This was a major part of the playbook of Standard Oil; I would consider them a real business.
>The business model of these so-called unicorns is effectively a Ponzi scheme
"Ponzi scheme" has been thrown around flippantly lately, and I think your comment is perfect example of that.
I think it's a safe assumption that significantly more people order food from local restaurants than they did before DoorDash existed. So they did create a real market with a real product. It's not a 'box' that SBF would be proud of.
>but the sooner gig companies like Uber and DoorDash collapse, the better.
This I agree with, but for different reasons. These apps price their services artificially low by charging high fees to restaurants, underpaying drivers (forcing them to live on tips), and by- at times- subsidizing prices with investor money to keep them artificially low.
Overall, I think it's a crappy business model that doesn't deliver much value. But that's just my opinion.
Standard Oil resulted in lower prices for consumers. They had a patent on railcars designed for hauling oil so their competition had to load and unload barrels on to standard railcars and that was much more expensive to do. Any monopoly they had was explicitly enabled and enforced by the US government.
I also think Standard Oil shouldn't exist. In fact, so did the US government in a landmark antitrust case that you may have heard of.
(on your other points, I'm pretty much entirely in agreement)
Agreed, but "should/shouldn't exist" wasn't the argument. The initial argument was "if you use this strategy, you're not a real business" which I think is false.
Distasteful, destructive, and something that should be illegal- sure.
Ponzi scheme, doomed to fail, not a real business tactic- no.
Speaking of.
> should be illegal
Predatory pricing for the sake of driving competitors out of business to establish dominant market power is illegal, setting aside that the gradual erosion of enforcement means that antitrust law functionally no longer exists in the US.
Standard oil was profitable and they were able to afford undercutting the competition. That maneuver was too gain complete control over a diverse, vibrant market. Gig economy companies have never been profitable, and the only way they can be profitable is to increase prices to the point where consumers will stop using them.
Also, unlike Standard Oil, these unicorns are a Ponzi scheme. They provide a real service, sure. But the only way they were able to provide that service was to keep increasing their private-market valuation, with the next investor saying "I'm in, because next time they raise, it'll be at a higher price". What happens after every one of these gig companies went public? The private investors cash out, and the stock collapses.
In what way is this not a Ponzi?
True, and unlike modern VC-bacjked companies they didn't lose money in the others. BUT they were hit pretty hard with anti competitive legislation and were broken up as a result of these practices.
>Ponzi scheme" has been thrown around flippantly lately, and I think your comment is perfect example of that
We can agree to disagree, and I welcome you to a post about the subject from 2017 that pretty well explains my viewpoint (not my article) [1]. It's about Uber, but applies to all the recent IPO darlings
> it's a safe assumption that significantly more people order food from local restaurants than they did before DoorDash existed
What's your assumption based on? I figure it's either flatline or maybe had an impact on dining rooms. Either way, I have no data to back it up, but if you do I'd very interested.
>This I agree with, but for different reasons.
How is it different? They run an unprofitable business that rips off everyone involved and is subsidized by investors who were suckered into thinking this is a real business.
[1] https://www.forrester.com/blogs/ubers-unicorn-ponzi-scheme/
Anecdotal. Seeing restaurants that no longer do sit down and only do delivery, plus the creation of the ghost kitchen market. I also have no data, so I can't really defend this point. Just an observation.
>How is it different? They run an unprofitable business that rips off everyone involved and is subsidized by investors who were suckered into thinking this is a real business.
The point I was making is that the food delivery marketplace is a real business that delivers real value, just a sucky one with unclear value. Your comment seems to outline that you think it's built on hype and sucking in future money to pay past investors.
The fact that Lyft can, at times, be profitable disproves your point.
Can you say what city you are seeing restaurants that don't do sit down and only do delivery? Are these brand new restaurants? I can't imagine anyone that was already paying rent for a dining room turning people away. I also find it hard to imagine that a delivery only restaurant would be operating in a place that has good foot traffic as that is usually factored in to the rent since it means access to walk-in customers.
Lastly has the "ghost kitchen" market actually taken off? What brand recognition is there in that market?
Even SBF's magical box is not technically a Ponzi. Often times these scams are simply pump-and-dumps.
Do you have any comprehensive evidence for this? I have very strong doubts.
Why is it safe to assume that? Do you have actual data that backs that up? The presence of delivery drivers says nothing about the number of people that previously picked up their orders.
>'"Ponzi scheme" has been thrown around flippantly lately, and I think your comment is perfect example of that.'
How is that a flippant comment when the article we are commenting on states:
>"Competition in the sector has only intensified and the company has spent heavily to sustain growth by expanding its footprint in non-restaurant categories like convenience store items, groceries and alcohol. Last year, DoorDash spent $8 billion to acquire Wolt to increase its international presence."
The article then further states:
>"Under generally accepted accounting principles, however, DoorDash is unprofitable. The company reported a loss of $296 million compared with $101 million a year earlier during the third quarter."
How are those sums of money sustainable? Isn't that one of the defining characteristics of a ponzi scheme is that it is not sustainable?
>"So they did create a real market with a real product."
It's increasingly looking like that "market" was created by the pandemic. From a Deutsche Bank analysis of the company:
>"Deutsche Bank says that DoorDash drivers made 44% more deliveries in an hour at the height of last year’s pandemic lockdowns compared with three years earlier."[1]
And:
>"An average DoorDash order during the pandemic cost the customer almost $36, out of which the delivery company made less than $1 in profit."[1]
I think if you consider these paper-thins margins and the eye-popping sums being spent by Doordash to "sustain" growth" all while losing hundreds of millions of dollars a years, then "ponzi" is maybe not such a flippant comment.
I'm guessing they don't have another $8 billion to spend in order to acquire more growth which is why they are doing layoffs. Current market conditions would also suggest that would have trouble getting access to that kind of capital given those numbers above.
It's all so amazing to me. You take a incredibly profitable aspect of small businesses, turn it into a big business, lose all the profitability and hurt almost everyone involved, with the end goal being the ponzi cash-out or the automation of the entire sector leading to massive unemployment issues.
But otherwise it should result in banning operations for a while.
The cost to Uber or Doordash to provide one delivery must be practically nothing. Sure, they have large overheads, but once they have all their infrastructure going, each delivery is what, for them - a few database requests? How is that so expensive?
Marketing.
Setting price markups.
Researching new technologies to do God knows what.
The only expense that makes much sense is app development, and honestly, that sounds like it should be done by another company. Just expose an API and let restaurants and their partners handle the UI layer. There are tons of lightweight ordering platforms that could easily plug into a delivery service service.
Therefore, it is a race to the bottom and you have to spend tons of money on marketing/promotions to gain customers. The app with the deepest investor pockets will win out.
If there was only one app for delivery and they didn't have to spend any money on marketing/promotions then I bet they could offer a profitable service for a reasonable price.
Where these businesses aren’t profitable at the unit economics level it’s because they are trying to gain share of the total addressable market
Someone who lives in a city and tips generously on orders/rides is certainly profitable, but there’s only so many of people like that and in the current environment, incentives are skewed to be a large high-share company.
So these companies then try and make the service work for people in the suburbs, people who are more cost conscious, etc.
The general rule of thumb for consumer tech businesses is that as you grow, the quality of the incremental user gets worse and more expensive to acquire, but due to economies of scale, that can sometimes work out (a great metaphor for this is the mainline airlines missing out completely on the Southwest/Spirit/Frontier/RyanAir market segment)
So to your point, Uber and DoorDash can 100% be profitable businesses (much to the chagrin of GP), but from a strategic standpoint, management needs to run the company in a way that strikes the balance between gaining as much share as possible without burning too much cash (which leads people to believe that unit economics are broken when they are certainly not).
That’s not to say some businesses don’t have broken unit economics, but anyone who actually track DASH and UBER isn’t worried about whether the core product can ever achieve profitability (they already have), it’s just a question of how big is the market for customers with good unit economics (probably less than previously assumed!)
> Here’s what people miss (for a crowd so anti-MBA, they could benefit from a few online classes)
> Where these businesses aren’t profitable at the unit economics level it’s because they are trying to gain share of the total addressable market
People show average unit economics and people assume that the average applied to every transaction, when it is actually a distribution.
Expanding into new segments and markets almost always leads to temporary negative unit economics, but that's just what growth looks like.
The trick is to not take that too far and enter markets/segments with unit economics that will never be positive (like on-demand dog walking)
>Gonna be very unpopular here, but the sooner gig companies like Uber and DoorDash collapse, the better. The business model of these so-called unicorns is effectively a Ponzi scheme where the end goal is for early investors to cash out with the IPO. However, unlike a Ponzi, these companies also rip off their contractors so most restaurants and drivers actually lose money by being involved with their "service". Straight-up middlemen who skim off the top behind a veneer of tech that can't even turn in a profit. Build a real business. If you can't be profitable without eliminating all the competition by first undercutting them, then jacking up prices on users, then you shouldn't exist
[Edited the last sentence for punctuation]
Strongly agreed that these gig companies, at least in their current form, can die as quick a death as possible.
Cannot comment on gig companies dying out but this company is so overrated.
I would most definitely not want Doordash to die a quick death and I'm sad that you do! If not for their existence it would probably be too much trouble to do the research about restaurants in our area that are open, what their food is, how to order, then place the order via whatever novel phone or buggy online ordering system they've set up. We'd probably just end up ordering Domino's every week instead of what we do now which would be worse for everyone!
The desktop web interface is slow enough to be irritating but not so slow it's unusable.
Finding open restaurants with Google Maps is pretty easy. They have a specific option for "is currently open", and menus are frequently linked right from the business's listing.
they really never should have been valued as tech companies, they are basically commodity transport companies like airlines who will at best have razor thin margins
They are bad for the gig workers and usually bad for both sides of the gig in the long run.
Why on earth does DoorDash have 20,800 employees (if 1250 represents 6%)?
What are TWENTY THOUSAND PEOPLE doing all day for them?
While there are some that will disagree, that is really not an unpopular opinion, aussuming
> like Uber and DoorDash
stays in there as a caveat, with
> If you can't be profitable without eliminating all the competition … first … then you shouldn't exist
being the salient point.
Disrupting by being better, and the market evolving to account for the new method being better, is fine. That is one of the ways we improve over time. Disrupting by killing everything else even if your method is not generally better in the long run is a different proposition entirely.
---
As side note: I do object to “ponzi scheme” becoming a phrase that just means any scam where someone wins and everyone else likely loses. This may be scammy behaviour, but it definitely isn't a ponzi scheme.
The problem with these food delivery apps is, there are way too many parties to be paid a reasonable amount of money here and customers aren't willing to go beyond a specific limit of premium. Turning a profit is hard - even after punishing restaurants with 30%+ commissions, pushing "service fee" and other regulatory fee upon customers, and even after "stealing" drivers' tips.
This company shouldn't have grown so much really. It all feels so hyperbolical with them raising so much investor money and hiring thousands of tech workers. AFAIK they've always relied upon investor money to pump and inflate numbers and acquire new customers with massive marketing spend.
It would be one thing if I were sitting here going, "Well that makes sense you can't deliver a $12 hamburger for $10" but every time I use DoorDash it's "Somehow this $12 hamburger is listed as $18 and when I went to check out with service fees and tip it's going to be $40..."
Without drivers, restaurants, and diners, what does DoorDash do?
DoorDash is an entirely separate party. Technically, without any one of those parties, DoorDash doesn't work but network effects can force one party to use a substandard service. Hell, even two of the parties.
But if it's bad for all three. And there's other services like DoorDash? How does DoorDash stay afloat?
Fixed that for you. Some people made obscene amounts of money.
Has everyone had amnesia about how horrible the general taxi model was before Uber? I can't count the number of times I was blatantly overcharged (e.g. in DC with their braindead "zone" system before they switched to meters) or took an egregiously out-of-the way route, or the cab was filthy, or it just didn't show up when I had scheduled (and I had no way to see where the cab even was), etc. With no feedback loop/rating system there was 0 incentive for cabs to improve their service.
I agree that the VC funding model has resulted in things being grossly mispriced, but even if rides got significantly more expensive, the improvements Uber brought to the rides-for-hire model were huge and everyone just forgets how much people generally hated the taxi experience before they showed up.
I actually agree with both of you! If I'm evaluating Doordash and the Uber Eats services, I think the OP is completely correct that the world would be better off without them.
If I'm evaluating Uber the ride sharing service, I think you are completely correct that it has improved ride service dramatically.
For DoorDash and the ride-sharing companies I really wish there were some sort of localized non-profits that provided these services with none of the underhanded and sleazy tactics these companies use to try and achieve profitability.
In Austin, TX there actually was, it was called Ride Austin. In 2016 Austin voters passed a resolution requiring drivers to be fingerprinted, so Uber and Lyft left until the city was overruled by state government about a year later (this happens all the time - Austin passes some liberal ordinance that the conservative state government later rescinds).
In the time that Uber and Lyft were gone, we had lots of services that popped up to try to take their place, and Ride Austin was probably the best known. I liked it - it paid drivers better and there was an option to contribute to local charities. It was a non-profit but I believe it was essentially kicked off by a local tech billionaire (Joe Leimandt, who has been featured on other stories on HN). But that said, the app and service were never as good as Uber/Lyft, and though I tried to support them when Uber/Lyft came back, they weren't really able to compete and eventually closed down.
Thus, as much as I like the idea of a local nonprofit providing this service, I think the Ride Austin example is as good a one as any to show why it's not really feasible.
I usually use Uber/Lyft because it works most places, but the ride-share experience in Vegas was horrible. However, every casino/resort has a taxi queue. And those guys don't fuck around. They'll get you where you want to go, avoid major traffic, and the taxis were in decent shape.
A modern day Hobin Rood, if you will.
Although I agree that some of these unicorns may be overvalued I don’t see how the Doordash business model is an effective Ponzi scheme.
Build a real business. If you can't be profitable without eliminating all the competition by first undercutting them, then jacking up prices on users, then you shouldn't exist
[Edited the last sentence for punctuation]