What Exactly Is Uber’s End Game?
Food delivery is a losing game — so why is the most aggressive unicorn on the planet betting everything on it?
When Uber’s board of directors searched for a new CEO to replace Travis Kalanick during the summer of 2017, they landed on Dara Khosrowshahi, an investment banker-turned internet dealmaker. Khosrowshahi had spent nearly two decades of his career working at online travel giant Expedia and before that at IAC, a holding company with a portfolio of over 150 media and internet brands, where he learned the art of the business deal — buying, selling, and spinning off companies (IAC purchased Expedia in 2001). Now nearly three years since taking the helm, Uber is starting to follow the same acquisitive, deal-heavy playbook that has become a corporate signature for Khosrowshahi.
While Uber is most associated with ride-sharing, its Uber Eats business has been a bigger growth story. In Q4 of 2019, Eats was 32% of Uber’s gross bookings (the total dollar value of its services, including ride-sharing, Uber Eats, Uber Freight, etc.), but accounted for 51% of the company’s gross bookings’ growth. That trend rocketed up in Q1 of 2020, with Eats adding $1.6 billion in bookings compared to the year before, while gross bookings for the Rides business shrank by 5% from the year before.
Food delivery is an exciting sector precisely because it’s growing so fast. There’s really just one problem: Delivery businesses work best when they have high market share, and every delivery player is gunning for growth (the classic example here being FedEx and UPS). Uber Eats, Grubhub, Doordash, and Postmates have spent the last few years flooding the market — desperately signing up restaurants and bombarding customers with coupons, discounts, loyalty programs, and more — in an effort to do anything and everything to snap up customers and keep them.
Cracking the business model of food delivery
There are two basic approaches to the food delivery business: One method is to build a passive, two-sided marketplace that matches customers with restaurants and lets them figure out the transaction. That model is attractive because it’s capital-light — build a website, hire nimble customer service…