DoorDash loses money on almost every meal it serves.
Uh oh.
We're headed for a big crash in "just in time services that lose money". Remember Webvan and Kosmo. The business model of all these guys, including Uber, is "achieve monopoly, crank up prices". Probably not going to happen.
The experience of Austin, where Uber and Lyft pulled out over the driver fingerprinting issue, is instructive. Within a month, six competitors were up and running. The barriers to entry in this area are low. Even if someone does get market dominance, they can't raise prices much.
Uber is particularly vulnerable because their latest capital infusion of $1.5Bn is high-interest debt, not equity. That's an axe hanging over the head of a money-losing company.
Someone on HN explained this very well recently: that food delivery is the perfect business for duping gullible investors, because you can book the entire cost of a meal as top-line revenue, even though it passes straight through you to the restaurant. So if someone orders $80 worth of food, that's $80 that you can show off on your Series B pitch deck even though your profit after delivery might be -$5. It's not even like the Uber theory of "we're spending to grow", it's "we're spending to make more money that isn't ours look like ours", with the losses expanding in lockstep. I agree that a major bust is incoming.
Edit: "gullible" may not be the right word. It's more like this is a clever hack to exploit how tech investors are complacent about huge losses, as long as revenues are growing too. That's not inherently a bad thing, sometimes this approach is a good way to build out a healthy business. But the food delivery outfits are carefully exploiting this and hoping they get pattern-matched to other business models where it's OK, even though their situation is not the same at all.
I don't know if those gullible investors are so easy to find, Groupon introduced everyone to the concept of "gross revenue" and "net revenue" back in the days.
> Uber is particularly vulnerable because their latest capital infusion of $1.5Bn is high-interest debt, not equity
Pardon my ignorance, can someone explain this? What is high-interest debt and what is equity and how do they determine risk?
Also I would expect that Uber is profitable since they take a cut per ride, and their overheads should be low (just a bunch of super smart software engineers and cloud hosting, right?). What am I missing? I am young, might be stupid. Bear with me.
You're not stupid! Uber is less vulnerable than DD (mainly because their margins are higher). But it's still a cost-intensive business. Subsidies, local offices, marketing, it adds up. For reference, see [0], although Uber sold their Chinese business to a competitor soon after that article was published.
Also, equity = shares in Uber. Debt = loans. You have less liability when you take somebody's money in exchange for a % of the company, than when you take somebody's money and guarantee you'll pay it back + interest ;)
As I understand it, Amazon's MO has been ploughing all of their profits into capex to expand their infrastructure, so they don't show much profit, despite continually increasing their revenue.
The other key piece is that Amazon's infrastructure investments often double as product R&D since their business increasingly shifts to selling access to their infrastructure vs selling products directly to consumers.
Last time I checked Uber still loses money. It's because they spend a vast amount on marketing both in the form of ads and subsidizing rides to undercut their competition. ie. In certain markets they are paying drivers more than the fare charged to customers would indicate. (Also, uber spends a lot on frivolities like driverless car research and branding redesigns, food delivery, etc.)
This is because Uber believes and has convinced investors it can become a worldwide monopoly by killing off competitors, network effects, etc. But the evidence so far is not supporting that case. Lots of competitors still, lots of markets that are "lost" for Uber.
So the real problem is that in the long run they can easily be profitable, but probably not at a level that justifies their valuation, since what they provide is a commodity. But luckily for them, this won't matter, because they'll IPO and be dumped onto the 401ks of witless Americans long before anyone figures this out.
DoorDash can't seem to get my simple order correct when picking up from a restaurant. They have < 10% order accuracy after ~100 orders. Either special instructions weren't followed or entire parts of the meal were missing. At one point, we had ordered 5 entrees from the same restaurant and the delivered 2. They don't train their delivery drivers to do any accuracy checks on the order. Are they really qualified to move into being a delivery platform? I wouldn't trust them with anything important.
At first, I ended up switching to other delivery platforms. I also reached out to the restaurants that DoorDash was constantly messing up with and spoke with them directly about how to improve the system. I also spoke to DoorDash, but you can only ever get a hold of their support team, not anyone who manages the delivery business. After that, accuracy got better, and then slowly started declining again. Now, I use Amazon for my food delivery, and they do a fantastic job.
Reflects my limited experience with them as well. We ordered, and waited, and waited, and waited. Eventually I called them and was told someone had messed up the order and the restaurant needs at least another hour to deliver. I gave up.
I love the idea of quickly ordering lunch for our employees on the app - DoorDash just needs to ensure they meet expectations. Just do what Dominos does already. If they do that well - I'd love a reminder at 11 am with our favorites listed where we can check out in 3 taps. And they need to really ensure Uber quality execution.
Given the current state, I feel like they're missing out on a massive opportunity by not fixing genuine customer issues.
Not my experience. They tend to get the orders almost 100% correct, but the special instructions are either simply not relayed to the restaurants or ignored by the restaurant (mainly for me this is indicating mild spice or low-salt as I'm ordering for a family).
It's an decent experience, though not "delightful", it's dependable. Take-out is always less tasty than dine-in.
DoorDash (and most other food delivery companies) have a major flaw: The drivers don't compare the order I made through them with the receipt from the restaurant.
In my experience, most of the incorrect orders DoorDash delivers can be caught if they just compare what their system says I ordered and what the restaurant receipt says I ordered. There have been multiple occasions of entire entries missing from the restaurant receipt. I don't have much trust in a company that can't do something as simple as that.
Not my experience at all. I've ordered via Doordash in San Diego maybe 20 times and have only had 1 order wrong (where they actually brought me more food than I ordered, at no additional cost).
"Everyone, shockingly, wants convenience. And as a result, it's our job to find the ways to fulfill that." - said every consumer internet company ever.
Long story short: DoorDash moving to 3PL B2B services to catch larger ASPO, therefore higher margins to pay the $7 fixed driver fees.
1. Dominos does 2.5MM deliveries sure, but Dominos is a marketing company first, a delivery company second, and a food company third. Their products are purposely made to be sold enough to cover labor and ads with barely enough left over, but combined works with a franchise network.
Which means...
2. Most providers on the platform are really bad, if your restaurant is working with DoorDash it's because your food is bad and delivery is the only value add, see regards to In 'N Out vs Jack In the Box.
So that means they have to ditch their current form since...
3. Churn of drivers is insanely high since they're viewed as disposable. The pay is low after considerations, limited job security, limited upper movement, limited support for drivers. All because the margins are just not there at the level they're at.
Obvi, since people's habit of spending $20 on a $8 burrito isn't sustainable.
So Postmates and DoorDash all running faster towards being USPS before more down rounds to tackle last mile problem--with UPS/FedEx just chuckling on the side playing with their plane and ships and Uber playing with their trucks.
It will be interesting to see what happens in the next economic down turn. I'd imagine that lunch delivery is one of the first things companies and individuals would cut back on.
Given their current state, that doesn't bode well.
Honestly: not surprised. The margins on DoorDash were way too slim to ever make the unit economics work. "Customers are used to paying $30 to Uber across the city — but very few will pay $30 to Uber their sandwich." [0]
Here's the new competition for DoorDash - autonomous delivery robots from Starship Technologies.[1] These robots are being deployed in Redwood City, CA, this month. The City Council just voted to allow them to use Redwood City sidewalks for a 9-month test period.
The video shows them delivering from La Tartine. I eat there often, and was there tonight, but haven't seen one of the robots yet.
Uh oh.
We're headed for a big crash in "just in time services that lose money". Remember Webvan and Kosmo. The business model of all these guys, including Uber, is "achieve monopoly, crank up prices". Probably not going to happen.
The experience of Austin, where Uber and Lyft pulled out over the driver fingerprinting issue, is instructive. Within a month, six competitors were up and running. The barriers to entry in this area are low. Even if someone does get market dominance, they can't raise prices much.
Uber is particularly vulnerable because their latest capital infusion of $1.5Bn is high-interest debt, not equity. That's an axe hanging over the head of a money-losing company.