Tag Archives: strategy

Sequencing Business Models: Can That SAAS Business Turn Into a Marketplace?

As someone who has spent a lot of time building marketplaces in my career, a curious thing has happened over the last couple years. Founders have started reaching out asking for help converting their SAAS or SAAS-like business into a marketplace. The approach sounds a bit like this:

  • I’ve amassed a large group of X type of professionals
  • I’ve helped their business, but they’re asking for help driving more customers
  • Since I already have the supply, it should be easy to build the demand side to have a successful marketplace
  • My customers will be happy, retain better, and I’ll be able to charge them more

So goes the story. Now, this story itself explains why many businesses fail to make the conversion to marketplace. If driving more customers was your customers’ #1 need, and that’s not what you helped them with, you probably didn’t build a very successful business, or the problem of solving customer acquisition for that market is very difficult.

What Types of Businesses Are We Talking About?

Before we go any further, we should talk about what these businesses look like, and what they mean when they ask about becoming a marketplace. Many of the terms we use to define businesses today are features of the business rather than an encompassing definition, like the words SAAS or platform, which makes them not very useful. Note: I am blatantly stealing Brandon Chu’s platform definitions for this. Let’s break down these definitions so we know where we’re at:

  • SAAS: software that businesses access online and purchase via a subscription e.g. Slack, Adobe, Atlassian
  • SAAS-like: any number of different models where a business sells software to businesses online, but does not charge via a subscription e.g. transactional or pre-revenue
  • Marketplace: a business where sellers (frequently businesses) provide their services on a platform to attract additional buyers, and buyers come to this marketplace to seek out these services and find new suppliers. Marketplaces commonly process the transaction and charge a commission to either the supplier or the demander. If not, they usually charge some sort of lead generation fee to the supplier.
  • Developer platform: a business where developers can build businesses on top of the business’s software and charge customers. The end customer is usually not aware this company even exists e.g. Stripe, Twilio, Amazon Web Services
  • Extension platform: a business that enables other developers to make your product better where the platform owns the relationship with the customer and provides some of the direct value itself e.g. Shopify, WordPress, Salesforce
  • Networks: a type of platform where consumers interact with each other and/or content on the platform in a non-transactional way e.g. LinkedIn, Pinterest, Yelp

So, when we talk about businesses trying to become marketplaces, what we’re talking about usually is sellers of software to businesses trying to help those same businesses attract more buyers by aggregating buyers on their platform and aiding in the discovery of those buyers finding the businesses the company currently counts as customers.

The Weak Transition to Marketplace Arguments

Why is there a sudden demand of founders looking at this strategy? There are three fairly weak arguments I don’t like, but I’ll present them anyway.

#1 Saturated Growth in SAAS

Perhaps it is a natural extension of the SAAS explosion the last ten years. Kevin Kwok and I have often discussed that growth at some scale equals an adjacent business model:

  • Ecommerce businesses trend towards marketplaces over time e.g. Amazon
  • Marketplaces trend towards vertical integration over time e.g. Zillow
  • SAAS businesses trend towards extension platforms e.g. Salesforce

Perhaps as SAAS has moved into more niche verticals, the extension platform opportunities have dried up, so companies are looking at consumer marketplaces as a new potential growth lever. But SAAS companies continue to grow on the public markets. Perhaps as SAAS has expanded into industries where customer acquisition is difficult, they’ve found their businesses at best only solve the second most important problem for their customers.

#2 Desire for Market Networks

Perhaps it’s because of James Currier. He has blogged repeatedly about market networks being the companies of the future. These companies combine SAAS, marketplaces, and networks. But these founders are not using this term, and this supposed revolution looks no closer to happening five years after his original prediction. Some businesses attempting to build out market networks have become good SAAS businesses e.g. Outdoorsy with its Wheelbase product, but there is no evidence they’ve actually ended up building marketplaces or market networks. Honeybook has struggled, and Angellist and Houzz started as networks, not SAAS businesses. Angellist has never added a SAAS component. Houzz acquired IvyMark last year to launch a SAAS model after ecommerce, ads, and marketplace models for monetization disappointed, and it is too early to understand how well that is working. All evidence shows that if market networks are real, they are more likely to become them from starting as a marketplace or network first, then adding SAAS, not the other way around. Faire is a recent example of this.

#3 It Worked for OpenTable

Now this is a reason I actually hear. But it’s not a great one. The first reason is that OpenTable was a marketplace from day one. Customer acquisition was always a key value proposition, and they delivered on it. It wasn’t aspirational. Second, OpenTable is one of the largest public market disappointments of the last ten years. With an infinitely sized market, the company struggled, was acquired, and then written down significantly post-acquisition by Booking.com.

While these stories exist and do influence some founders, I do still think the main reason why is illustrated in the initial story above; it’s just the strange allure of ongoing customer development.

Why Changing Business Models and Customers is Always Hard

Ignoring the impetus for the rapid increase in desire for SAAS businesses to transform into marketplaces, let’s talk about why companies struggle to do this in practice, and how you fight these headwinds. Through my research and directly working with companies attempting these changes, I’ve identified some main barriers for this transition. If you can work through these barriers, your chances of making this mythical transition increase dramatically.

#1 Founders have to change the incentive structure for all or a significant percentage of the company

SAAS or SAAS-like businesses can grow very quickly. If you’ve spent a significant amount of years building a SAAS business and are considering the marketplace transition to drive additional growth and value to your customers, you’ve almost assuredly built a significantly large base of customers, still have growth targets on this core business, and are managing a lot of complexity already. What happens frequently is founders attempt to spin up a team to work on what’s usually a large, new addition to their current product offering. This initiative is considered a long term, strategic play. It’s important, but not urgent.

What happens to important, but not urgent, initiatives at fast growing companies? They usually get broken up by other important, but more urgent initiatives for the core business. Oh, our quarter was soft, and we need more resources to get back on track? Take them from the marketplace team. We’ll get back to it later. Have an initiative that could drive additional growth in the core business, but don’t have the resources? Take them from the marketplace team. We’ll get back to it later. And so on.

It’s always more attractive to take the more guaranteed optimization on the core business than risk those resources for the very long term, completely risky proposition that might drive a step change in growth for the business much later.

Fortunately, this issue is not new to fast growing companies, and there is a solution. In fact, we faced this very issue at Pinterest. Our largest strategic issue was international growth, but employees kept optimizing 1-2% changes in the U.S. business that moved the top line instead of international work that needed to begin from scratch. Founders usually have two tools to solve this problem. The first is to make the entire company’s growth revolve around this new initiative. That’s what Ben Silbermann did at Pinterest. The entire company was goaled on international growth at the expense of U.S. growth. And it worked.

The other tool is what usually happens at larger companies looking to expand into new product lines. They create a new team with separate goals and reporting lines. Frequently, they don’t even sit in the same building. This is what we did at Eventbrite. We created a Marketplace business unit with a GM reporting directly to the CEO. And while they sat in the same building, it had its own team and its own OKRs.

Changing the goals or creating an independent team with its own set of OKRs does not guarantee marketplace success, but they free you from the temptation of dismantling or impacting teams that frequently need to do years’ worth of work to find product/market fit for a second set of customers.

#2 Founders have to shepherd the right new and existing resources most likely to value the business model transition and change the company culture

Strong businesses usually build a culture of understanding their customers and their model very well and catering to those needs. What happens when you suddenly ask those employees to care about a second customer, or a new business model, and potentially trade off the needs? Old habits die hard. Employees still default to doing what’s best for the current customer/business model even at the expense of the new customer. And even if they do want to care about the new type of customer, they may not have the DNA. Consumer and B2B cultures tend to be very different, for example, attract different types of talent, and there are very few people who are great at both. 

Building B2B products can be very different from building consumer products, and many marketplaces (but not all) have consumers on the demand side. In this case, your customer is a less reliable narrator for their needs, so user research, while effective at identifying their problems, can be a lot less reliable at predicting what people will actually use. Consumer products require significantly more experimentation, and have the data to do it because there are so many more consumers than businesses. 

This cultural issue frequently requires new blood in the organization and careful recruitment of internal resources that are more passionate about the opportunity and usually have some background in consumer product development. Usually, leaders are brought in to lead teams like this with heavy consumer backgrounds, and they recruit more new people with consumer backgrounds. The use of advisors with that kind of experience (like myself) is also common—to suggest product development best practices that may be better suited for the task, to prevent common marketplace-building mistakes, and to more objectively monitor if progress is occurring at the appropriate rate.

How to Be Better Positioned to Build a Marketplace

While transitioning to new customers and/or business models and described above is hard, there are a few ways to make the transition to a marketplace more likely to be successful from a SAAS-like business.

#1 Founders need to confirm there is a demand side to this market, and the way you would engage with them aligns to you and your customers’ business models

One major reason marketplace transitions fail is that there isn’t actually a demand side to this theoretical marketplace to be added. These companies are selling to the supply side of a theoretical marketplace, and don’t understand if demand exists. There are two shades of this I have seen. One is that the SAAS customers make their revenue not by selling something people want to buy and find more, but that people feel compelled to support financially. Let’s take GoFundMe or Patreon as an example. These companies would love to have consumers come to their websites and find people and causes to support. Patreon even tried this. But are consumers searching for websites where they can donate more of their money to artists and local causes? No, not really. Do they support artists and local causes? Of course, that’s why those businesses have done well. But consumers generally aren’t searching for more causes.

The second shade is that the marketplace opportunity is only to find a vendor once on the demand side. In these markets, once a consumer finds a provider for a service, they tend to stick with them for long periods of time. Let’s say you are looking for a babysitter. If you find one that works for you, you stick with that person for a long time. This is in contrast to ordering food, where variety is a feature, not a bug, of the decision-making process. While successful marketplaces have been built in these areas, they are harder to build. SAAS companies struggle to transition in these markets because they have to build trust signals that may damage their relationships with their clients, and there are generally better platforms for researching these vendors than on the SAAS platform e.g. Yelp for local restaurants and services, Tripadvisor for hotels, and G2 Crowd for software. Also, how should the SAAS tool price these additional customers? Just once for the acquisition, or every time they use the product in the future? The clients and the company will usually be misaligned on this, creating leakage. In this case, the business model for the marketplace doesn’t align with the business model for the SAAS business or the SAAS customer. In a weird way, by trying to address the biggest problem you heard from your customers, you built a product that doesn’t work for that need, but for your own.

Again, this is a solvable issue. It can be mitigated through a lot of customer research on the demand side. Not only understanding the consumer your clients are targeting, but finding a critical pain point for them that isn’t solved on the market by another product that your company can actually solve due to its relationships with all of the suppliers in the market. Then, try to align revenue to the value you create in a way your SAAS customers will understand. And be prepared not to capture all of the value.

#2 Make sure the opportunity actually aligns to the characteristics of other successful marketplaces

Transitioning to a marketplace effectively requires founders to understand what makes a successful marketplace, and those characteristics are surprisingly opaque to people who haven’t worked on marketplaces. Rather than reinvent the wheel, I encourage founders to read Bill Gurley’s treatise on 10 factors to consider for marketplaces. One other factor Bill neglects to mention that is important is that normally marketplaces are built on top of under-utilized fixed assets:

  • Excess kitchen space for Grubhub
  • Idle cars for Uber/Lyft and Getaround/Turo
  • Empty bedrooms for Airbnb
  • Empty land for Hipcamp
  • Empty hotel rooms for Booking.com/Expedia
  • Excess SMB Inventory for Groupon

Do your current customers have this characteristic?

Can the Transition to Marketplace Ever Work?

It’s clear that evolving a SAAS business to a marketplace is an emerging strategy that more and more founders will research. What is important is to make sure you’re doing it for the right reasons, and that you’re prepared to fight the main barriers that prevent this transition from working. It’s also important to remember that even if you fight these barriers, this transition takes time. Marketplaces tend to take 2-3 years to find product/market fit. You need to be in a position where you can invest for that long before seeing a return.

In the Advanced Growth Strategy course, Kevin and I talk a lot about minimum scope. Minimum scope is the activation energy that makes a strategy viable. In the course, we talk about the minimum scope for cross side network effects to emerge. And in our examples, we do show that most cross side networks (but not all) emerge with the supply side first. But you have to remember that you do have to hit minimum scope for the demand side as well. And many businesses find they do not have a good answer for this.

Another existential issue for founders looking at this transition is that it inverts the typical company building model. When building a company (especially if you are raising venture), you typically have different assumptions you have to validate to receive funding rounds and eventually build a successful, long-term business. The harder the assumption you validate, the more likely you are to be successful, and the easier a fund raise will be. Ask any founder whether building a SAAS business or a marketplace business is harder. I bet you almost all will answer that a marketplace is harder. With the SAAS to marketplace strategy, you defer the hardest part of your strategy.

When looking for inspiration, it’s true there isn’t a cohort of companies to emulate, and that’s scary. In fact, almost every other business model transition related to this has more data to support. Flexport started as a SAAS business from the demand side (called ImportGenius), and built a marketplace on top of it, for example. Almost all marketplaces add a SAAS component eventually to their model. But don’t be too scared if this is your strategy. If you can answer positively:

  • Can I change the culture?
  • Can I change the structure?
  • Have I vetted a demand side exists?
  • Does the demand side actually exhibit great marketplace characteristics?

Then you are off to a great start in building a new scalable model of growth for your business.

Have transition to marketplace questions? If so, hit me up in the comments.

Thanks to Kevin Kwok and Gemma Pollard for giving feedback on this post. Also thanks for Brandon Chu for letting me use his platform definitions.

Currently listening to my 2010s Shortlist playlist.

Announcing the next Retention Deep Dive, Growth Series, and something new

Over the last few years, I’ve worked with Brian Balfour (CEO Reforge, formerly VP Growth @ HubSpot) as a Growth mentor and contributor to the Reforge programs. These are part-time programs (no need to take time off work) specifically designed for experienced Product Managers, Marketers, Engineers, and UX/Designers in both B2B and B2C companies.

Today, Reforge announced their three upcoming programs this fall:

1) The Retention + Engagement Deep Dive program. I worked closely with Brian developing this program, which looks at every aspect of retention including activation, engagement, resurrection, and churn.

2) The Growth Models Deep Dive program. This is a new, detailed examination of a key growth topic Brian and I developed this year with Kevin Kwok.

3) The Growth Series program. This is Reforge’s flagship program that provides an overview of the key topics in growth that’s been 100% revamped to reflect today’s growth challenges.

Apply to Reforge (Takes ~5 minutes)

Each Reforge program runs from September 24th through November 16th. Seats always fill up fast, and I’m excited to be involved. I’ll also be doing some speaking and Q&A during the events.

Besides Brian, Kevin and myself, other hosts include Andrew Chen (General Partner @ Andreessen Horowitz), Shaun Clowes (VP Growth @ Metromile, former Head of Growth @ Atlassian), Dan Hockenmaier (former Director of Growth @ Thumbtack), Heidi Gibson (Sr. Director of Product Management @ GoDaddy), and Yuriy Timen (Head of Growth @ Grammarly).

About the Reforge Programs
These are all invite-only, part-time programs that last 8 weeks. Each program requires a time commitment of 4 – 8 hours per week. They’re designed for Product Managers, Marketers, Engineers, and UX/Designers in both B2B and B2C companies looking to accelerate growth in their companies and in their careers by developing a systematic approach to thinking about, acting on, and solving growth problems.

In addition to the course material, we’ll also hear from leaders in the industry through interviews, live talks, and workshops, including:

Fareed Mosavat, Growth @ Slack
Ken Rudin, Head of Growth, Search @ Google
Brian Rothenberg, VP Growth and Marketing @ Eventbrite
Ravi Mehta, Product Director @ Facebook
Mike Duboe, Head of Growth @ Stitch Fix
Josh Lu, Sr. Director, PM @ Zynga
Guillaume Cabane, VP Growth @ Drift
Matt Plotke, Head of Growth @ Stripe
Joanna Lord, CMO @ ClassPass
Gina Gotthilf, ex-Growth Lead @ Duolingo
Elena Verna, SVP Growth @ MalwareBytes
Kieran Flanagan, VP Growth/Marketing @ HubSpot
Naomi Pilosof Ionita, Partner @ Menlo Ventures
Nick Soman, ex-Growth Product Lead @ Gusto
Nate Moch, VP Growth @ Zillow
Simon Tisminezky, Head of Growth @ Ipsy
Steve Dupree, Former VP Marketing @ SoFi
See the full list here

Here’s some more detail about each program below:

About the Retention + Engagement Deep Dive
Retention + Engagement Deep Dive zooms in on one of the most important sub-topics of growth.

Retention and engagement separates those companies in the top 1% of their category. Every improvement in retention improves acquisition, monetization, and virality. But moving the needle on retention is hard.

This program takes a microscope to every aspect of retention, including:

  • Properly define, measure, segment, and analyze your retention
  • Find and quantify the three moments every new user goes through to create a long-term retained user
  • Construct a high performing activation flow from the ground up using detailed strategies across product, notifications, incentives, and more
  • Layer your engagement strategies to build a compounding growth machine at your company
  • Articulating retention and engagement initiatives across teams, as well as influencing how leaders think about retention in your company
  • Walk step-by-step through of lessons applied to dozens of examples from companies like Instagram, Zoom, Spotify, Everlane, Airbnb, Turbotax, Jira, Credit Karma, Blue Bottle
  • And more…

The Retention + Engagement Deep Dive is designed for growth professionals who are looking to zoom in on retention, either because their job is focused on retention, or because they already have an advanced working understanding of the quant and qual fundamentals of growth and are looking to build additional competency in retention and engagement.

Apply for the Retention + Engagement Deep Dive

About the Growth Models Deep Dive
The new Growth Models Deep Dive addresses an essential new skill and topic that every growth practitioner needs to understand. Your growth model is the essential tool that drives alignment, prioritization, strategic investments, metrics, and ultimately, growth. Without it, your team ends up setting faulty goals, focusing on sub-optimal initiatives, and running in opposite directions.

This program goes deep into growth models across companies. You will:

  • Learn how the fastest growing products actually grow (hint: the answer isn’t funnels)
  • Dissect how the fastest growing products like Uber, Slack, Dropbox, Stripe, Airtable, Instagram, Fortnite, Tinder, and others grow using growth loops
  • Learn the detailed components of 20+ growth loops
  • Systematically construct growth loops your product can use after analyzing the three qualitative properties of every growth loop
  • Assess gaps and uncover opportunities for growth by identifying, measuring, and analyzing your products existing growth loops
  • Complete a step-by-step walkthrough to build your quantitative model for a single loop and your entire product
  • Communicate actionable insights from your growth model to obtain buy-in from leadership and across teams
  • And more…

The Growth Models Deep Dive is designed for growth professionals looking to focus on growth modeling, either because their job requires modeling their company or product’s growth or because they’re in a leadership role. It’s especially useful for growth leaders looking to influence leadership, set a team’s direction, and rally colleagues using growth models.

Apply for the Growth Models Deep Dive

About the Growth Series
The Growth Series is a comprehensive overview of the key topics in growth. The program is designed to help you accelerate growth of your product, company and your career by creating a prioritized list of retention strategies, building your quantitative growth model, and much more. Plus, the Reforge team spent +100 hours collecting feedback, investigating new growth concepts with experts, and analyzing the latest strategies coming out of top companies to completely overhaul the content with new topics, frameworks, and relevant examples.

During the Growth Series, you’ll learn:

  • Going from understanding one or two pieces of your growth model to understanding how the entire system works together
  • Evaluating the key components of growth (acquisition, retention, monetization) and how they feed one another
  • How to construct a holistic growth model, bringing together all the components of the funnel
  • How to understand and evaluate the user motivations behind the levers in your growth model
  • Running a continual, self-reinforcing experimentation process to execute against your growth model and user psychology
  • Learn how to properly call, dissect, and analyze an experiment, plus implement the results across your team
  • And more…

The Growth Series is designed for practitioners who already know the basics of growth and are figuring out how to take the next step. Participants are assumed to have knowledge about A/B testing, ad buying, and other fundamental tactics, and are ready to take on the bigger challenge of thinking about the entire picture of growth and forming a coherent and compelling strategy.

Apply to the Growth Series

Google’s New Strategy and How It Affects Aggregators

As someone who has had a lot of success using SEO as a tactic to grow companies (for Apartments.com, Grubhub, and Pinterest it was the dominant channel for new users), I get asked a lot of questions about SEO as a strategy today. Andrew Chen’s Law of Shitty Clickthroughs states that all acquisition channels have a shelf life and decay over time. SEO has had by far the longest shelf life of any major internet channel. It has been a stable platform (unlike Facebook), it consistently grew itself, and it was supported by a very strong business model that could drive revenue growth for Google for well over a decade, so Google didn’t need to monetize all of the free traffic they distributed to other companies. Perhaps a more elegant way of explaining this is that since organic search exists to serve user needs, not advertiser needs, it was a more sustainable acquisition channel, precisely because it was not built to be a channel. People never wanted ads, more email, etc. like other acquisition channels. On Google organic search, people do want answers.

It’s this last statement remaining true amidst a platform shift to mobile that will mark the inevitable decline of SEO as a channel for user acquisition. Ben Thompson declared Peak Google a few years ago as a company. Why he was wrong then is why I am right today by declaring we are now past Peak Google as an acquisition channel. To understand this, you have to understand Google’s strategy. Google’s search engine is driven by optimizations that help its users. Ben Thompson does a good job explaining how this plays out with publishers. If you, like Google, have been analyzing its users for the last few years, you may have learned a few things. The first is that the majority of them are on mobile, where their time is more limited, their connections are (still) slower, and there is the threat of an app replacing frequent queries.

What Google is seeing is that their users no longer want to click ten blue links. They don’t have the time or the bandwidth, and there are now a plethora of competitors in the form of apps for many of those queries. The form factor is dictating the optimal user experience, and forcing Google to evolve. Users want an answer, and they want it immediately. So, that is what Google is doing. If you type a question into Google with a clear answer, there’s a good chance Google will just answer the question instead of recommending a site for it. We’ve all seen that. What’s more interesting is what Google is doing when there isn’t an answer, and the solution is to provide options, or what they would likely call a discovery experience. Recipes is a great example. Where you used to be treated to a bunch of “21 best recipes for X” pages, you now just see the recipes as results.

One would think these queries play perfectly into Google’s existing strategy of ten blue links. But Google knows consumers don’t want to click back and forth onto multiple sites to see each site’s recommendations. They want Google to surface up the options directly. And that is what Google is now doing. Take any top query category, and you will see Google replacing links with either answers or options showing up directly in search.

Whereas the top strategy historically for these “options” queries was to build an aggregator and rank at the top by having the most options, Google is now stating that it should be the only aggregator. In the same way Ben Thompson described the squeeze between Google’s demand for fast loading pages and banning of obtrusive ads on Chrome, Google’s search policies are doing the same for aggregators who do well on organic search.

How is Google doing this algorithmically? Google has started to seriously enforce two new policies over the last couple of years in their algorithm: internal search and doorway pages. For internal search, Google says:

Don’t let your internal search result pages be crawled by Google. Users dislike clicking a search engine result only to land on another search result page on your site.
Source

For doorway pages, Google says:
We have a long-standing view that doorway pages that are created solely for search engines can harm the quality of the user’s search experience.
Source

On the surface, these rooms seem sensible. If you continue to read to the end of the doorway pages update, you may start to see a problem:

  • Is the purpose to optimize for search engines and funnel visitors into the actual usable or relevant portion of your site, or are they an integral part of your site’s user experience?
  • Do the pages duplicate useful aggregations of items (locations, products, etc.) that already exist on the site for the purpose of capturing more search traffic?
  • Do these pages exist as an “island?” Are they difficult or impossible to navigate to from other parts of your site? Are links to such pages from other pages within the site or network of sites created just for search engines?

Reading these two together, what Google is saying is that creating pages indexing your search result pages is a bad experience, and creating new pages that replicate your search experience in a different way for search engine visitors is a bad experience. These two rules effectively penalize any presentation of your inventory of content. How do they tell if these pages are created solely for search engines? It’s similar to how they are detecting bad ads: they use Chrome browser data. So, the guideline for an aggregator who would like to show their content to Google is simple: give us your content, and we’ll aggregate it, or play in the tiny space that is a non-internal search page and a non-doorway page. That effectively means creating a page with unique inventory that does not look like search, yet receives traffic to the page from other sources besides Google. There is a window there, but it is a small one.

While updating the algorithms for these rule changes, Google is figuring out how to be the aggregator in many categories now, and over the next ten years will go down the list of every top searched category and figure out exactly how to do that. To do this, Google will either build, buy, or partner with existing players. Let’s take a look at some of these examples.

The Build Case: Google Local
Google tried to acquire Yelp to build local listings and relationships with local businesses. When Yelp refused, Google built out Google Local on top of Google Maps and Google Search, and now has direct relationships with thousands of businesses managing their information directly with Google. This was not very difficult when you have the dominant search product and the dominant maps product to build on top of. When you search a local query, you see no ads, just Google Local above all other search results.

The Buy Case: Google Flights
In July of 2010, Google acquired ITA Software, forever depressing the market caps of many travel-related internet businesses. ITA powered flight search and pricing information for many top online travel agencies. As you might have guessed, that data now appears on Google directly for free. Google is monetizing that space, and looks to moving from a pay per click model to a more transactional model over time.

The Partner Case: Google Events
Late last year, Google launched a dedicated section when people search for events that aggregates events from third party sources, including Eventbrite. Third parties give their inventory to Google, and Google ranks the events on its own. You cannot rely on your business to be in this category. Google will likely partner if:

  • There is no dominant player they can buy
  • Supply is fragmented and data unstructured
  • There are multiple companies willing to implement specific markup to appear in these discovery experiences
  • The area is not one of the leading categories for monetization for Google today

What do you do if you’re affected?
If you are an aggregator, and Google is moving into your space, it changes your SEO strategy entirely. Whereas you used to create and optimize pages that aggregate inventory for popular queries e.g. “san francisco food delivery” for Grubhub, those pages will now be de-valued as Google replaces those listings with its own aggregator. The best solution to this problem is to shift your strategy to distribution of your individual listings, so that you can outrank competition inside Google’s new discovery experiences. These pages usually need to updated to AMP formats, as that it what is powering all of these new discovery experiences inside Google search.

Many companies will attempt to opt out of this strategy, thinking it will help them preserve their current rankings if they delay or hurt Google’s ability to build a compelling, competitive aggregator to their own. This is unlikely to work. If there are any competitors to your aggregator, game theory will incentivize one of them to partner with Google to steal share. If you are a monopoly and opt out, it incentivizes Google to build a competitor that will threaten your monopoly, you will receive a lot less traffic that also threatens your monopoly in the interim, and Google can dedicate a lot of resources to a competitive product over many years. This appears to be working with Google Local vs. Yelp. Certain companies have been able to thrive despite these types of platform changes in the past by building loyal audiences with high switching costs, like Amazon with Amazon Prime when Google launched Google Shopping.


Google’s strategy has changed, though it will take years to propagate throughout every popular category of search queries. You can’t fault them for this change, as it is the right response to cater to their users. Right now is the right time to understand their strategy and to best position your company for its inevitable rollout. Gone are the days where you can rely on Google for a steady stream of free customers without putting in that much effort. You need to think strategically about where the company is going, if there are still opportunities where your content can attract Google visitors, and how you maximize the now declining opportunity.

Thanks to Randy Befumo for helping me through an early draft of this.

Currently listening to Challenge Me Foolish by μ-ziq.

Four Strategies to Win Big with Low Frequency Marketplaces


Frequency creates habit which creates loyalty which creates profit. Uber and Lyft are successful because consumers need to get from A to B multiple times a day, forming habits that lead to long (and high!) lifetime values. Grubhub similarly benefited from people eating more than once per day.

But there aren’t that many business opportunities that have daily — or even weekly — frequencies. And those spaces have become very competitive. For example, how many food delivery companies can you name? Now add in groceries or meal kit cooking companies. All that just for the “eating” use case.

What if the natural frequency of use for a transactional business is low, like buying a house, selling a car, or booking a trip? How do you create a successful business if ideal frequency is quarterly or yearly or even once every few years? You would be unlikely to create a habit or loyalty, much less get the customer to remember your brand name. That is usually the case. If you don’t create loyalty, then you usually have re-acquire consumers when the need eventually arises again. This hurts customer acquisition costs and lifetime value. This fact makes building a successful business with low frequency extremely difficult.

With a low frequency business, you usually need to have a high average selling price to make up for the lack of frequency. While an order on Grubhub may cost you only $25, the average transaction size on Airbnb is hundreds of dollars. But a high average selling price alone is not enough to become a massively successful business. I’ve seen four distinct strategies for how to thrive in low frequency marketplaces. They all revolve around being top of mind when the transactional need occurs, no matter how infrequent that need is. I’ll start by talking about the most common approach, and then lead into some that are actually more valuable and defensible.

The Expedia Model (AKA SEO)
Companies that pursue this model: Thumbtack, Expedia, Apartments.com, WebMD

My first job was at Apartments.com. We were a classic low frequency marketplace. People search for apartments at most once a year, and there isn’t a whole lot of value you can provide in between apartment searches. So what did we do at Apartments.com? If you do not create habits or loyalty with initial use, users go back to the original way they solved the problem last time. Where do people go where they are searching for help renting an apartment? Usually, Google. So, the Apartments.com strategy was to rank well organically on Google so when people did search again for an apartment, they’d be likely to see us and use us for their search again.

SEO can be a very successful strategy, but the entire company has to be geared around success on Google. This strategy is also susceptible to platform shifts, like Google algorithm changes or Google deciding to compete with you. It also tends to shift companies toward portfolio models at scale. This is why Expedia owns Hotels.com, Orbitz, Hotwire, Travelocity, and Trivago, and why Priceline owns Booking.com and Kayak. When you rank #1 for your main keywords, the only way to grow is to own the #2 and #3 spots as well.

The Airbnb Model (AKA Better, Cheaper)
Companies that pursue this model: Airbnb, Rent The Runway, Poshmark

Sarah Tavel wrote a post about products that are 10x better and cheaper than their alternatives. You can definitely pursue this strategy even if you have low frequency. Airbnb was significantly cheaper than hotels, and many people, once they experienced Airbnb, found it a better experience as well. It was a more unique listing, in a “more real” part of the city, and they had a connection to a local. So, even though people only travel once or twice a year on average, when they do, they remember the Airbnb experience and start there directly instead of on Google, competing with the SEO behemoths of Expedia and Priceline.

Finding this level of differentiation in different industries is not easy, but worth contemplating. Airbnb is not the only startup that has entered a crowded space and grown rapidly by figuring out how to be 10x better and cheaper. RentTheRunway allows you to access high quality fashion without the high price, and without storing it, because dressing up is increasingly a low frequency occurrence.

The HotelTonight Model (AKA Insurance)
Companies that pursue this model: HotelTonight, One Medical, Lifelock, 1Password

There are certain businesses that are needed infrequently, but when they are needed, they are needed with great urgency. Example spaces include urgent care, being stuck in a random city unexpectedly, and fraud alerts. The key here is that someone keeps the app or account live despite a lack of usage because the fear of when it might be needed is so great. This is a hard strategy to pursue, but once the value prop is established, these companies remain sticky despite their lack of frequency.

The Houzz Model (AKA Engagement)
Companies that pursue this model: Houzz, Zillow, CreditKarma

Contrary to what many might think, keeping users engaged in a low frequency business is indeed possible: the key is a non-transactional experience. Many of these approaches have a “set and forget” component to them where they reach out with pertinent information in a more frequent way. Zillow is the first example I can remember that utilized this strategy. Even when not actively looking for houses to buy, Zillow kept users engaged by valuing their existing homes via the zestimates. CreditKarma reaches out with alerts and monthly credit check updates.

Houzz is a great example that is more recent. People remodel and redecorate their homes infrequently, but they are inspired more regularly. Houzz has a great product that shows home inspiration that can be saved and discussed, and when needed, but much more rarely, transacted.This is a product people engage directly with in instead of having to have content pushed to them

For this strategy to work, you essentially build a second product that enables frequent engagement — not a transactional product. Engagement strategies for low frequency marketplaces take advantage of an inherent human desire to stay up-to-date on things important to them. This won’t work for all industries. We actually tried this at Apartments.com, but were not successful because renters don’t care as much about investing in their living situation as homeowners.

A common confusion is that loyalty programs are an example of this. What loyalty programs usually do is increase frequency or target users that have high category frequency, like business travelers in the travel segment, rather than create loyalty from infrequent users. It is still a very valuable strategy, and I have blogged about loyalty programs if you want to learn more.

Of the four models I wrote about above, you will notice that not one of these is a brand model. Many of the sites listed in the SEO model have spent hundreds of millions of dollars building brands. Yet most travel searchers still start with Google. Brand is an extension of the Airbnb model, not its own strategy. If the product doesn’t deliver on a differentiated experience, brand building usually does not create loyalty.

So, if you’re building a low frequency business, do not dismay. There are many paths to still becoming a very large and differentiated business. These strategies are difficult but very rewarding if they are executed well.

Currently listening to Take Me Apart by Kelela.

Why Focus Is Critical to Growing Your Startup, Until It Isn’t

When I was a teenager, I told my dad about a friend and his dad and how they had seven businesses. He immediately replied, “And none of them make money.” I thought it was an extremely arrogant thing to say at the time, but later, I realized it might be the smartest piece of advice he ever gave me.

When I joined Grubhub, I quickly noticed the founders were incredibly good at staying focused. They said we were building a product for online ordering for food delivery — and only delivery — not pickup, not delivery of other items, not catering, and that’s all we would do for a long time. I remember thinking, “but there’s so much we could do in [XYZ]!” I was wrong. By staying focused on one thing, we were able to execute technically and operationally extremely well and grow the business both very successfully and efficiently. When we added pickup functionality four years later, it proved not to be a very valuable addition, and hurt our conversion rate on delivery.

If you have product/market fit in a large market, you should be disincentivized to work on anything outside of securing that market for a very long time. There is so much value in securing the market that any work on building new value propositions and new markets is destructive to securing the market you have already validated.

There is an interesting switch in the mindset of a startup that needs to occur when a startup hits product/market fit. This group of people that found product/market fit by creating something new now have to realize they should not work on any new value propositions for years. They now need to work on honing the current product value or getting more people to experience that value. Founders can easily hide from the issues of a startup by working on what they’re good at, and by definition, they’re usually good at creating new products. So that tends to be a founder’s solution to all problems. But it’s frequently destructive.

If a product team can work on innovation, iteration, or growth, they need to quickly shift on which of those they prioritize based on key milestones and value to the business. In this scenario, it’s important to define what innovation, iteration, and growth mean. In this context:

  • Innovation is defined as creating new value for customers or opening up value to new customers. This is Google creating Gmail.
  • Iteration is improving on the value proposition you already provide. This can range from small things like better filters for search results at Grubhub to large initiatives like UberPool. In both cases, they improve on the value proposition the company is already working on (making it easier to find food in the case of Grubhub, and being the most reliable and cheapest way to get from A to B in the case of Uber).
  • Growth is defined as anything that attempts to connect more people to the existing value of the service, like increasing a product’s virality or reducing its friction points.

I have graphed the rollercoaster of what that looks like below around the key milestone of product/market fit.

Market Saturation
The time to think about expanding into creating new value propositions or new markets is when you feel the pressure of market saturation. Depending on the size of the market, this may happen quickly or slowly over time. For Grubhub, expansion into new markets made sense after the company went public and had signed up most of the restaurants that performed delivery in the U.S. The only way the company could continue to grow was to expand more into cities that did not have a lot of delivery restaurants by doing the delivery themselves.

All markets are eventually saturated, and that means all growth will slow unless you create new products or open up new markets. But most entrepreneurs move to doing this too early because it’s how they created the initial value in the company. Timing when to work on iteration and growth and when to work on innovation are very important decisions for founders, and getting it right is the key difference to maximizing value and massively under-performing.

Don’t Become a Victim of One Key Metric

The One Key Metric, North Star Metric, or One Metric That Matters has become standard operating procedure in startups as a way to manage a growing business. Pick a metric that correlates the most to success, and make sure it is an activity metric, not a vanity metric. In principle, this solves a lot of problems. It has people chasing problems that affect user engagement instead of top line metrics that look nice for the business. I have seen it abused multiple times though, and I’ll point to a few examples of how it can go wrong.

Let’s start with Pinterest. Pinterest is a complicated ecosystem. It involves content creators (the people who make the content we link to), content curators (the people who bring the content into Pinterest), and content consumers (the people who view and save that content). Similar to a marketplace, all of these have to work in concert to create a strong product. If no new content comes in, there are less new things to save or consume, leading to a less engaging experience. Pinterest has tried various times over the years to optimize this complex ecosystem using one key metric. At first, it was MAUs. Then it became clear that the company could optimize usage on the margin, instead of very engaged users. So, the company then thought about what metric really showed a person got value out of what Pinterest showed them. This led to the creation of a WARC, a weekly active repinner or clicker. A repin is a save of content already on Pinterest. A click is a clickthrough to the source of the content from Pinterest. Both indicate Pinterest showed you something interesting. A weekly event made it impossible to optimize for marginal activity.

There are two issues at play here. The first is the combination of two actions: a repin and a click. This creates what our head of product calls false rigor. You can do an experiment that increases WARCs that might actually trade off repins for clicks or vice versa and not even realize it because the combined metric increased. Take that to the extreme, and the algorithm optimizes clickbait images instead of really interesting content, and the metrics make it appear that engagement is increasing. It might be, but it is an empty calorie form that will affect engagement in a very negative way over the long term.

The second issue is how it ignores the supply side of the network entirely. No team wants to spend time on increasing unique content or surfacing new content more often when there is tried and true content that we know drives clicks and repins. This will cause content recycling and stale content for a service that wants to provide new ideas. Obviously, Pinterest doesn’t use WARCs anymore as its one key metric, but the search for one key metric at all for a complex ecosystem like Pinterest over-simplifies how the ecosystem works and prevents anyone from focusing on understanding the different elements of that ecosystem. You want the opposite to be true. You want everyone focused on understanding how different elements work together in this ecosystem. The one key metric can make you think that is not important.

Another example is Grubhub vs. Seamless. These were very similar businesses with different key metrics. Grubhub never subscribed entirely to the one key metric philosophy, so we always looked at quite a few metrics to analyze the health of the business. But if we were forced to boil it down to one, it would be revenue. Seamless used gross merchandise volume. On the surface, these two appear to be the same. If you break the metrics down though, you’ll notice one difference, and it had a profound impact on how the businesses ran.

One way to think of it is that revenue is a subset of GMV, therefore GMV is a better metric to focus on. Another way to think of it is the reverse. Revenue equals GMV multiplied by a commission rate for the marketplace. So, what did they do differently because of this change? Well, Seamless optimized for orders and order size, as that increased GMV. Grubhub optimized for orders, order size, and average commission rate. So, while Seamless would show restaurants in alphabetical order in their search results, Grubhub sorted restaurants by the average commission we made from their orders. Later on, Grubhub had the opportunity to test average commission of a restaurant along with its conversion rate, to maximize that an order would happen and maximize its commission for the business. When GrubHub and Seamless became one company, this was one of the first changes that was made to the Seamless model as it would drastically increase revenue for the business even though it didn’t affect GMV.

This is not to say that revenue is a great one key metric. It may be better than GMV, but it’s not a good one. Homejoy, a service for cleaners, optimized for revenue. Their team found it was easier to optimize for revenue by driving first time use instead of repeat engagement. As a result, their retention rates were terrible, and they eventually shut down.

Startups are complicated businesses. Fooling anyone at the company that only one metric matters oversimplifies what is important to work on, and can create tradeoffs that companies don’t realize they are making. Figure out the portfolio of metrics that matter for a business and track them all religiously. You will always have to make tradeoffs between metrics in business, but they should be done explicitly and not hide opportunities.

Currently listening to A Mineral Love by Bibio.

If It Ain’t Fixed, Don’t Break It

Frequently, products achieve popularity out of nowhere. People don’t realize why or how a product got so popular, but it did. Now, much of the time, this is from years of hard work no one ever saw. As our co-founder at GrubHub put it, “we were an overnight success seven years in the making.” But sometimes, it really just does happen without people, inside or outside the company, knowing why. Especially with social products, sometimes things just take off. When you’re in one of these situations, you can do a couple of things to your product: not change it until you understand why it’s successful now, or try to harness what you understand into something better that fits your vision. This second approach can be a killer for startups, and I’ve seen it happen multiple times.

Let’s take two examples in the same space: Reddit and Digg. Both launched within six months of each other with missions to curate the best stories across the internet. Both became popular in sensational, but somewhat different ways, but Digg was clearly in breakout mode.

What happened after the end of that graph is a pretty interesting AB test. Digg kept changing things up, launching redesigns and changing policies. Some of these might have been experiments that showed positive metric increases even. Reddit kept the same design and the same features, allowing new “features” to come from the community via subreddits, like AMA. By the launch of Digg’s major redesign in August of 2010 (intended to take on elements from Twitter), Reddit exploded ahead of Digg.

This is what the long term result of these two strategies look like. Digg is a footnote of the internet, and Reddit is now a major force.

Now, neither of these companies are ideal scenarios. The best option in the situations these companies found themselves in is to deeply understand the value their product provides and to which customers, and to completely devote your team to increasing and expanding that value over time. But, if you can’t figure out exactly why something is working, it is better to do nothing then to start messing with your product in a way that may adversely affect the user experience. This has become one of my unintuitive laws of startups: if ain’t fixed, don’t break it. If you don’t know why something is working (meaning it’s fixed and not a variable), do nothing else but explore why the ecosystem works, and don’t change it until you do. If you can’t figure it out, it’s better to change nothing like Reddit and Craigslist than to take a shot in the dark like Digg.

Currently listening to Sisters by Odd Nosdam.

Branding Gives Your Company the Benefit of the Doubt

People tend to assume the worst, especially about companies. So, when companies screw up, and they inevitably will, consumers (and partially as a result, the press) are ready to pounce on you and your vile type of corporate evil. Every company has this moment, and some companies are more prepared for it than others. Yes, being prepared does mean having a crisis PR strategy and all that tactical jazz, but what’s more important is to have a brand people know. I’ll explain a bit why.

The brand of a company tells the consumer what it stands for, what it promises, and what it can deliver. Most companies invest handsomely in their brand and for good reason. Brand building can increase loyalty and command higher prices. But a crucial piece of brand building is that since consumers know what you stand for, and many of them have already identified with that, they give you more leeway in how you do business and when you make mistakes. Another word for this is trust. In really great brand building examples, a consumer will say, “That can’t possibly be right. I want to hear what they have to say about it.” In absence of this work, a brand is just identified as the product experience, which means when the product has issues, the brand has issues. Companies should try to elevate their brands to mean something beyond the product experience, and bad things happen when they don’t.

Brand building also crystallizes what you stand for inside a company, making your company less likely to make a strategic mistake against what you stand for. In absence of a strong brand, different departments optimize for different things, typically creating both a Frankenstein experience for the consumer, but also distrust among departments. When a core engineering team sees a new signup flow that seems particularly aggressive, they might be inclined to curse the growth team instead of saying, “I know what that team is about. Let me go talk talk to them to see why things seem amiss here.”

You can absolutely be successful without building a strong brand outside of the core product experience, but it is harder, and you’ll have more bumps along the road. I’ll give one example that comes to mind. The first is Netflix. Netflix is undoubtedly one of the most well known brands in the U.S. It is also a brand that has grown entirely through its product experience and direct response advertising. All of its marketing is tied to signing up for Netflix. Its TV ads, display ads, pop unders, etc. eschew brand building to attract direct signups. This worked very well to grow Netflix into a powerhouse, but when they inevitably made some major and minor mistakes, consumers, the press, and the public markets went after them. In 2011, Netflix announced a price increase and then after that a split of their DVD and streaming business, including a new name. Netflix is an amazingly valuable service at an incredibly affordable prices, especially compared to cable. But, because they lacked a strong brand, consumers associated a lot of their brand with the price. Furthermore, separating the two businesses was clearly a case of not having a strong understanding of their brand internally. The result: 800,000 subscribers lost in one quarter and a 77% drop in stock price.

Now, Netflix recovered from this, but it took years and a pretty radical change in strategy toward original content. While this provides Netflix more of a brand than “cheap access to tons of movies and TV shows” and pushes that branding more so to “quality content that I sometimes can’t get anywhere else”, it still associates the brand entirely with the product experience. If they go a few seasons without a hit show, or need to raise prices again, they may be in the same situation in the future.

Currently listening to Panda Bear Vs. The Grim Reaper by Panda Bear.

First to Product-Market Scale

I like to think of this blog as balancing between business school theory and startup execution. While there are many places they don’t add up, usually the combination of the two provides an insightful truth that is hard to see without the theory plus the experience of trying to implement it. One area where I struggled for a while between my experience and the theory was the first mover disadvantage as it relates to barriers to entry.

The first mover disadvantage states that, while being the first firm in a market to do something has its advantages in terms of brand recognition and speed to market, the firm bares an even greater cost of R&D, education, etc. that second movers do not. These second movers can fast follow without all of these additional costs the first mover had to deal with and quickly compete. See HBR for details. In my Chicago Booth studies, both Eric Lefkofsky (CEO of Groupon who taught Building Internet Startups) and up and coming economist Matthew Gentzkow (who taught Competitive Strategy) argued about how potent the first mover disadvantage would be for Groupon, and that now that everyone knew how profitable the Groupon model was, it would be copied as there was no competitive advantage.

In a case study about Groupon in Gentzkow’s class, I did a one man filibuster against this argument. I looked at the data. During the time of the class, Facebook and OpenTable were winding down their Groupon clones, Yelp called theirs “not a priority” six months after shifting almost their entire team to work on it. Living Social started having financial issues. Groupon was winning despite the first mover disadvantage. The question was not would Groupon win, it what the prize was going to be for being first. Why was that the case when economics would argue against it?

I saw this same phenomenon in my own work at GrubHub. Online ordering was not a hard technology to clone, and once we had educated restaurants on the value of online ordering and shown them the additional business we could bring them, a competitor would have a much easier time with their pitch. Yet, we were still winning in every market except New York and college towns, where competitors had entered well before us. After acquiring those competitors, we talked candidly about competing with each other. The folks at Seamless (the New York competitor) talked repeatedly about feeling boxed out due to GrubHub’s first mover advantage in the rest of the country, even though we weren’t first in many of those areas.

Having taken two classes emphasizing first mover disadvantage before hearing this, I knew something wasn’t right, but couldn’t quite nail the hidden truth. Last year, I read Andy Rachleff’s post on first to product market fit. Andy argued it’s not about first mover advantage, it’s about first to product-market fit. It felt warmer, but not quite right either. GrubHub was not first to product-market fit in many of the markets it entered and later dominated.

If we tweak Andy’s definition slightly from fit to scale, the model fits better. One thing about GrubHub is that everything we thought about we thought about at scale and with velocity. We would systematically try to grow every market we entered with the same focus and the same process. If we achieved this, we would overtake successful players that were already in the market. It also didn’t matter who entered the market and tried the same after that. We had already won. Product-market fit implies a product that works with a small product, and the next step in the company’s evolution should be scale. So, the target for startups or large firms entering new markets in order to be successful should not just be product-market fit, but product-market scale. If you achieve that, you dominate markets and cannot seem to be usurped no matter how few barriers to entry you have.

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.