>This whole industry is yet another example of “fake markets” that were created by just massively subsidizing something with VC cash.
How do you reconcile this narrative with the fact that Grubhub turned a net profit every available year until 2019 per their SEC filings. [1] All told, they only took about 85 million between founding in 2004 and IPO in 2014, and they were already net profitable when they took the last 50.[2]
[1] https://investors.grubhub.com/investors/sec-filings/default....
Most people railing against "fake markets" haven't considered the fact. Grubhub has long been profitable, same with Seamless. People still think that their uber rides are being subsidized on every ride, but uber now makes profit on every ride (at least in the us, not sure about abroad).
For some reason, theres this streak on HN of people that think that VC's are just complete idiots, and are completely just pissing away money.
I personally don't have the data to support or refute the "fake market" claim. I would point out however that it is not enough to be cash-flow positive for individual transactions. Sure Uber now makes money on every ride, is the business as a whole poised to make money? Will that be stable in light of likely regulations?
Like I said, I don't know. I don't think the questions can be dismissed just by assuming that VCs know what they are doing.
Edit: I went and looked at GrubHubs 2019 Q4 results [1]. They operated at a $30M loss. Most of the expenses were "operations" related. I'm not sure if that includes engineering, but I guess it doesn't.
[1] https://investors.grubhub.com/investors/press-releases/press...
That is why I said until 2019 in the parent thread. I suspect losses in 2019 were related to increased competition from UBER EATs, Ect. Net income for prior years were:
2019: -18M
2018: +78M
2017: +99M
2016: +49M
2015: +38M
2014: +24M
2013: +7M
2012: +8M
2011: +15M
>For some reason, theres this streak on HN of people that think that VC's are just complete idiots, and are completely just pissing away money.
They are not. But they are banking on the general public to buy shares without scrutinizing the business sustainability and be left holding the bag.
Which bags were the public left holding? There have been a lot of very easy wins for investors picking up VC-backed companies in the public market. If all you did is just spray around some diversification at prominent tech IPOs, you've done extraordinarily well over time.
Since IPO:
Shopify? $28 to $754
ServiceNow? $25 to $361
Alibaba? $93 to $199
Splunk? $36 to $149
DocuSign? $39 to $119
Teladoc? $28 to $188
Atlassian? $27 to $175
MongoDB? $30 to $194
Square? $12 to $73
Twilio? $26 to $187
Workday? $48 to $153
Veeva? $44 to $195
Zoom? $62 to $167
Facebook? $38 to $205
Palo Alto Networks? $53 to $215
Okta? $23 to $177
Wix? $17 to $166
Wayfair? $32 to $183
The Trade Desk? $27 to $292
Coupa? $29 to $205
RingCentral? $18 to $283
Zendesk? $15 to $73
Zscaler? $33 to $75
PayPal? $34 to $143
CyberArk? $30 to $96
Proofpoint? $13 to $115
Qualys? $13 to $101
Smartsheet? $19 to $52
JD.com? $20 to $47
Anaplan? $24 to $40
Zillow? $26 to $46
Roku? $26 to $117
Or more recently:
CrowdStrike? $58 to $76
Cloudflare? $18 to $27
Fastly? $24 to $36
Maybe they're holding one of the older bags.
Fortinet? $8 to $137
Tesla? $20 to $790
Salesforce? $4 to $169
Baidu? $8 to $95
Netflix? $1 to $438
Google? $50 to $1,349
Oh the horror.
blue apron?
Groupon, Singulex, etc. you're survivor biasing on those who actually did well.
Several of these sucked the lifeblood out of other income streams, which is just money redistributed not value added.
Several broke regulated public utility or near utility functions like housing and transport.
Some are just scofflaws (uber, Airbnb)
Many are extra territorial trans national tax avoidance
These left and right columns distort the actual net effect on the economy.
Sure: my pension fund will be in all of them
All of that may or may not be true, but the claim was that VCs pumped and dumped the companies on hapless investors, which clearly isn't the case.
The whole “Uber makes a profit on the ride” stat is broadly just creative accounting that counts the revenue and ignores most of the costs including the huge back office operation to build and support the app, marketing, admin, etc etc.
Yes it’s good that they charge the customer more than they pay the driver, but that doesn’t translate into a “profitable transaction” from a business standpoint. If it takes $X millions in engineering costs to build and maintain an app required for that ride to have occurred then one needs to prorate that cost across each ride as a cost and so on. There are lots of examples of these creative “our transactions are profitable” claims like WeWork’s much ridiculed “Community Adjusted EBITDA” metric.
The fancier your metrics need to be to show you are “profitable” the bigger the red flag should be that all is not well in Oz.
> For some reason, theres this streak on HN of people that think that VC's are just complete idiots, and are completely just pissing away money.
Well sometimes they are, sometimes they aren't. Softbank Vision Fund justifies at least questioning some VC strategies.
> For some reason, theres this streak on HN of people that think that VC's are just complete idiots, and are completely just pissing away money.
Some of us think they're hypebeasts in search of a greater fool.
The OP is calling this a 'fake market'. That is inaccurate in that of course a certain number of people will pay for food to be delivered. Pizza delivery has been a thing for a long time.
Grubhub has taken a profitable share of the market which makes sense.
Some people believe that new entrants are using private funding to subsidize the price of delivery to gain market share. By doing so, they are expanding the market beyond what the economics of the market support.
Those new entrants would argue that they are doing so because once they lock in customers and restaurants, they can raise their prices or lower their costs and turn a profit.
Where this all ends up is an interesting thought exercise , but it certainly isn't an easy question to answer.
I totally agree with your assessment. Given that, it really makes me wonder how UBER and their ilk skirt predatory pricing laws. UBER is running a loss, tanking the profit of grubhub, and now considering buying it out.
The pizza delivery operation is typically part of the pizza chain, and not outsourced to a third party that takes a hefty fee from the restaurant and the customer.
Easier to pay a kid $7.50 per hour to drive around than to pay $12 per order to a third-party.
> not outsourced to a third party that takes a hefty fee from the restaurant and the customer.
I delivered pizza for years before and during college. Looking back, I sometimes think the drivers were the ones who were subsidizing the big chains.
This was very early 2000s. I was paid about $6/hour and $0.70 per delivery plus tips which averaged $2 per delivery @ 3 deliveries per hour, 90% tax free as credit cards weren't used much then. I would walk home with $14 / hour, after taxes, which seemed like a great deal back then when the only other option for an introverted average looking guy who wasn't gonna make it as a waiter / bartender would have been $12/hour working awful data entry jobs or $8/hour doing retail.
It helped that gas was $1/gallon then, though within the next 8 years it would rise to almost $5/gallon.
But in those few years, I put on tons of miles of the worst kind of stop-and-go driving. I had a relatively decent 5 year old Honda, but after 4 years of delivering pies, it needed replacing. So essentially, I thought I was making $14/hour in a pretty cool job (driving around, listening to CDs, eating free pizza), but I'm guessing it was more like $10/hour after accounting for the wear and tear on my car.
I'd imagine most Uber, Lyft, Grub Hub, etc. drivers are all gonna see similar costs of doing business when they tally up their profits & losses over the lifetime of their car.
Have you seen the bills restaurants are getting from Grubhub and the numbers on the restaurant side?
The shadow restaurants opening up to serve these markets that massively lower the quality of the food in shared terrible kitchens (most not zoned for that and with little to no safety equipment) but using the restaurant name anyway?
It's the whole thing end-to-end that is unsustainable.
Here’s one:
https://twitter.com/susie_c/status/1255971900599046144
$1042 becomes $346.
> The shadow restaurants opening up to serve these markets that massively lower the quality of the food in shared terrible kitchens (most not zoned for that and with little to no safety equipment) but using the restaurant name anyway?
Or as a recruiter recently pitched it to me, Travis Kalanicks next billion dollar opportunity!
https://www.google.com/amp/s/www.businessinsider.com/cloud-k...
Grubhub's profits come directly out of local restaurateurs' pockets. It's easy to be profitable when you get to set your fees and have platform lock-in.
That is not a unsustainable "fake market", it is being a transactional middleman, as seen in almost every market.
I don’t see what the drawback is for Grubhub. You just made a case that investing in Grubhub is going to pay solid returns.
Except that local restaurants are already operating on razor thin margins. And when the only surviving restaurants are Perkins and Applebee’s, the delivery services lose a lot of their value proposition.
Seamless has been around for over 20 years and is very popular in NYC. Why would restaurants keep using it if it wasn't advantageous for them?
They have no choice. People used to have a stack of menus form local deliveries. Nowadays the convenience made ordering food through apps the thing to do. The thin margins that restaurants operate on gets sweeped under grubhub’s and the landlords rugs. This will kill most small food business which rely on deliveries.
> It's easy to be profitable when you get to set your fees and have platform lock-in.
That's exactly the VC playbook isn't it? Subsidize the market until you achieve lock-in, then stop the subsidies.
Now the market has nowhere else to go but to pay almost whatever you want. A restaurant can't afford to not be on GrubHub. A diner doesn't even consider non-grubhub options due to habit.
I'm really replying just because I wanted to say: Swizec Teller!
But, yeah, you're right. The problem is, the harder you squeeze a lemon, the less juice is left in it. And in times like this, they're squeezing harder and they've nearly squozen their whole supply.
> The problem is, the harder you squeeze a lemon, the less juice is left in it
An apt definition of a number of the world's current issues, unfortunately. I've never heard it described that way before but I really like how simple the imagery is to grasp, thank you!
I use doordash, but I also pay a very hefty few to them on each order. Usually about 13 percent it looks like.
And the restaurant pays 30% as well. Charging on both ends.
This. Most restaurants are lucky to make 10-15% profit on each order and these "services" are charging the restaurant 20%, plus other fees like credit card processing fees etc. My wife runs a restaurant and she has used all the major delivery services, including GrubHub and they take a huge cut. It's not sustainable and it's driving small restaurants out of business. They also don't manage their drivers well at all. We've had drivers show up 2-3 hours late to pick up an order, with angry customers calling asking where their food is the whole nine yards. The bottom line is they can't justify the huge cut they are taking from every order, they are simply not providing a good service. And of course when there are issues customers call the restaurant, there's no way to get ahold of anyone at GrubHub. Any smart restaurant owners are going to bail on these guys and hire their own drivers as quickly as they can.
How is that margin any different than what they would pay to the front of the house? Is the only difference that people don’t order alcohol via GrubHub which is the only way restaurants actually make money?
Yes partly alcohol, but also the front of the house is cheap to run. In the old, old days you only had to pay waiters $2.13/hour and they made the rest off of tips. Now it's like $8/hour in our state (Colorado) but that's still nothing, when you consider how many tables (and entrees per table) a single waiter can take during a busy hour, far less than 20% of each entree for sure. The problem is demographics are changing. Our restaurant 20 years ago did like 10-20% takeout and delivery, the rest was all dine in. Now it's closer to 50-60% takeout and delivery for us, so companies like GrubHub are eating up a lot of restaurant profits. People just don't eat out like they used too. It's not just us, there have been a ton of articles the last couple of years complaining about these companies, this first one says GrubHub takes 30% (yikes):
https://www.chicagobusiness.com/joe-cahill-business/restaura...
https://www.newyorker.com/culture/annals-of-gastronomy/are-d...
When I mentioned GrubHub and DoorDash to my wife when I say this article posted, I got a 30 minute rant about how much she hates them. She couldn't even give me a fixed fee she paid from these companies, she started listing off different fees and charges, but she said it was more than 20% per order. These companies have absolutely shot themselves in the foot with how they have treated their customers. What a lot of people really want is to be able to order online or through an app, that's the value these companies provide. For us we already had a WordPress website, so I paid a small fee to install the Woo Restaurant plugin to handle the online menu and ordering. It really wasn't much trouble to setup and it's been way less trouble than any of these middle men, and we get to continue to keep the profits.
> In the old, old days you only had to pay waiters $2.13/hour and they made the rest off of tips.
I guess most of the restaurants I go to in SF don't actually have waiters any more, just runners. None of them are particularly well positioned to take advantage of how we eat food now, either. They are in expensive locations for foot traffic with large dinning rooms and small kitchens when you'd want just the opposite.
This changes the game. Restaurants are forced to price higher; now, customers will have to decide if the higher prices are worth it for the type of food they get and the frequency they get it.
There was a 24hr local place that had things like marinated beef + rice for $30 ubereats total, which is exorbitant compared to my usual $12 meals. But I'd order there 2-4 times a week because of deliciousness, habit and convenience.
Restaurants charge the customer on the back of those fees when using app for orders. So more like customer's pockets.
That doesnt happen much, theres high competition and theres a race to the bottom to lower the price. For delivery most orders come through grubhub/seamless so a restaurant has the option to make no deliveries or cave in to ubers cut and price the food competitiely on the platform. Lots of small restaurants will probably go belly up. Grubhub sucks the market from under their feet and all the profit from their pocket. It doesnt help that people want free delivery too and the prices low.
I think GrubHub’s partnership and tie-in with Yelp makes this a very apples-to-oranges comparison. Food delivery apps operate with or without the restaurant’s approval and aren’t able to reach into the restaurant’s pocket the way Yelp and GrubHub can (and boy do they).
Also this is anecdotal, but I’m way more likely to place a pickup order through GrubHub than any of the other apps (if they even offer that). I think it might have to do with the Yelp integration, and me associating that experience with in-person dining... so maybe I’m just naturally in a “find a place to physically go to” mode when browsing Yelp?
The takeout side of this business would obviously have no issues being profitable.
"How do you reconcile this narrative with the fact that Grubhub turned a net profit every available year until 2019 per their SEC filings."
Easy. Take away the VC funding and see if anyone wants to try or can manage to start a similar company.
In most cases, these companies are just middlemen. Many folks do not see middlemen as "legitimate" businesses, even though the middlemen make money.
Hosts and parasites can each thrive. However only one can survive on its own. Ideally hosts would prefer to live free of parasites.
It should be expected that some consumers or producers will want to cut out the middlemen. We cannot reasonably expect everyone to appreciate those middlemen for the success they may have in taking a cut (and collecting data on consumer behaviour).
There is one complicating factor, however, which is that Grubhub and similar delivery services were making things very difficult for restaurants, which is already a difficult business. It’s not obvious that in the long run the big food delivery players wouldn’t have simply been the parasite that killed the host. Now, we’ll probably never know, since restaurants will be mostly doomed for at least the next year, taking any value-add businesses along with them.