Tag Archives: internet

Value Trade Offs in Online Food Delivery

If you’ve been following the online food delivery space, now is a pretty exciting time. Multiple services are starting up, competing on different value propositions, and many corporations are theoretically launching businesses here as well. There is one clear giant, and it is unclear if any of the upstarts will challenge them. But what is so interesting is how large companies entering the space and new startups alike are confronting the different value trade offs in online food delivery. I’ll first describe the different types of services, their different components, and then their trade offs.

Types of Services

Marketplaces
Services: GrubHub, Seamless, Eat24
Marketplaces aggregates delivery restaurants and allow diners to search for restaurants that deliver to them. The restaurants do their own delivery.

Delivery Services
Services: Postmates, DoorDash, Caviar, Uber Eats
Delivery services offer delivery from restaurants that don’t do their own delivery and deliver the food themselves.

Delivery Only Restaurants
Services: Sprig, Spoonrocket, Maple
Delivery only restaurants have no storefront. They just make food that is available for delivery and deliver the food themselves.

Delivery Only Restaurants that Require Prep
Services: Munchery, Gobble
These restaurant services require some prep work ranging from microwave to stove or oven, but usually it’s only a few minutes of prep required.

Delivery of Ingredients/Recipe Only
Services: Blue Apron, Plated
These services deliver the ingredients and the recipe required to make a meal, but the diner has to cook it themselves.

Delivery of Groceries
Services: Instacart, Fresh Direct
These services deliver whatever items you want from a grocery store.

I won’t go into corporate focused services in this post.

Value Propositions

Variety
People rarely agree on what food they like, let alone on which food they want to eat at a specific time. While GrubHub is currently unmatched in its variety nationally with over 35,000 restaurants, different companies are tackling variety on both sides of the spectrum. Postmates will theoretically offer the most variety as it will pick up food from any establishment. Online food companies like Sprig, Munchery, and Spoonrocket limit options considerably each day. Doordash, Uber Eats and Caviar have the most confusing approach here, as their ability to use their own delivery network does not restrict them to restaurants who already offer delivery, but they curate the list to provide supposedly only great options. GrubHub works with every restaurant that does delivery already, and has expanded the market by convincing many restaurants to start delivery because they see how well other restaurants do by offering that option with GrubHub.

Prep
Convenience has two components: how much work you have to do to eat (prep), and how quickly the food arrives (time). Marketplaces, delivery only restaurants and delivery services deliver ready-to-eat food. Then, there are some that require a little prep, some that require full cooking, and some that require figuring out what to cook and cooking it.

Time
The other convenience layer is time. Delivery only restaurants target 10 minute delivery times by pre-pepping meals and loading them into the cars of their drivers, whereas GrubHub and Eat24 are closer to 45 minutes to an hour depending on the restaurant’s location and type of food. Delivery services tend to take over an hour as they require extra coordination with restaurants. I believe Uber Eats is attempting a hybrid of the delivery service model and the delivery only restaurant model, but I can’t confirm. None of the other services deliver food ready to eat, but they range on how much work is required. The some prep restaurants are more like 10 minutes to heat, and ingredient/recipe services require typically cook time of over 30 minutes to an hour.

Price
Price varies for all of these services. Delivery only restaurants target less than $15 everything included. While that is possible in some cities with marketplaces, it is not in others. Ingredient/recipe delivery services have plans that are under $10 per person. Delivery services tend to charge a fee for delivery or mark up restaurant prices, so they are typically more at $20 and above per person. This incentivizes group order to spread the delivery cost around to multiple people. This is why most delivery services end up focusing on corporate catering instead of consumers over time. Prep delivery only restaurants have different plans to entice regular ordering.

Quality
In marketplaces, the quality options are set by the market, and the diner chooses how good they want their food to be. Delivery services have the same option with perhaps a higher end than marketplaces as the very best restaurants tend not to deliver. The delivery only restaurants tend to be cheap and low quality so far. Whether you had a hand in making it yourself can also be considered a quality parameter, as some people to tend to prefer things they cook themselves.

Planning
With food delivery, one typically does not need to plan in advance to use it, but with new grocery delivery and ingredient/recipe prep services, diners need to plan ahead of time to use the service.

Trade Offs

As you start playing with these value propositions, you recognize some additional constraints. I don’t need to lecture you in price vs. quality. That’s pretty obvious. But what may not be obvious is the trade off between time and quality. Even if you are delivering food from an amazing restaurant, if it takes a long time to get to a diner, it’s typically not very amazing by the time it gets there due to the food being cold. The other interesting trade off is quality vs. variety. At GrubHub, our stance was akin to the saying “quantity is a quality all its own.” In that, if you organized all of the supply, even if you had many amazing restaurants and many not so good ones, the good ones quickly emerged to the top due to ratings and reviews and overall quality of the service improved. So, all GrubHub worried about was variety and convenience, with convenience mostly limited to the ordering and customer service experience. Price and quality were set by the market, but presumably, variety solved quality, with a cap on the high end.

What these new services are doing is taking constants in the marketplace equation and making them variables: prep, time, price, and quality. It is way too early to tell if changing the equation is valuable to the broader market as GrubHub does way more orders in a day than the rest of these services combined. But it will be interesting to watch.

The Three Stages of Online Marketplaces

Prior to Pinterest, I worked on two sided network businesses my entire career, for apartment rentals (Apartments.com), real estate (Homefinder.com), and food delivery (GrubHub). As a result, I’ve admittedly become somewhat of a marketplace geek. And today is a very exciting time for online marketplaces. Marketplaces are evolving online. It’s hard to keep up with the innovation, but I’ll describe the three phases I am seeing, and why certain ones may prevail in different industries.

Phase 1: Connect buyers and sellers
This is the basic requirement of a marketplace. Early marketplace businesses like Ebay allowed you find people looking for your service if you were a seller, or find people selling what you were interested in if you were a buyer. To make this work, companies need to get past the chicken and egg scenario and build trust through their network. Things like ratings and reviews and guarantees make buyers trust they would get what they paid for, and sellers knew they would get paid if they delivered the service. Marketplaces in this scenario also had to find a way to get paid, using taking a lead generation or transaction fee for increasing the seller’s volume of sales. This phase is still in use with successful marketplaces like Airbnb, GrubHub, OpenTable, and others, but almost all are desperately trying to migrate into phase two or three right now, as you’ll see in the following paragraphs.

Phase 2: Own the delivery network
More recent marketplaces, not content to just facilitate a transaction, are actually working to implement the transaction by owning the element of bringing the service to the buyer. Marketplaces know that if they don’t control more of the experience, a great experience can be ruined by things outside of their control, supply side fault or not. Startups like Instacart don’t just allow you buy groceries online, but their workers deliver the groceries to you. Postmates and Doordash do the same for delivery food, picking up food from restaurants that don’t deliver and deliver it using their own workers. While this model is not new (restaurant delivery services have been around since before the internet), companies are now trying to build delivery networks at scale.

This is risky, as delivery networks all rely on the same pool of drivers. So, on the delivery side, marketplaces in different industries compete for delivery drivers. In a zero sum game there, it’s most likely the marketplace with the most demand wins (at this point, that’s undoubtedly Uber).

GrubHub, for example, bought two delivery services in Q4. OpenTable is moving into payments at restaurants. Airbnb is working on concierge services to improve the stay of guests. The companies starting in phase 1 see this as owning more of service blueprint, injecting their brand into the blueprint wherever possible.

Phase 3: Own supply
An even newer trend than owning the delivery network for an online marketplace is to vertically integrate the supply side of the business. Now, you may ask, what makes this a marketplace? In reality, it’s not, but from every other element, the business is designed or is mimicking an existing marketplace. Sprig and Spoonrocket do this with food delivery. They are delivery only restaurants that make their own food and have their own delivery drivers. MakeSpace and Boxbee, instead of just building a marketplace to help you find storage space, built their own storage spaces and will pick up your items and deliver them to storage and deliver them back for retrieval if needed. Margins are very different for their businesses.

The question for me becomes how far up the pyramid can you build a successful business. In many cases, owning supply will be victorious, but in many others, owning the delivery network is the best option. In other, a traditional marketplace is the best option. It will be interesting to watch almost every vertical determine the best model for customer satisfaction, scale, and profitability over the next decade.

The Contradictory Nature of Mobile Unbundling and the Emergence of Niche Marketplaces

Two specific, but highly related, points of view are gaining widespread acceptance among venture capitalists in the technology industry. The first is succinctly explained by venture capitalist Albert Wenger in a post called Facebook’s Real Mobile Problem: Unbundling. The gist of the post can be summed up by this comment: “Mobile devices are doing to web services what web services did to print media: they unbundle.” Fellow venture capitalist Andrew Weissman expanded on this idea in a post called The Great Fragmentation. In it, Andrew goes further, arguing that unbundling might be a core feature of the internet.

A second, but related point, is the emergence of the niche marketplace. Venture capitalist Andrew Parker has a post called The Spawn of Craigslist in which he shows how the behemoth marketplace Craigslist is getting slowly disrupted in a vertical-specific way. Venture capitalist Chris Dixon expands on this idea, saying that the only way to be successful as an online marketplace now is to take a vertical-specific approach.

Together, these venture capitalists describe a future in which there is a specific app or specific marketplace for every need a user might have. Instead of going to Craigslist to find an apartment, movers, a maid, a freelance web designer for your home business, a date, and last minute tickets, a mobile user would instead have an app for Padmapper, TaskRabbit, Homejoy, ODesk, HowAboutWe, and WillCall. The key to being a successful venture capitalist then shifts from finding businesses that tackle very large markets e.g. Craigslist to finding businesses that target markets that could be much bigger with unbundling e.g. Airbnb.

All of these VC’s are clearly smarter than me, but I take a somewhat contrarian view here. I hope the above example points out the main problem with this theory. In the above picture, in order for this mobile user to accomplish his/her goals, instead of needing to just know about and have an app for Craigslist, s/he now needs to know about and have apps for six separate businesses. One other thing venture capitalists agree on is that mobile app discovery is hard, and that the amount of apps mobile users will download and use is limited by both device memory as well as human memory. This same problem faces the sellers of services on marketplaces. With no aggregate marketplace, it may be harder for a seller of multiple services to know which ones exist for which product/service they are selling. Marketplaces thrive on a multitude of buyers and sellers. Unbundling of marketplaces makes building that two-sided network harder.

Something has to give here. You can’t have a future where everything is accomplished online via a mobile device, consumer’s preference on mobile is for apps, there will be hundreds of specific services for anything a user needs that are more powerful than aggregate services, app discovery is difficult, and people will only have 41 apps per phone. I think there is some sort of equilibrium here. Even if app discovery is solved (and that’s a hard problem), the rate of successful unbundling certainly seems like it has to be limited by 1) the amount of space on someone’s phone, and 2) user’s inability to be aware of hundreds of niche services they may need at any time. If you think a recommendation engine could solve this with big data, I recommend you read this article about how successful that’s been for other services.

If I had to guess, I would surmise that user unbundling will not be a trend in and of itself, even if it is a trend in technology startups building new businesses. Unbundling will continue when either 1) the frequency of the activity that is being unbundled is high (my standard would be weekly), or 2) the advantage of the unbundling is exponentially more valuable than the bundled version of the same activity. For criterion 2, that advantage will also be a moving target where the advantage has to become greater and greater to justify phone/brain space as more apps improve their utility. Number of apps per phone will continue to grow, but a decreasing rate, and with that growth, there will be a decreasing state of awareness for both apps that are on a user’s phone and ones that are not. If you doubt this, just think of how many websites you visit regularly. Think hard. It isn’t that high, is it? Now think about apps? Even less? Me too.

So, what does this all mean? Well, my take is that high frequency services like chat or picture taking continue to become unbundled from any aggregate services consumers use for them because of the ability of mobile to create superior user experiences for succinct actions. But, marketplaces that aggregate niche activities that users need only occasionally can continue to thrive e.g. eBay and Craigslist. One should expect only a handful of the dozens of services hoping to disrupt Craigslist or eBay or Amazon to survive, because of fantastic user experience or a high frequency of use. Finally, one should not be so quick to anoint the niche marketplace model as the emergence of mobile presents as many limitations to their success as it does opportunities for growth.

Online News is Broken, or A Brief History of Online News and a Startup That’s Re-inventing It

I am not a news expert. For most of my life, I never cared for the news. So, there are probably details below that are wrong or over-simplified. Consider that a caveat. Once I started working for a startup, news began to have value. It was the only way to learn about a growing industry. And it presented opportunities startups could seize before others became aware of them. So, now I care about the news. The problem is that the news sucks. It really does.

The way we receive and share news online is wrong. But it’s not our fault. All the main ways to receive and share newsworthy content have fundamental flaws. Now, I won’t take this space to rail on blog culture and how it’s a 100 articles a day of recycled press release garbage (I could, but I won’t). Instead, I’ll make the argument that I think we’re all going to have to accept that news is going to be the way it is for some time to come. That is, at a fast and furious pace, without a lot of context, and largely filled with what companies want to get out instead of what they don’t want to get out. As Rocky Agrawal said, and I’m paraphrasing here, “Quality news is like luxury airlines. If there was a market for it, it’d already exist.” With acknowledgement of that fact comes responsibility. If not the New York Times or TechCrunch, who is going to provide the context we need to make news more actionable and educational? No, the answer should not be MSNBC or Fox News. The answer is that it has to come from us, the readers.

This makes sense, right? One could argue the internet’s main disruption is its empowerment of the individual. And many individuals do provide context to the news in a way that is meaningful. Popular bloggers provide context to news all the time. In my industry, this certainly happened during the recent tech IPO’s, from Rocky Agrawal’s trashing of Groupon’s IPO in a completely analytical way to Mark Cuban’s defense or Facebook’s IPO to Bill Gurley’s examination of LinkedIn’s successful IPO.

But, as you can probably tell, these kinds of interpretations of key pieces of news are rare, and the exception. Most news gets posted and forgotten without any interpretation at all. Yet, a correct interpretation is where all of the value of news is in a professional context. If you can’t answer “what does this mean to me?”, then it wasn’t worth reading it. Further complicating the problem is the abundance of news and news sources today. What publications and bloggers should you read? Which articles from them? These questions are left up to you to figure out.

Before we dig deeper into the current problem, let’s do an extremely simplified (and in many ways, probably wrong) history of online news…

Online News Phase 1: Professional Curation of Content

In the early web, most people received news from newspaper sites like Chicago Tribune or portals like Yahoo. Content was surfaced to users the same way it was before the internet; an editor decided what was important. Users read what looked interesting, and went on their way. Content contained various levels of depth and context. Some of it was high quality, and some of it was just timely.

Online News Phase 2: Crowd-sourced Content

With the rise of blogging, a technology that existed for years but suddenly exploded in usage with the emergence of easy publishing tools like Blogger in 1999 and WordPress in 2003, editor-curated content suddenly had competition from thousands of non-professional, news-focused blogs, which were focused less on depth of content and more speed of delivery. Portals and news sites needed to adjust and did, using their capabilities to re-work the editorial cycle so that by the time their articles were published, they weren’t already “old news”. Content with more depth and research was de-prioritized. Blogs also provided opportunities for the community comment on stories, but comments stayed at the bottom of blogs and were public, but not easily share-able.

Online News Phase 3: Crowd-sourced Curation

With the rise of so many more potential news sources online, it became harder to find the right content to view. Quickly, the internet responded to this problem. Digg launched in 2004 to help users share and discover the best content. Digg was primarily a vehicle to keep up with the latest and greatest news, and featured a home page that showed the most submitted stories from Digg users. Reddit launched soon after with its mission to be the “front page of the internet”. More news surfaced and was shared than ever before.

Online News Phase 4: Social Networking

Digg and Reddit exploded in popularity among the tech elite, but became closed doors in a way to less savvy internet users. These sites formed tight-knit communities and gamed algorithms to provide certain content an extreme amount of visibility while most content stayed completely hidden. This was great for superstar bloggers in technology and politics, but felt impenetrable for quality writers not as devoted to building networks or writing about the latest technology fads. It also juxtaposed political news with funny internet .gifs, creating a confusing experience for a normal person that lacked direction.

In 2006, Twitter emerged, and combined easy publishing and curation into one format, with some lightweight commenting as well. With only 140 characters max, content was concise and easily digestible. No need to set up a blog. It took seconds to sign up and post. Twitter also easily allowed you to build a network where you could follow other users to see their content and easily comment back and forth. You curate your own feed of users and news, and don’t have to rely on Digg power-users.

Twitter has its problems as well though. With only 140 characters, most news is shared just as a link, with no context at all. This is no better than Digg or Reddit were. Again, a ton of news is shared, but very little is discussed.

Online News Phase 5: Crowd-sourced/Social Context?

So, what’s the next phase for online news? Well, I certainly hope, and will make the argument it will be, crowd-sourced context. Crowd-sourced context means that the meaning of the news and its importance will be derived and examined by its readers, and communicated for everyone else to enjoy in an ongoing conversation. Our immediate reactions to stories should go from our heads to a feedback loop on the news that is immediately shared with others. They should be recorded and contribute to an enhanced understanding of the news and its importance. Enter Quibb. Quibb is a new website where users share what they are reading for work and comment on what their colleagues are reading. It offers an easy way to discuss news with colleagues outside of the traditional blog comment environment, and catalogs all of this into a stream of noteworthy articles for your job. In the future, I can see this being the de facto way people catch up on news in their industry as it’s curated by you and your peers and you get the context for why people think these articles are noteworthy.

Why is crowd-sourced context the future? Well, as described above, the main ways we share and comment on news are broken. Commenting on blogs is something most people won’t do out of some sort of fear, but even if they did, those comments are only heard by people who scroll to the bottom of the page. Unless your peers go to that page, they have no idea you read this article and posted a response. Twitter is broken in another way; it only gives you enough space to really just post the link to an article. You get no context, and no opinion of why the person tweeted it. Digg and Reddit surface the most popular news content, but seem completely impenetrable for non-geeks, and again, lack discussion. Sites focusing on crowd-sourced context can deliver the news that’s important to you, why it’s important, and can make sure your team or your peers read the same thing and can also contribute to why that news is important. Comments could be public or only shared to your network.

Note: Quibb is in invite-only mode, but you can apply for membership via me to get a speedy acceptance.

Why You Should Be Watching Porn

In the early days of the internet, web entrepreneurs didn’t have a lot of great role models. Sure, Amazon was around as was eBay, but the primary business owners in the early days of the internet were from the porn industry.┬áMy boss when I worked at Apartments.com relayed a funny, but important story to me as I was learning this new industry. He told me about a time he was out drinking with a representative from the analytics company WebSide Story (now HBX, a part of Omniture, which is now a part of Adobe. Yay acquisitions!). After a few drinks, the representative starts telling me boss about the old days of the company, when WebSide Story’s only clients were porn sites. They were the only sites that saw the value of tracking where their traffic was coming from and what their users were doing once they arrived on their domains.

The porn industry was by and large the first industry to understand the power of the internet as a distribution channel. They were the first to develop profitable business models from it, and the first to develop and practic many of the online marketing techniques we use today to drive revenue for our own businesses. The story above shows how they were the first to start using web analytics to understand traffic patterns and consumer behavior. But porn websites were also some of the first to understand search engine rankings, and use that knowledge to manipulate their own sites to rank higher for their important keywords (which at the time I would imagine were fairly generic: sex, porn, xxx, etc.). Later, when Google rose to prominence, they were the first to partner with other websites for link exchanges to boost each other’s authority. Look at pretty much any online marketing tool, and I can probably prove that porn sites were some of the first to do it (not to take anything away from Amazon or eBay, the former of which invented affiliate marketing. Thanks for keeping us classy, Bezos!)

These days, porn sites are mostly associated with viruses, spyware, and other frowned upon techniques. Many of the techniques they use now and back in the early days of the internet might seem unscrupulous or in bad taste. But that’s the point of this post. Porn sites were the innovators of the early internet, but because they were from a frowned upon industry, legitimate business owners refused to pay attention to what they were doing. As a result, billion dollar companies like Nike are years behind some undignified porn site owner in the middle of nowhere when it comes to certain online marketing techniques. Pay attention to what the fringe are doing. Their lack of ties to the mainstream allow them to experiment with new ideas more than anyone else. Some of these ideas may be in bad taste, but some of them might be great ideas you can apply to your business.

Who are the pornographers in your industry? Are your paying attention to what they are doing?