Why are service apps like Uber and DoorDash losing so much money despite being so popular? What are they spending all that money on?
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Uber’s rideshare division is thought to be profitable. People are generally willing to pay more money to get somewhere than just to get food delivered. They take a cut of the sales price as a middleman fee to aggregate customers and drivers together, like eBay’s business model. The customers are willing to pay this markup in order to access a larger pool of drivers, and the drivers are willing to pay this markup in order to access a larger pool of customers.
UberEats and Doordash are losing money on all fronts though. They offer a lot of temporary incentives to get restaurants, drivers, and customers to sign up since their business model only really works when they have a large enough market share. They have to facilitate communication and payment between 3 parties, which means way more of a chance that one of them fucks up and you have to clean up their mess. And the worst part is that customers expect free or close to free delivery, which isn’t really realistic given how labor intensive the delivery process is.
They try to make up the difference by charging the restaurant a cut, but restaurants already have razor thin margins and are generally unwilling and/or unable to pay this, and they don’t really see the benefit. Restaurants make most of their profits from drinks and tips from customers dining in, and they forgo that with delivery.
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