for the same price as delivery by Dominos. The closest Dominos is 5 minute walk away. The next is a 5 minute drive. The Chinese food is 25 minutes away.
But domino's also makes the food, so if they break even on the deliver, that's fine, they made money on the food. Scaling the delivery part of the business also scales the food part.
If you aren't making the food, you have to make money on the delivery alone because scaling your delivery service scales someone else's food business. You're essentially competing with your suppliers (restaurants with their own delivery), and they don't need to make money on the product. That's a hard position to be in.
So while they aren’t technically vertically integrated, they have the pricing of vertical integration (assuming typical restaurant margins).
I think Domino's margins blow typical restaurant margins out of the water. I don't have hard numbers, but worked a variety of delivery jobs from 2010-2014. Domino's was the only place with the attitude that their food was worth pennies to produce.
Most places didn't offer discounts to their employees, not even for food that was mistakenly made and had to be trashed. Domino's was the only one that would just allow employees to make themselves a pizza for lunch or to take home for dinner (but no feta cheese, we had limited quantities of that).
Call and complain about any Domino's order, even over the dumbest thing, and they're supposed to give you a credit for a new order. It was drilled into my head as an employee. If someone complains, give them something free, and they're pretty much guaranteed to order from Domino's again in the future more times than they would if you had never made a mistake.
Also an individual driver could do far more deliveries than an app-based delivery worker can. The routing software they used at the time was really good, and would group 2 nearby orders for one trip by a delivery driver. There was never any waiting unless there were no orders at all. From what I hear with my friends who work UberEats/GrubHub, a lot of time is wasted at the restaurant waiting for the food to finish. McDonalds (at least in my area) is a big offender, marking orders as ready for pickup when they haven't even started making them yet. Having all food coming from a single storefront, and being able to take multiple deliveries at once is a big deal.
As for why places like Pizza Hut and Burger King can't do it as well, I guess it comes down to the tech and management. When Burger King tried offering first-party delivery services it was a massive shit show. I worked there for a bit, as they were the only store paying drivers 100% of the delivery fee. It ended up being a terrible deal because I would average 1-2 deliveries per hour during the lunch and dinner "rush", while a great day at Domino's could have me doing 10 per hour. Pizza Hut wasn't as terrible as when BK attempted it, but I feel like it only worked because they have a limited menu and not because they're actually competent.
Also, with vertical integration drivers can help cut, box, and confirm orders so staff can focus on other things--or not depending on how busy they are.
I worked Sunday afternoons just me and a manager. I would share responsibilities of cooking, prep, and delivering, they would cover the phone lines, prep, and cook as needed. It would normally be quiet, but we might randomly get a large youth group or party order while also prepping for Sunday evening football rush. The fungibility of labor seemed better than the burstability of delivery, at least in that case.
You see where this is going. Pizzas are worth nothing, supermarkets are making money on these (it's not allowed to sell an item at a loss in Europe). Domino produces for £1-2 and sell for £10-20.
The accepted number in the restaurant industry is that food cost must be less than 30% of the listed price. Pizzas are pushing this to an extreme by selling for double digits while they're so cheap.
Do you have a source for this?
This is dumping, and considered anti-competition.
I've read before that a Hot-n-Ready from Little Caeser's is sold for $5.55 but costs $3.50 in just ingredients. They don't make any money on those.
The breadsticks that they sell for $3.99, the cup of marinara for $1.99, the $13 veggie pizza and the $15 supreme pizza is where the money is made. Do you think there's an extra $10 in toppings on those supreme pizzas? Don't forget the bottles of soda..
http://www.unhappyfranchisee.com/little-caesars-what-franchi...
The link is talking about a $11 pizza, that was briefly on sale for $5 (and still making a profit). It's not a $5 pizza.
Now it is just a value proposition. Dominos can still make it work because the delivery is bundled with incredibly cheap to produce food. Horizontals do work and aren't going away but right now there's many players making the bet that future market position is more important than current revenue so its not making great money today.
That, plus the volume, allows Dominos to send out drivers with multiple pizzas. They can calculate an optimal traveling salesman route from the store to all of the customers in the run, and then the driver comes back to the store to do it again. Also, the whole organization is built around the drivers not waiting around. Restaurants will often not have the order when the driver arrives, and they have to mess around with payment, etc for every order.
All of that makes driver productivity much greater and so the delivery cost per order is much less.
Roughly speaking, a delivery driver in my area nearly a decade ago earned roughly $20/hr after gas and car expenses, half in hourly wages @ state minimum and the other half in tips + $1/delivery payment. They also took about 3 deliveries an hour when fully utilized, which wasn't for 100% of their shift. The wait time got used productively, combination of answering phones, making pizzas, or at worst folding boxes.
This combination means that you're employing people at a significnatly-above-minimum-wage level, but their excess time waiting for deliveries gets paid at minimum wage and used to do customer service. And in the worst case when things are so absolutely slammed that there is no downtime, well, that's when you have to let phones ring (or answer briefly with "thank you for calling, our wait time is currently two hours, would you like to place an order?"). Plus these drivers know the store and the area well and from that alone should be significantly more competent at resolving issues - often enough someone calling in about their order will end up talking to the person who just tried and failed to make the delivery.
With Postmates and the like, though, the time spent waiting for a delivery has no useful work to fill the time. It's also not paid, but the gig has to justify itself economically, which means that drivers have to make up for it through increased per-delivery payments.
Basically, the difference is that store-employed drivers can do useful work while waiting to engage in deliveries, while app drivers can't. This is a very significant efficiency gain.
Even in markets where cars are used a lot for food delivery; I can't see it really working very well. It's hard enough trying to schedule food delivery drivers being in the right place at the right time (often waiting a while for food to be ready if the order got delayed in the kitchen). Trying to then piece together humans going places in between seems virtually impossible.
However, if you allow yourself to simplify the problem, it seems there is really no physical difference from a food delivery and a ride. Pick up at one location, drop off at another--maybe with extra time required to get out of the car. In both cases, there is a limited allowable waiting threshold.
So if you can merge those work forces, you could attain higher utilization. The main problem I see though is that both sectors surge at roughly the same times, so it isn't quite as complimentary as you might initially hope.
Personally, I’ve ordered a ton of food delivery lately from places I’ve wanted to try but never found time to go. But, I don’t order from them more than once, so those businesses aren’t making a customer out of me.
I assume tips are generally more than $1 (I may be wrong).
Maybe it’s just not productive to compare different countries’ eating habits in the end, but it seems to me GP is saying that tips make up a meaningful proportion of delivery drivers’ income.
It seems like the GP(?, the first poster in this chain) was saying that delivery works for places like Domino’s which hires and pays their own couriers a standard wage. That wage is already accounted for in Domino’s pricing, and since that employee has to show up to work even when there aren’t deliveries they can be put to work. Thus, there are no additional costs to Domino’s as everything is presumably priced taking this into account.
When you outsource your delivery, the company being hired takes a cut. That company (Postmates etc) need to use this cut to pay their couriers. Postmates can only ask for so much before the store just says no, it’s not worth it. Those couriers need to be paid enough that it’s worth it for them to keep delivering. So, Postmates scales up to make up for it in bulk by taking losses by offering deals. Those deals don’t last forever, and customers like me only order because of the deals will just go away.
First is pure utilization. App drivers get paid while on the road and while idle, store drivers get paid hourly while on the clock and usually have some useful work to do. The average pay of road & idle time has to be worth the driver's while, and the store driver has more valuable work they can do, so the economics make more sense.
Second is the largely tip-driven pay differential while on the road vs in the store. 3 deliveries an hour at my store, more at places that trade off service times for throughput. Average of $3-4 per run, with a tendency for higher tips for customers further from the store. (Funny example: there was this one house at the exact furthest corner of the store's delivery area. They were extremely nice and tipped like $7. These facts are not coincidental.) But this basically becomes a cross subsidy of in-store work by tips, and there was a decent chunk of tension between drivers and management over this. Usually it took the form of "do your assigned side work and then you can go home", and since doing dishes was the "bad" pay of the shift, this disincentivized malingering too.
As far as I can tell for non-tipping countries, drivers tend to use employer-provided vehicles and fuel, so it turns into a more straightforward hourly job and loses a good chunk of the piece-work and quality incentives.
Also, once one party owns the relationship (e.g., the app), they can try and take more and more from the other parties while putting more burden/risk on the other parties.
Domino's is built to deliver pizzas. They have streamlined the process of an order being placed, prepped, and handed off to delivery to try to make each step of the process as efficient as possible.
Do "horizontal" delivery companies have similar integration and benefit from similar efficiency?
In an ideal delivery situation, you want two things to be true: first, delivery people should be constantly moving. Second, orders should be handed off to a delivery person as soon as they are finished.
Is this achievable when delivery people are routed to new pick-up locations for each delivery? You want your delivery person to arrive at the restaurant right as the meal is finished -- if they arrive early, your delivery person is idle and your costs go up; if they arrive late, the food is cold and your customers are dissatisfied.
Restaurants with successful delivery components can solve this by tweaking their number of delivery people and their service areas in response to their busy-ness, so that they always have delivery people returning to pick up more food with an appropriate frequency. Have horizontal delivery companies solved these problems, either through integration with the restaurants or through some sort of big data magic?
Being able to dispatch to a driver in motion depends on having a suitable driver available.
I'm still doubtful it can ever work, for the reasons people mentioned above. But the realistic game is that Uber becomes the new Yelp and strongarms restaurants for a share of their profit, in return for customer access / promotion. (Which I have pretty strong feelings about as an ethical business model, but that's just my opinion...)
What will passengers think about having their ride delayed? Lump it into Pool and partially rebate them?
What will keep restaurants from #&@$ing around with their notifications (e.g. ready) for a partner who they don't really like working with?
(Personally, I switched to Lyft and don't use Uber products anymore)
For a non-chain business, probably the key is being in a dense city where majority of your customers are within a few mile radius.
A pizza is made for £1-2 and sold for £10-20. The margin is incredible and more than enough to pay staff and deliverers.
I personally never order pizza delivery because it's a total ripoff. Don't want to pay £20 for a pizza (or two on promotion). This is a party delivery service as far as I am concerned, only used when there are friends over (big dollars for the company for a single delivery).
The business model of Uber and Just Eat by comparison is to attempt to deliver Noodles for £10 (one meal for a lazy millennial or a couple who doesn't want to cook). It doesn't work.
If I buy food from $local_restaurant via $delivery_service I pay original cost of food + whatever the food deliver service adds to the cost of the food + the delivery services fee + tip to the restaurant + tip to the driver.
When you have your own delivery staff, you are planning your costs and setting your prices with all that built in. When a third party is handling deliveries (in a very non-integrated manner), it's a lot harder to consider the delivery cost as a part of the business, because the cost is being borne by a third party who is charging you an arbitrary amount that may not actually reflect delivery costs.
Since the third-party delivery companies usually take a cut for their services, restaurant owners can't plan that way. They do have choices: they can raise prices overall or they can charge more per-item for delivery orders (if the delivery platform allows it). If they do this, the restaurant owners will be fine; they'll offset any loss to the delivery company with an increase in prices (as long as this doesn't hurt non-delivery business).
The problem lies with the third-party delivery companies. They have drivers who are sitting idle during their downtime, so they have to pay them more per-delivery, essentially paying them to sit around. They have a ton of cheap VC money behind them, and VC's seem to care more about market share than profits, so they are incentivized to do deliveries at a lower price than what it actually costs. So it's no surprise that we see things like revenue of $50M on expenses of $100M. It's a race to the bottom, fueled by someone else's money. All the delivery companies must charge well below cost in order to be competitive. At some point (hopefully) people will stop investing in these companies. At that point, we'll see the final consolidated state of things, and we'll see delivery fees go up dramatically, or service quality go down quite a bit, or both.
Considering that a large part of the culture defining movies/franchises/series IP is also not owned by Netflix, they can't really hope to just end up outcompeting everyone else down the line. Think about it: food delivery is pretty generic, you don't really see the difference apart from cost. So if let's say Uber manages to bring down costs, outrun the current big competitors, and use that dominant position to keep prices lower than future newcomers, odds are customers will just keep using Uber.
But in Netflix's case, people will still want disney movies or HBO series. That means there's no real hope for a profitable market dominating position down the line, so they will need to perpetually produce a very expensive product just to pay off the cost of other expensive product. If Netflix starts to lose subscribers, it still has very fixed costs (content acquisition & debt service for already made content) whereas Uber or Doordash have most of their operational costs directly tied to demand. No orders only means loss of revenue, but no additional losses.
Netflix just seems like a very weird and very... risky investment and much more so than the already very shaky business of food delivery. But I always assume the markets see something I don't, so maybe I'm totally wrong!
Disney has a very strong and very culturally defining position. They are also more diversified and generate cashflow from multiple sources. Disney+ is also mostly content that has already been "paid for" by either box office sales or licensed merchandise.For example, selling Star Wars toys is very profitable and makes the movies even more profitable. The box office sales usually also more than pay for their production costs.
Netflix does not have any other source of revenue, is totally dependant on month to month subscriptions and has to compete with decades of already made and paid for content that it's competitors can and will often chose not to license to Netflix. To finance that huge catalog they basically took a mortgage on all of their future subscription revenue. Disney can afford to lose all of it's disney+ subscribers as long it's movies are still watched and its parks still visited. It can lose a revenue stream and still be alive
As for HBO, it's owned by ATT and usually has "premium" content. ATT can also afford a few bad years for HBO but the same would be a death sentence for Netflix. I guess my point is that netflix has almost no room for error, it bet everything on never not growing.
What's really going to be interesting for Netflix and for food delivery apps is what will happen once the lockdowns end and when we get back to normal. Will people still have things left to watch that appeals to them after so much free time? Will food delivery stay popular?
So with production/sports halted by COVID for everyone, and streaming rising, Disney is getting hit by a perfect storm, while Netflix managed to catch some breathing room.
I started ordering on Uber Eats when they got the restaurant few blocks away that is good. Then they got another restaurant across the city, that's the only one to do some specialty food I love.
I only order from a couple places. All my friends only order from a couple places. Discussing what to order at parties goes like: this or this or that (each person's favorite or good enough restaurant).
Last month Uber added £5 delivery fee. Quit Uber and started the Deliveroo app. Everybody's got multiple apps on their phones. Couldn't care less about the app as long as it delivers the food.
I think these businesses are awful and probably unethical, but from the outside it would surprise me if a single winner could not make this business model work, once they had so much of the market that delivery schedules could reach high utilisation.
If we knew what we wanted ahead of time, scheduling delivery ahead of time would make it easy... since you could use a delivery route (to deliver 2-3 items nearby).
A single winner may be able to make it work since you can do 1-2 pickups and deliver to two nearby homes.
Driver needs to wait for the second meal to be prepared, pack it together, take a detour to the other place and spend time delivering it.
So your meal arrives late, cold, and crushed after you paid full-price for the delivery.
That's the rub right there.
If you're the winner in the market, can send info to a restaurant to keep your food hot (or even hotter than normal) and can schedule it perfectly it will work.
Once you spend a couple of billions into the infrastructure to make it happen, you can totally make a couple of hundred thousands worth of profit - 2020 Startups.
I'm not sure what exactly you think restaurants can do with that request. A small subset of places will have a heat lamp, but that still doesn't really preserve quality, just heat.
Restaurants would soon figure out how to use a couple of timers to get every order done on time.
There could also be a deeper integration to ensure that, for example, there are no more than 3 orders worth of fries being cooked at once, or no more than 2 pickups per minute scheduled, to avoid overloading that part of the kitchen.
And if it turns out customers are willing to pay restaurant prices for McDonalds quality delivery, then McDonalds themselves will start a delivery service to compete with you.
The quality of the food delivered is dubious, to put it mildly, just by the very description of the process.
My driver picked up my meal (from about 10 blocks away), then proceeded to drive downtown to pick up another meal, then to the other side of town to deliver it, then finally back to me.
My food arrived almost 2 hours after I ordered it, cold, soggy, and leaking in the bag.
It's not illegal, just difficult (don't ask how I know)
Sprig only offered 2-3 dishes.
Wealth is transferred from ordinary folk via the IPO-retirement-fund axis to the plethora of agents involved in the whole scheme, from the employees bashing out code and UX, right through to everyone involved the M&A and IPO and the whole tax / tax agent / government tax agency cadre.
It's not trickledown.
It's deluge-up economics.
At one point this would make index fund investing as a whole significantly less profitable. With all the horror stories we've seen unfold in the last five years, you could begin to suspect that boards actively and knowingly execute this strategy. You can only hope that a money manager would be smart enough to avoid the SoftBanks, Ubers and WeWorks. But I don't know that's a given. Shorting them out of your portfolio isn't an obvious strategy either, due to borrow costs and so on.
Anyone given a significant amount of thought to this?
The problem is, no one has much other choice than to go this route and invest into the "next potential unicorn". With classic stocks stagnating and many government bonds in low to negative interest territory, it's hard to make any noticeable profit.
The way to fix this would be to reform pensions to a government-backed system such as Germany or Austria have - that reduces the amount of "dumb money" in the system.
Uber is part of some indexes; S&P500 isn't the only one. The efficient markets hypothesis is obviously false, although from a distance it's usually a decent approximation.
And in case I'm about to get downvoted for violating the consensus -- 100% of my long-term investments are currently in index funds. But with the growing share of indexed investments, this is a very interesting question.
There are currently trillions of dollars (and growing) following the simple momentum strategy that index funds represent. It almost beggars belief that this is not, and will never, be exploited for gain.
And the other factor is this: if it is skill, do the high-fees still give you a better risk-adjusted return?
Yes. With your standard 2 and 20 fee structure, you don't pay performance fees on anything below 8% returns. Performance fees are where bonuses come from, so anyone coming up short sees capital and employees disappear overnight.
RenTech has a 40+% performance fee on their Medallion fund because it consistently generates 60% returns YoY.
Mine contains 4 funds covering ~2500 global companies.
Philosophy is diversification, broad coverage of both developed and developing markets, with both high-tech niche industries (heavily overrepresented in the Nordics) and global growth companies (overrepresented in the Small Cap index). Been considering specifically adding China, but dislike the political risk and human rights of top leadership. You might argue that the USA is still overrepresented in this allocation.
I was probably underestimating the number of companies covered by this; the Small Cap index alone represents more than 4500 companies. Although I doubt that my funds actually own all of them.
Cost is around 0.3% per year.
https://investor.vanguard.com/etf/profile/overview/VTI
Anyone investing in the total market via VTI, ITOT, etc will hold Uber.
Pretty much this. It's so infuriating to watch never-going-to-be-profitable businesses cash out on the backs of people's retirement accounts. It's one thing for a company's 401k to be stuffed with this crap, but when municipalities like CalPERS are investing in these indexes, it's outright criminal IMO.
Not to mention solving the issue of the physical exchange with the customer.
Having said that, I do now wonder if you could make the model work by offering very cheap, or even free, delivery on the condition that you place the order a few hours in advance for a pre-selected delivery time. I'm not sure what the market is like for customers who want to order takeout food, but also know they'll want to do that in advance, but I think there's probably a niche there if anyone fancies taking a pass at it.
While a nifty idea, I don't think it really works. I see two major obstacles:
Food ordering is instant (or almost instant) gratification. You want your food and you want it now. Or if not now then in 30 minutes, max. You may have the odd outlier, who plans accordingly and orders dinner at noon.
The other problem would be the customers at the end of the delivery route. While that doesn't matter much for groceries that sauce on the former tasty duck à l'orange may be mighty congealed and rather unappetizing once it arrives as one of the last deliveries of a route.
I just don't think that there's enough of a market for pre planned food deliveries and quality assurance would be impossible.
You're right and you just described how that "Special Offers" section of über ears works. They give you a small selection of restaurants that another user near you has ordered from and a 5min countdown to place an order yourself, if you do you get free delivery and über benefits from the efficiency of a double or triple order for one of their drivers.
I imagine you'd need a local hub/exchange for it to really work. I do question whether the model works outside urban settings though.
What's also interesting is that Postmates seems to have raised around 700m$, so chances are it's investors are probably the first to make an actual realized profit from food delivery ;).
Why? I don't know. They were early to the game and I stuck with it I guess
That applies to all delivery apps and access to capital is really the only determining factor of success in that industry, but Postmates was also lacking in that regard.
The economics are even worse (because they don't get a cut from the restaurant), so these types of orders are either very high fee for the consumer, a loss leader, or both.
[1] https://gizmodo.com/doordash-pizza-arbitrage-shows-the-fubar...
[2] https://www.eater.com/2019/10/30/20940107/grubhub-to-add-res...
Also anecdotally, the probability of an order actually arriving and being correct seems to be higher on Postmates. Perhaps the drivers there are more motivated to do a good job.
Of course, a lot of restaurants end up increasing their prices on Grubhub to make up for their fees, and rightly so (I phone in using the number listed on Apple Maps). I still don’t understand how anyone expects these food delivery apps to be profitable. I’m also 95-99% certain once we feel safe dining at a restaurant again we wouldn’t be using these apps anymore.
But the annual fee is $250, how is it worth it? At best if you use the $100 airline credit, which is now hard to "hack", and max out $10/mo on Grubhub, you're still paying $30 for the privilege...
> Earn 4X Points on restaurants including takeout and delivery
> Book a room through American Express Travel that's part of the Hotel Collection, stay two consecutive nights and get a $100 hotel credit to spend on qualifying dining, spa, and resort activities.
I suppose if you max out all the categories it's not a bad card if it's all you have.
Having utilized card services and customer support heavily for almost two decades with a number of card co’s made me very much an Amex partisan.
Also, Chase Sapphire Reserve has the $60/year credit to DoorDash. Seems like we’re just redeeming a bunch of VC money.
A little off topic, but wow it always amazes me how good credit card rewards are in the US.
Unless, ghost/cloud kitchens become a thing and these app platforms start building or partnering with these kitchens. Then they have full vertical integration where they can set prices.
https://www.eater.com/2019/8/6/20756799/yelp-grubhub-phone-n...
Not sure if this applies to numbers in Apple Maps, but something to bear in mind.
A lot of restaurants use Chownow, which seems great since there’s no commission paid, but you lose out on being discovered online on Grubhub/Postmates/etc.
at least here in NYC, we've been using delivery apps for over a decade. I wouldn't expect usage to drop below pre-COVID numbers once (and really, we should be saying if) things go back to normal.
There's an illusion of network effects due to the investors willingness to burn their own money. Otherwise, like the actual transportation industry it's just a low margin business with tons of competition.
Meaningful network effects don't just make your company marginally better as you get bigger, that's true for virtually any business. It has to be shown that the size actually makes you run away with it instead of just leveling off.
The same is true in the fintech industry with all these much hyped neo-banks running on debt. Internationally they all tend to lose to local competitors because knowing your market and getting the details right is more important than scale.
If Postmates went of out business tomorrow the drivers would just shift to Doordash and Grubhub and Instacart and the others. There is zero moat.
Drivers often work for several of these companies at the same time, and customers will use whichever one is cheapest at the time they feel like placing an order.
At the moment, with so many similar companies in the space, I don't see how any of them could become profitable, especially while being engaged in a race to the bottom on prices (because price is all that customers actually care about; the experience of a guy in a car bringing stuff to your door is pretty much the same with all of these companies).
Customers actually care about service, too, but the two-sided-market-drivers-aa-contractors models doesn’t really leave the parts of service that would matter in the hands of the delivery matchmaker, so it's true that all they have is price, not because it's all customers care about but because it's all the firm has any kind of control over, by design.
Grubhub has been profitable for years now, pulling in $23m in income in 2018, see: https://www.cnbc.com/2019/12/13/grubhub-uber-eats-and-doorda...
This is where Dara’s strength is. He has a history of great dealmaking and acquisitions. I expect Uber to thrive as the industry consolidates.
I'm not convinced even a sole provider would have pricing power in anything but a vastly smaller market than currently exists: food delivery doesn't compete with only other food delivery, but also with “drive there yourself takeout” and “cook (or at least heat up) food at home”, which limits the scope of pricing power.
https://www.geekwire.com/2020/jump-bikes-return-seattle-lime...
Why? Because exactly in China there was consolidation of food delivery apps into like 3 or 4 of them from 100+. But all of them are still burning lots of money from investors, except one - Meituan-Dianpin which built on this super app (first think of it as uber+yelp+groupon+tripadvisor+more) handling all kinds of life needs from food to labor service. Yet this super app barely started making profits recently after grabbing so much aspects of daily life, while its food delivery unit is still burning money, though contributing to the profiting units like ads.
When I was in HK, I used foodpanda, it was super cheap, I think $10HK. Deliveryman shows up on a scooter, and has at least one other persons food with him. The density supports it. American cities are built somewhat differently where most middle-class people don't live very close to most of the restaurants they wish to order food from.
I think it has much more to do with the terrible math involved with doing delivery in such spread out regions. There being a super-app that does everything does not matter.
Also in America food takes much longer to be ready than in Asia. I don't know why but it does add up.
Can you explain this sentence? I always thought more companies, implies more innovation, and thus more efficiency.
a) at a restaurant, rather than having ten different delivery people pickup, One person can pickup ten orders.
b) 10x more consumers means that the average distance between deliveries shortens.
It’s not going to be quite this efficient but directionally more scale means more efficiency.
In addition, less competition means that Uber can charge more for their services.
I doubt that Uber will be allowed to monopolize this industry. And if they did, I doubt that customers would be willing to pay the premium.
I doubt the validity of the food delivery model anywhere but the most dense urban areas. And in those areas competition is fierce and regulators are quick to pounce.
Just because Amazon lost money for a decade doesn’t mean every single company will follow that same trajectory.
I'm a huge fan of the business model, but the app crashes, the customer service is non-existent, payments get rejected inexplicably and when you reach customer service they respond "I'm sorry you are having difficultly logging in."
I couldnt make it worse if I tried. Every rule of SWE-UX is violated. Got a problem? No code, no incident ID, you need to call a number with no context and re-contextualize. No follow-thru, nothing.
- Restaurants (rightly) complain that the drivers provide a poor service. For example, pizza delivered cold because the drivers have no heat bags. I've even heard of a pizza box mounted vertically on a delivery bicycle.
- Customers are unhappy because food can be delivered cold through no fault of the restaurant. To save money, multiple deliveries can be scheduled at once. You can see this as your assigned driver drives passed the restaurant when your food is ready, clearly they're on another delivery. They come back 20 minutes later and turn what should be a 10-15 minute delivery (from the time the order is ready) to a 45 minute disaster;
- And drivers don't seem happy, complaining about low pay.
Yet... people want food delivered. Is this really just a case of people not willing to pay what the service truly costs? If so, no consolidation will help. I imagine fairly small delivery areas is really the only thing that can be economical.
I think so. If a driver spends an hour on delivery, they have to make $15 in NYC or ~$8 elsewhere (USA) to be worth their time. For a single person, that can be the price of the whole meal again.
I've run into this when seeing the fees reflected on a final checkout page, and decided to cook for myself instead.
Frugality is a useful mentality, but it’s important to account for the economic value of time, energy, focus, and happiness. If you try billing yourself for your chores at your normal wage, your behavior will change.
And my family prefers home cooked food not because of frugality, but because it’s much healthier and tastier. We can usually make a convoluted meal with at most 3 man hours (split amongst 2 or 3 people), including cleanup. But it will taste thousands of time better, and I will be able to trust the ingredients and quality more.
I’ve actually calculated that we spend more on ingredients and labor than going out to eat, but no normal takeout restaurant offers what we can make at home (it’s not affordable for most people to buy that quality food when you account for overhead and profit margins).
Although I do understand the convenience of ordering out if you live in a cramped apartment in downtown SF/NYC/other big city. But once you have the facility to cook, the marginal cost is tiny.
Many high street brick-and-mortar restaurants will shut, but those that remain will likely make being "not available on any food delivery app" a unique selling proposition.
That people are going to pay a premium to have their food always delivered and that people actually want to be in their homes / offices all the time, rather than get out of their current place to go and do something?
I don't have a kitchen.
With the time saved I reckon people will find something else to do outside instead of eating.
Centralizing the restaurants seems key to profitability. The current format is too costly.
In Estonia they still seem to be doing a sort of a limited trial where they only deliver to a small area of one part of the town. The robots are too slow and get ignored by traffic all the time since their programming is very conservative. They try to avoid accidents but at the cost of delivery times.
Not a 10x exit.
Hard business.
I suspect that many of the investors are just happy to record a profitable exit.
All of them are now: it's an "all-stock deal". I guess it remains to see how many of them will sell.
UberEats and Postmates have the worst execution in the space compared to Caviar (owned by DoorDash), DoorDash and Grubhub.
Dara is a banker, he doesn't know anything about operations. This will end bad.
So there must have been demand for food delivery... I wonder if they accomplished it with slaves?
Well there is some history:
https://www.thevintagenews.com/2019/01/08/food-delivery/
The Indian "dabbawala" maybe is where it has to go: some kind of standardized service where one driver can deliver to many people in a single traveling-salesman minimized trip. The packaging is designed to keep the food warm for a long time to allow this. But this probably only works for pre-arranged food delivery, not call for food now.
Thats not true ( https://quatr.us/romans/roman-kitchens-houses-ancient-rome.h... ).
Rich romans did have kitchens, poor people could not afford one and instead made food in their appartment room or bought food from streetvendors or takeout food from thermopolia.
There was likely no demand for food delivery as poor people couldnt afford it and rich people had slaves to make their food.
I wouldn't go so far as to call the Uber Eats driver app an "exceptionally better system", it mostly works (modulo some annoying bugs that keep reappearing every few updates) but it's painfully obvious that they don't bother to do any serious QA on it. [They should send Dara out to be a driver for a few days, he'd love it!]
As an aside, Stripe IIRC seems to use half-SSR, half client-side fetching really interestingly to fetch data below-the-fold after load, for even faster load times. That there is excellent engineering.
I've never used Uber Eats so I don't know what the app is like- but Postmates forces me to tip before I can order more food.
I don't see the difference, personally.
Uber purchased non-trivial shareholder positions in their global competitors.
For example the case in Russia was a quite literally a merger. Uber and Yandex made a joint venture, which operates in Russia and some former eastern bloc countries.
Unless the plan is to build monuments to current day prison wardens. Depends how bad-faith the argument is, I suppose.
https://en.wikipedia.org/wiki/List_of_Confederate_monuments_...
It might be time to divest it from society's operations to allow us to focus on our core competencies and comparative advantages?
[1] https://news.crunchbase.com/news/postmates-raises-225m-more-...
The company also was shopped around for years by Frank Quattrone, who runs the "most" successful M&A advisory business - QATALYST. They didn't get anywhere with a deal, this was led by a different bank after they were fired.
Same with M&A -- at poorly run companies, internal ops will be starved of budget, execs wonder why, and they do M&A to improve things.
It all has to do with poor governance and bad executive incentives.
(Side note, they are not paying cash here, they are paying with inflated sock.)
Now, you do get all that nice UX convenience, but you pay extra for it.
I feel like in the end, the issue here is that those companies are just a bit of a useless middleman, not providing enough added value.
I've always thought that a liquid asset like Uber stock is basically as good as cash, so why do they even bother mentioning that it?
In NYC I've recently noticed that the pandemic has created a much larger focus on delivery and takeout margins, and these platforms are actually losing good restaurants. I for one am happy based on who I see picking them up though: ChowNow.
Right now, my 3 most common orders (and more I'm seeing daily) are all on ChowNow. Their model is a flat rate[1], not per delivery, and offer basically a self hosted (but in reality hosted), well designed, simple platform. Payment/address details are shared across restaurants so it's a similar feel to a Grubhub/Seamless/Postmates. They have their own search I just may start using[2], a lot of places around me are on it.
I got a postcard in one of my orders telling me prices were cheaper (no middleman tax) on their website (using ChowNow) and a 10% off code too. Another texted me. Worked great, was smooth, and my orders arrived consistently sooner too. Since then I actually think to check direct websites of places I find on Grubhub and found another few using it. Cheaper and quicker for me in all cases so far.
I think they may have cracked the code, because delivery is never going to be the profitable aspect no matter how much you could theoretically leverage Uber's cars or some nebulous eventuality of self-driving. But if your ordering system is all in one, it simplifies things dramatically for restaurants. Pickup, delivery, and in person all on the same system and no middleman fees per transaction. Someone mentioned Domino's, and it seems very close to Domino's as a service to some extent. As far as I can tell, the restaurants handle delivery themselves which seems more sustainable too. I am 0% affiliated with them but they seem to be the favorites of my favorite restaurants + a good and sustainable model.
I'm wondering if other cities are seeing the same adoption. I think this could take the delivery world by storm and make this acquisition look even worse, quick.
PS: I always felt like Postmates and Uber Eats were so interchangeable as is - high overlap of restaurants, nearly the same UI, and same very high fees even compared to other services. The only advantage either had was maybe offering a few more restaurants by doing menu scrape style things earlier and with some big chains before they got in on the delivery game, and that edge is gone now especially. I would expect the pandemic and this shift to motivate Postmates to exit, but I just don't see why Uber would want to realistically buy it. Seems like a play for market share in a market that doesn't work, and a low market share at that.