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Author Topic: Doordash and Pizza Arbitrage - Unloading capital cannons on customer acquisition  (Read 5739 times)

mouser

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A pizza shop discovers that a 3rd party delivery service has hijacked their google listing to offer deliveries for their pizza, and reselling their pizza at a loss... How is this a business model?

Another mystery of capitalism.

But he brought up another problem - the prices were off. He was frustrated that customers were seeing incorrectly low prices. A pizza that he charged $24 for was listed as $16 by Doordash...
You have insanely large pools of capital creating an incredibly inefficient money-losing business model. It's used to subsidize an untenable customer expectation. You leverage a broken workforce to minimize your genuine labor expenses. The companies unload their capital cannons on customer acquisition, while this week’s Uber-Grubhub news reminds us, the only viable endgame is a promise of monopoly concentration and increased prices. But is that even viable?


mouser

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What's interesting here is seeing how these giant corporations think:

He thought this was a stupid idea. "A business as successful a Doordash and worth billions of dollars would clearly not just give away money like this." But I pushed back that, given their recent obscene fundraise, they would weirdly enough be happy to lose that money. Some regional director would be able to show top-line revenue growth while some accounting line-item, somewhere, would not match up, but the company was already losing hundreds of millions of dollars.

Which brings us to the question - what is the point of all this? These platforms are all losing money. Just think of all the meetings and lines of code and phone calls to make all of these nefarious things happen which just continue to bleed money. Why go through all this trouble?

Grubhub just lost $33 million on $360 million of revenue in Q1.

Doordash reportedly lost an insane $450 million off $900 million in revenue in 2019 (which does make me wonder if my dream of a decentralized network of pizza arbitrageurs does exist).

Uber Eats is Uber's "most profitable division” 😂😂. Uber Eats lost $461 million in Q4 2019 off of revenue of $734 million. Sometimes I need to write this out to remind myself. Uber Eats spent $1.2 billion to make $734 million. In one quarter.

Again the idea is that we are living in an age where companies are not actually trying to make a profit or come up with a sustainable business plan -- they just raise and burn through enormous piles of money in an attempt to capture market share and jump off the train before it crashes..

Deozaan

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And the sad thing is, any company who tries to build a sustainable business model can't get a foot in the door because the customers will just say (for example), "why would I pay $24 for that pizza from you when I can get it for $16 from another company [which won't be around in a few years because they're not sustainable]?"

So in the end, neither model is sustainable in practice.

mouser

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And the sad thing is, any company who tries to build a sustainable business model can't get a foot in the door

YES YES YES.
This is the most important sad part.

wraith808

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And the sad thing is, any company who tries to build a sustainable business model can't get a foot in the door because the customers will just say (for example), "why would I pay $24 for that pizza from you when I can get it for $16 from another company [which won't be around in a few years because they're not sustainable]?"

So in the end, neither model is sustainable in practice.

I once read where a speaker asked the question "If you could increase dividends at the cost of your company going out of business would you do that over healthy growth."  The question that he got in return was, "How much increase?"

At the end of the day, Companies will often(always?) try increasingly big – and risky – deals to push up growth rates and short term shareholder value.

Target

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seems like the big business approach these days is to carpet bomb the market into oblivion, then build your business once any/all previous players are gone.  It takes deep pockets (which don't seem to be in short supply) and the only likely winners are big business (and certainly not the consumer)