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Uber, Postmates Agree on $2.65B All-Stock Deal

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Re: Uber, Postmates Agree on $2.65B All-Stock Deal

#111
post #66
post #24

Food delivery is a terrible business. M&A won’t make it better. I worked at LivingSocial in 2012/2013. We used to joke that “we lose money on every transaction but make it up in scale.” Takeout and Delivery was one of the last bets the company made. Basically food delivery. The customer service load is huge, the services aren’t really differentiated, and you have to both pay the driver enough for it to be worth it an…

I think a questions that’s going to pop up is, why does delivery work for a company like Dominos’s (vertical integration) but not Postmates (horizontal)?

I think you could say something about optimization here. When I was in college, I briefly worked as a delivery boy, and I'd often make 2-3 deliveries per trip.

Re: Uber, Postmates Agree on $2.65B All-Stock Deal

#113
post #66
post #24

Food delivery is a terrible business. M&A won’t make it better. I worked at LivingSocial in 2012/2013. We used to joke that “we lose money on every transaction but make it up in scale.” Takeout and Delivery was one of the last bets the company made. Basically food delivery. The customer service load is huge, the services aren’t really differentiated, and you have to both pay the driver enough for it to be worth it an…

I think a questions that’s going to pop up is, why does delivery work for a company like Dominos’s (vertical integration) but not Postmates (horizontal)?

Part of it I think is that Dominos only does delivery, and their product holds up well in delivery. It comes out of the oven very hot, and with an insulated bag, it can sit for a little while and still be good. If you deliver something like Thai food, it doesn't come out as hot, and there are hotter and cooler parts of the food. This doesn't taste great if it takes 20 minutes to get from the kitchen to you.

That, plus the volume, allows Dominos to send out drivers with multiple pizzas. They can calculate an optimal traveling salesman route from the store to all of the customers in the run, and then the driver comes back to the store to do it again. Also, the whole organization is built around the drivers not waiting around. Restaurants will often not have the order when the driver arrives, and they have to mess around with payment, etc for every order.

All of that makes driver productivity much greater and so the delivery cost per order is much less.

Re: Uber, Postmates Agree on $2.65B All-Stock Deal

#114
post #66
post #24

Food delivery is a terrible business. M&A won’t make it better. I worked at LivingSocial in 2012/2013. We used to joke that “we lose money on every transaction but make it up in scale.” Takeout and Delivery was one of the last bets the company made. Basically food delivery. The customer service load is huge, the services aren’t really differentiated, and you have to both pay the driver enough for it to be worth it an…

I think a questions that’s going to pop up is, why does delivery work for a company like Dominos’s (vertical integration) but not Postmates (horizontal)?

I've worked as pizza delivery. The tipping and per-delivery payments to drivers is why it works.

Roughly speaking, a delivery driver in my area nearly a decade ago earned roughly $20/hr after gas and car expenses, half in hourly wages @ state minimum and the other half in tips + $1/delivery payment. They also took about 3 deliveries an hour when fully utilized, which wasn't for 100% of their shift. The wait time got used productively, combination of answering phones, making pizzas, or at worst folding boxes.

This combination means that you're employing people at a significnatly-above-minimum-wage level, but their excess time waiting for deliveries gets paid at minimum wage and used to do customer service. And in the worst case when things are so absolutely slammed that there is no downtime, well, that's when you have to let phones ring (or answer briefly with "thank you for calling, our wait time is currently two hours, would you like to place an order?"). Plus these drivers know the store and the area well and from that alone should be significantly more competent at resolving issues - often enough someone calling in about their order will end up talking to the person who just tried and failed to make the delivery.

With Postmates and the like, though, the time spent waiting for a delivery has no useful work to fill the time. It's also not paid, but the gig has to justify itself economically, which means that drivers have to make up for it through increased per-delivery payments.

Basically, the difference is that store-employed drivers can do useful work while waiting to engage in deliveries, while app drivers can't. This is a very significant efficiency gain.

Re: Uber, Postmates Agree on $2.65B All-Stock Deal

#115

What's Postmates moat? Having never used it, I don't necessarily see the 2.6b$ value in a smaller delivery app that is only really used in some areas of the US. Though I'm sure there is something I'm missing and 2.6b$ is probably less expensive than the cost of pricing Postmates out of the market especially considering it's an all stocks deal. It's just that delivery seems to be easily scalable and easy to just dump…

Network effects are the moat here, much like for ride hailing apps. More drivers signed up on the app means that the service times for customers are improved, and more customers using the app means less waiting time and dead mileage for drivers.

Re: Uber, Postmates Agree on $2.65B All-Stock Deal

#116
post #31
post #24

Food delivery is a terrible business. M&A won’t make it better. I worked at LivingSocial in 2012/2013. We used to joke that “we lose money on every transaction but make it up in scale.” Takeout and Delivery was one of the last bets the company made. Basically food delivery. The customer service load is huge, the services aren’t really differentiated, and you have to both pay the driver enough for it to be worth it an…

I saw someone online saying how they didn't get their ranch with their pizza, so they called up customer service and eventually got a whole new pizza out of the deal. I understand it sucks to not get your ranch, but come on...

I mentioned this in a comment above, but I worked at Domino's and this was 100% encouraged. My manager hammered it into my head that a mistake was just an opportunity to gain a more loyal customer. If someone called with a complaint, we would credit you for a whole new pizza. Drink and dessert too if we really F'd up.

The reason being people will actually stop ordering Domino's if they're upset at a mistake in an order. Even something as silly as not getting ranch dip you paid $0.50 for. Making it up to them with a free item way more valuable than the mistake almost made the customer feel guilty. After using their free pizza credit, a customer was almost guaranteed to order Domino's again within 2 weeks, and would generally order twice as often as they normally would for the rest of the year or longer.

My very first delivery ever, I opened up the heatbag and their whole order slid out and fell onto the floor outside their front door. Maybe still one of my most embarrassing moments ever, I was sure I was going to get fired. When I told my manager about it, he said "This is going to be more powerful than a hundred TV commercials"

Oh, and they have all your orders and previous free credits saved in the computer system that handles orders, tied to both address and phone number (or online account). So if you tried taking advantage of this thing they would just permanently ban you from ordering from our store. This only happened once or twice in my couple years there.

Re: Uber, Postmates Agree on $2.65B All-Stock Deal

#117

The only difference between Postmates and Uber Eats is that Postmates customers overwhelmingly tip the delivery driver. The Postmates app and systems is horrifically engineered. Uber Eats is an exceptionally better system.

Postmates has the cleanest API IMO. If you want to see an engineering horror check out DoorDash. Half GraphQL, half REST, random 500s, no SSR.

Re: Uber, Postmates Agree on $2.65B All-Stock Deal

#118

I am bullish on this as a recent shareholder. We are now in the consolidation phase of delivery service where fewer companies mean less competition, more efficiency and better economics. This is where Dara’s strength is. He has a history of great dealmaking and acquisitions. I expect Uber to thrive as the industry consolidates.

A more cynical take on this might be that it's hard to actually turn a sustainable profit in this market unless you have monopolistic pricing power, and hence, consolidation. Less of "the strong get stronger" and more of "the unprofitable become few enough to become profitable"

Horizontally integrated food delivery is a natural monopoly even without abusing monopolistic pricing power

Re: Uber, Postmates Agree on $2.65B All-Stock Deal

#119
post #66
post #24

Food delivery is a terrible business. M&A won’t make it better. I worked at LivingSocial in 2012/2013. We used to joke that “we lose money on every transaction but make it up in scale.” Takeout and Delivery was one of the last bets the company made. Basically food delivery. The customer service load is huge, the services aren’t really differentiated, and you have to both pay the driver enough for it to be worth it an…

I think a questions that’s going to pop up is, why does delivery work for a company like Dominos’s (vertical integration) but not Postmates (horizontal)?

Well, for one thing, "integration".

Domino's is built to deliver pizzas. They have streamlined the process of an order being placed, prepped, and handed off to delivery to try to make each step of the process as efficient as possible.

Do "horizontal" delivery companies have similar integration and benefit from similar efficiency?

In an ideal delivery situation, you want two things to be true: first, delivery people should be constantly moving. Second, orders should be handed off to a delivery person as soon as they are finished.

Is this achievable when delivery people are routed to new pick-up locations for each delivery? You want your delivery person to arrive at the restaurant right as the meal is finished -- if they arrive early, your delivery person is idle and your costs go up; if they arrive late, the food is cold and your customers are dissatisfied.

Restaurants with successful delivery components can solve this by tweaking their number of delivery people and their service areas in response to their busy-ness, so that they always have delivery people returning to pick up more food with an appropriate frequency. Have horizontal delivery companies solved these problems, either through integration with the restaurants or through some sort of big data magic?

Re: Uber, Postmates Agree on $2.65B All-Stock Deal

#120

So city dwellers in the ancient Roman world did not have kitchens- possibly they ate out more than we do. So there must have been demand for food delivery... I wonder if they accomplished it with slaves? Well there is some history: https://www.thevintagenews.com/2019/01/08/food-delivery/ The Indian "dabbawala" maybe is where it has to go: some kind of standardized service where one driver can deliver to many people i…

I mean there wasn't a way to remote order in ancient Rome. You'd have to go yourself or send someone.
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