DOORDASH RIDES FOOD DELIVERY APP CRAZE HOME
Competition for food dollar tough, but ‘people need to eat’
Just over two years ago, Tony Xu and two pals stumbled onto a billion-dollar idea in their Stanford University dorm room.
What if they could help local businesses focus on their work and take advantage of the gig economy to have folks deliver products for them?
“Companies were turning down hundreds of orders a week for delivery,” says Xu, 31. “They were leaving money on the table.”
They were clearly onto something. Their DoorDash app is valued at $600 million, according to researcher CB Insights, potentially worth $1 billion or more down the road, despite being one of many services with similar goals.
Instacart (worth $2 billion), Postmates ($400 million) and Munchery ($300 million), according to CB, are the big pureplay players domestically and sit in the shadow of Uber, which recently launched a lunch delivery service, as well as Amazon and Google, which are testing food delivery as well. But Xu, DoorDash’s CEO, isn’t concerned.
Dining is “the largest market I can think of,” says Xu (pronounced “shoe”). “We eat three times a day, seven days a week. As a result, I do think consumers want choice.”
DoorDash currently serves 17 markets, going up to 18 today, when it launches in Atlanta. Consumers pay $1 for the first order, but it averages $4 to $5.
Matthew Wong, an analyst with CB Insights, says the company doesn’t have to garner a huge market share because food itself is so huge. “You can have a small market share of this giant food business, and still have a significant value,” he says.
For now, ordering through DoorDash and others is cheap. The company charges $1 to pick up and deliver take-out meals. (Tips are optional and extra.)
Peter Csathy, CEO of Manatt Digital Media, which consults with tech start-ups, says the company has to begin charging higher prices to really take off. “This is early game, when you try to capture market share,” he says. “But you can’t build a highly scalable business on $1 deliveries.”
When USA TODAY first met with Xu in 2014, he had been out of school for more than a year and excited about the new opportunity of delivery, saying some 85% of restaurants didn’t bother with local delivery because it was too cumbersome. So he set out to change that. “It’s a lot harder than it sounds, bringing a pizza to someone within 30 minutes,” he says. He knows — before starting the company, he and his co-founders took delivery jobs to learn all about it.
“This is a complicated math problem,” he says. “We literally have to compute over 20 vari- ables in our algorithms, something humans can’t do. Everyone eats lunch at the same time, dinner, etc. It becomes complex. It’s a solution for computers, not humans.”
Xu and his partners have raised just over $60 million in financing for the company, from Kleiner Perkins Caufield & Byers and Sequoia Capital. Kleiner CEO John Doerr is on the board, as is Alfred Lin, a partner with Sequoia.
Lin says food delivery apps have taken off thanks to “the convenience of getting things delivered to your home. It’s instant gratification and the laziness of the human condition,” he said. “People need to eat.”
Like many in the “gig ” economy, DoorDash reaches out to contractors to drive for the company, and aren’t considered employees. The company says “Dashers” make up to $25 an hour.