[alteria]

This is absurd. Can someone explain to me why DoorDash exists? They're #1 in share, but I get the impression that they basically bought their spot.

Grubhub has been operating in the space forever, is public, and generally had been profitable until VCs came to town. How is DoorDash doing anything than Grubhub? Wouldn't this capital do better in other investments?

From the outside it seems like they've duped investors into burning hundreds of millions of dollars to hopefully build a monopoly in a structurally iffy market.

[wmab]

Grubhub for years were just a marketplace for customers to find food to order online / restaurants to find customers online. They'd charge a commission on order amount for fulfilling the match but the restaurant would have to deliver the food, manage their own delivery drivers etc. This is why they were profitable for years - they were a two-sided marketplace with a high commission percentage and low cost based since they didn't have any delivery costs.

DoorDash came along (after Postmates btw) and offered the same marketplace, but with delivery drivers too (a three-sided marketplace) - so that a restaurant didn't need to employ delivery drivers. This meant a higher cost base for DoorDash, lower for the restaurant, but similar commission fees. The simplicity of offering online marketplace ordering and delivery was very enticing for restaurants not wishing to manage this themselves, hence DoorDash's huge rise in market share, at the cost of Grubhub's over the last 2 years.

Grubhub has now for the past 3 years been busy spinning up delivery in its markets but is way behind DoorDash and Uber Eats. They have also admitted to falling behind in their Q3 2019 announcement[1] to the new competition (their late admission caused their stock to drop 43% in 1 day on the earnings announcement), and started also spinning up the non-partner side of the marketplace (adding restaurants without an agreement in place) to give customers more to order from (this is what Postmates then DoorDash pioneered). This is why they've started hemorrhaging cash and became loss making.

[1] https://s2.q4cdn.com/772508021/files/doc_financials/2019/q3/...

[alteria]

Got it, this makes a ton of sense, and explains why Grubhub was able to do the impossible, make money.

[wmab]

Yeah, Grubhub were touting themselves to restaurants as more of a marketing channel partner - find customers, advertise etc. Still, I'm not sure why that business service warranted a 20% commission fee in the first place to be profitable from.

[salawat]

Because who is going to balk at more sales for slightly less of a cut unless you have priced yourself to the bone already anyway?

Tech is all about inserting yourself in previously untransactable business opportunities via the leveraging of near universal connectivity to the Net, and the ease of electronic transaction settling.

Sometimes, this means taking a momentary haircut to get the right signatures in place, but fee taking and leveraging economies of scale does the rest.

The big head scratcher for me personally is how long it'll take until most people catch on to the pattern, and say "no more".

[gallamine]

20% fee isn't the whole story - about 5% is the cost-of-fulfillment - website, phone support, CC processing, fraud protection, etc. The rest of the "fee" is variable marketing and promotions costs - higher search placement, "buy one get one" offerings to customers, etc. The calculus for the restaurants is whether they spend any marketing budget, and if they do, is it going to be junk-mail flyers or targeted advertising that they have some hope of tracking success with.

[MattGaiser]

DoorDash is winning in terms of market share for one thing.

https://www.cnbc.com/2020/01/17/doordash-took-the-lead-in-th...

I bet a big thing for DoorDash is DashPass. That would lead to people ordering food for anything as the price is basically the same as in restaurant then.

[adrr]

I have Dashpass free from my credit card. Its not the same as ordering from directly from restaurant as Doordash marks up the prices 10% to 25%. I always thought Doordash was a terrible deal without it, you're paying marked up prices, delivery fee and a tip. Doordash is winning because they have the widest selection of restaurants since they are using their own drivers compared to Grubhub. Not sure why Postmates and UberEats failed to capture more market share since they offer the same service.

[perseusmandate]

The thing that really allowed DoorDash (and UberEats) to pull ahead was investing in partnerships with chain restaurants vs focusing on independent restaurants. Which hasn't necessarily resulted int he best product

[alteria]

Definitely agree that they're winning (the Second Measure blog is fascinating), it just seems like they bought their way to the top at a very high cost.

DashPass is definitely keeping me a DoorDash user, it's benefits are significantly better than Uber Eats pass, but idk if that's sustainable for DoorDash.