What do DoorDash, GrubHub, Postmates and Uber Eats have in common with Lassie? Nothing. They’re dogs; Lassie’s a superstar. What do they have in common with each other? Everything. They take the world’s second oldest profession — Babylonia had delivery boys — sprinkle it with tech dust, click their ruby slippers, chant “There’s no place like Silicon Valley” and hope to become unicorns. (By the way, since unicorns are entirely mythical, wouldn’t the Valley be wise to pick another moniker for its wannabe superstars?)
There’s no secret to success in tech. But like hitting a 98 mph fastball, it’s easy to describe, nearly impossible to do: Create a great product that can scale. Even better if you can build a patent moat around it. If, after five hard years of R&D, you create killer software at a cost of $100 million, then the first product you ship for $1,000 comes at a loss of $99.99 million. But by the time you’ve sold your millionth unit at almost no additional cost, you’ve grossed a billion. That’s scale.
Here’s the rub: You can scale intellectual property, you can’t scale labor. Your millionth pizza costs as much to deliver as your first.
Yet the meal-delivery guys claim they will scale when they create a critical mass. They will have the density they need to become profitable (none are yet) if they can somehow bag a huge market share. The density argument goes like this: if we can deliver enough meals in a given trade area, we can be like the post office in terms of efficiency (yes, the post office, I’m not being ironic). Nice idea, but it doesn’t wash.
The post office is a route business—your mail carrier hits the same couple hundred houses on the identical route every day. That beats 200 homeowners making 200 trips to the post office.
Meal delivery is a discrete business. No one else in your zip code is ordering spaghetti Bolognese from Trattoria Pastaria at 6:30 on a Tuesday evening. Whether the Uber Eats guy drives to the restaurant or you do, it’s the same (except the food is hotter if you do it yourself). There is no way to string that discrete delivery into an efficient, cost-effective route. To that point, old-school pizza joints average about 2 deliveries an hour and their drivers start at the restaurant. Can a free-floating DoorDasher do more than two an hour?
In short, Mount Everest is scalable, meal-delivery companies are not.
This claim of eventual profitability calls to mind the very old joke about the jeweler who sold his diamonds below cost, losing a little on each sale. “I make it up in volume,” he said. He didn’t and neither will the meal-delivery companies.
Let’s get specific. DoorDash, Postmates and Uber Eats all deliver for McDonald’s. According to that most reliable of all sources, the internet, they charge about $5 to deliver your burger and fries. And it takes about 30 minutes from the time you order to delivery. This means that, like pizza, the driver can do about two trips an hour. This is a truly great service for the consumer too stoned to get his own milkshake at midnight.
But there is no way, no way, in the world this can be profitable for the meal-delivery companies (or the restaurants if they do it themselves). Ten bucks an hour won’t even pay for the driver’s gas and minimum wage, let alone his incidental car costs. What’s left for DoorDash on ten bucks an hour? Nothing.
There’s no secret to success in tech. But like hitting a 98 mph fastball, it’s easy to describe, nearly impossible to do: Create a great product that can scale. Even better if you can build a patent moat around it. If, after five hard years of R&D, you create killer software at a cost of $100 million, then the first product you ship for $1,000 comes at a loss of $99.99 million. But by the time you’ve sold your millionth unit at almost no additional cost, you’ve grossed a billion. That’s scale.
Here’s the rub: You can scale intellectual property, you can’t scale labor. Your millionth pizza costs as much to deliver as your first.
Yet the meal-delivery guys claim they will scale when they create a critical mass. They will have the density they need to become profitable (none are yet) if they can somehow bag a huge market share. The density argument goes like this: if we can deliver enough meals in a given trade area, we can be like the post office in terms of efficiency (yes, the post office, I’m not being ironic). Nice idea, but it doesn’t wash.
The post office is a route business—your mail carrier hits the same couple hundred houses on the identical route every day. That beats 200 homeowners making 200 trips to the post office.
Meal delivery is a discrete business. No one else in your zip code is ordering spaghetti Bolognese from Trattoria Pastaria at 6:30 on a Tuesday evening. Whether the Uber Eats guy drives to the restaurant or you do, it’s the same (except the food is hotter if you do it yourself). There is no way to string that discrete delivery into an efficient, cost-effective route. To that point, old-school pizza joints average about 2 deliveries an hour and their drivers start at the restaurant. Can a free-floating DoorDasher do more than two an hour?
In short, Mount Everest is scalable, meal-delivery companies are not.
This claim of eventual profitability calls to mind the very old joke about the jeweler who sold his diamonds below cost, losing a little on each sale. “I make it up in volume,” he said. He didn’t and neither will the meal-delivery companies.
Let’s get specific. DoorDash, Postmates and Uber Eats all deliver for McDonald’s. According to that most reliable of all sources, the internet, they charge about $5 to deliver your burger and fries. And it takes about 30 minutes from the time you order to delivery. This means that, like pizza, the driver can do about two trips an hour. This is a truly great service for the consumer too stoned to get his own milkshake at midnight.
But there is no way, no way, in the world this can be profitable for the meal-delivery companies (or the restaurants if they do it themselves). Ten bucks an hour won’t even pay for the driver’s gas and minimum wage, let alone his incidental car costs. What’s left for DoorDash on ten bucks an hour? Nothing.
by John E. McNellis, Wolf Street | Read more:
[ed. See also: Silicon Valley Is Slowing, Whether for a Quick Breather or Extended Time-Out, I Have No Idea (Wolf Street).]
