People have had cars, addresses, and telephones for a century. Pizza and Chinese food have been showing up at people’s doorsteps for decades. Surely it seems like everything one would need to build a food delivery contracting company existed before the internet. What was missing that prevented me from ordering tacos by phone in 1995?
In: Economics
There’s two components..
First is the tech. The key point here is friction. Traditionally, there were large hurdles for potential customers who wanted to order a delivery. First you needed to know which restaurants in your area delivered, then you needed to figure out what they sold and how much it cost, then you needed to find the number, find a phone to call and finally find cash money to pay the delivery driver.
The hurdles for potential drivers was even greater. First you needed to know which restaurants delivered in areas you were prepared to drive to. Then you needed to figure out which company ran the delivery for those restaurants, then you needed to figure out how to apply to that company, pass whatever recruitment process they had in place, then figure out how to fit delivery shifts into your schedule – probably making this your only job.
App based delivery services reduce this friction by having an app. This means that a potential customer can download a free app and within 1 min they can see what’s available, get in contact with the restaurant and pay. A potential driver can download an app, fill out a few online forms and within a couple of minutes get dispatched to their first delivery. This reduction of friction leads to an increase in customers and an increase drivers.
The second thing is venture capital and the get big fast strategy.
Get Big Fast is a corporate strategy that is pervasive in the tech sector. Google and Amazon are both famous for it. Simply put it is:
1. Create a product or service that addresses an opening in the market.
2. Pour money into that product or service with the goals of becoming the biggest player in that market and building the largest base of loyal customers to your brand.
3. ???
4. Profit
The idea nities to make money will present themselvis, once you have a large enough user base,themselvnes ĺes. In the case of Amazon, the opportunities they found are selling stuff for third party vendors and selling access to AWS. Neither of these things has much to do with being a cheap bookstore (which was the original Amazon product). But Amazon could only find and exploit those opportunities because of its large number of users who originally came for the bookshop. It’s important that the money makingķ opportunities don’t generally need to be related to the actual uses.
In food delivery particularly, the companies are still in the rapid growth phase. In this phase they aren’t making money but they are trying to win a large customer base. Get big enough (so the theory goes) and a way to make money will present itself. VC keeps this merry go round going.
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