No One Is Using Grubhub... – Transcript

00:00You've probably seen this ad, though maybe not by choice. Grubhub was the biggest delivery app, 70% market share. They had total dominance, but now that's less than 10%. It had a $2 billion IPO, then it was acquired for 7.3 billion, but then sold off for less than 1/10 of that.

00:23No one is using Grubhub. What the heck happened? Delivery apps like DoorDash and Uber Eats launched around 2013 and 2014, but Grubhub was actually a decade earlier and it really was the first to solve the

00:49delivery problem. Imagine a world about 20 years ago with no DoorDash, no Grubhub, no food delivery apps at all. If you wanted to take out, you had to take through a stack of paper menus, call a restaurant, make your order, and sometimes read out your card details.

01:06Two developers, Matt Maloney and Mike Evans, were sick of this. We were frustrated by the lack of dinner options as well as the pain in the ass of calling restaurants and reading our credit cards. At the time, we were working on geographic lookup searches for rental real estate. That's when I heard at the screeching wheels in my head. Why wasn't there something like this for food delivery? So, they started Grubhub, an online menu, but they needed

01:33restaurants. The two went door-to-door across Chicago collecting paper menus and building a database, but there was a problem. Around this time in 2004, websites weren't that great and many restaurants already tried having one, some spending thousands, and it usually didn't pay off. Matt and Mike's price point, $140 for 6 months placement, wasn't that appealing. So, they tried

02:00something else. We said, "What if we take a 10% commission on whatever we sell for you?" Restaurants loved that. The change worked, but there were two problems. First, no one wanted to invest. >> >> It was a weird business model with a weirder revenue model. The other problem was awareness. Luckily, Matt and Mike knew how to reach their market because they knew Chicago. People leave work

02:26right before dinner and are hungry and susceptible to Grubhub's marketing. So, they advertised at the bustling Chicago transit hubs. Plus, there were other perks. We noticed that the person managing the outdoor ads was really bad at taking them down. So, we knew that if we bought a month of space, we'd get five. Grubhub quickly took off in Chicago. Orders began flooding in.

02:51They expanded to San Francisco with their own bootstrapped funding. Within 2 years, they won the University of Chicago Booth New Venture Challenge. In 2007, they raised their Series A, 1.1 million. By 2010, Grubhub was operating in 14 cities on just $3 million in outside capital. And then came the real investment. $31 million.

03:14That was nothing compared to what was coming. Though first, yet another problem. Grubhub was exploding, but they weren't alone. Other delivery websites were appearing, and one in particular was Seamless.

03:29They were doing the same thing, but with a firm grip on one of the most lucrative markets, New York. A dense urban population, thousands of restaurants, the delivery app dream. The companies were similar. We were solving the same problems, but in different geographies. Seamless consistently made a very smart decisions both with product and the If Grubhub could have just get maybe 10% of New York's delivery market, the

03:55commission revenue would be huge. Though, it would be a tough battle. So, Grubhub did something else. In 2013, Grubhub and Seamless merged. Grubhub was doing a really good job nationwide, but Seamless had incredible brand awareness in New York. It's like a religion there.

04:15By keeping both brands, we didn't have to spend money to promote Seamless in markets outside of New York or to promote Grubhub inside New York. Best of both worlds, right? Grubhub was on a roll and that momentum carried them to an IPO in 2014, a $2 billion valuation which raised 200 million.

04:34Everything was going great for now. In the background, two different competitors prepared for war. Grubhub might have paved the way for food delivery, but these new apps were going to be different.

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06:14seconds. No hunting through logs. Click the link in the description for a free month of Pro. 10,000 operations included. Thank you to Make for sponsoring this video. In 2013 and 2014, both DoorDash and Uber went live. And unlike Grubhub, they offered something extra. Delivery. Their own network of delivery drivers.

06:38Grubhub originally was just an online menu or more a marketplace for restaurants. It was up to those restaurants to handle delivery. If they didn't, too bad. And this model left a huge gap in the market. Unlike Grubhub, DoorDash delivered from almost any restaurant, even those that had never offered delivery before. They handled the logistics, organization, scheduling, payment, and everything else. The

07:04drivers just came to the restaurant. So, any mom-and-pop business could suddenly deliver. DoorDash built its own network of drivers known as Dashers. In fact, the founders delivered the first 200 orders themselves just to figure out the logistics. DoorDash and Uber immediately had a way more options for customers.

07:24But, it also came at a cost, which Matt and Mike were very aware of. To make it work, it was a sort of lose-lose scenario. A small cut of commission for restaurants, low pay for drivers, and they somehow had to figure out how to make all of this profitable. Matt Maloney didn't like this. Even though they said they were profitable, Matt called them liars. People are going to look around and say, "Oh, crap. I can only do this for 12

07:50months, even if I just raised a hundred million, because every incremental transaction is negative." Matt hated this business model. You have to recruit people, you have to train them, you have to get them on a schedule. And by the way, you have to do it without telling them what to do because of the legal implications. The logistics business is crummy. It has bad margins. The only

08:15thing that matters here is volume of orders. To be fair, he's not wrong. These companies were losing lots of money and their margins were awful. They were soaking up billions. In 2016, Uber lost 2.8 billion, then 4.5 billion in 2017, and the losses continued for years. Grubhub, on the other hand, was very profitable. But now, they had to change something or they'd be left

08:42behind. Investors saw the writing on the wall. If they didn't adapt, they'd be dead. So, in early 2015, Grubhub acquired two delivery companies, Dining In and Restaurants on the Run. Grubhub had to adjust its financial approach from making great profit to just staying afloat to keep up with DoorDash and Uber Eats. "I'm running my delivery-based business with the explicit goal to break even. That's not fun for me and normally

09:09I'd say that's the dumbest you could ever be in. Why run a break-even business? That's a pain in the butt." Grubhub's marketplace margins were as high as 35%, but not anymore. Plus, to stay profitable, Grubhub did two things: charge the customer or charge the restaurant.

09:28Grubhub is doing both, grabbing an additional 10% from each order and attaching on a customer delivery fee of around $2. That's barely enough to cover the costs in an ideal scenario. And why Maloney thinks DoorDash and Postmates, which have to make those numbers work at a fraction of Grubhub scale, have no hope of ever reaching profitability.

09:50But, unfortunately, even if this might have been responsible and smart, it would cost them. These companies weren't even really focused on profitability, at least anytime soon. They were focused on scale and growth. After 2016, Grubhub began losing market share, while DoorDash and Uber Eats grew rapidly.

10:11Uber Eats in dense urban cities, and DoorDash in suburbs, and in particular, California. But, not all hope was lost. Grubhub was still massive and had attracted a different type of customer. Grubhub was shrinking, but we're still growing. We're trying to get to 1

10:36million subscribers. So, please help us out and click the subscribe button. Grubhub's dominance fell from nearly 70% of market share at its peak to around a 34% by 2018, and just 10% by 2021.

10:51Smaller than Uber Eats, way behind DoorDash. The tables were turned, which brings us back to Uber. In May 2020, Uber approached Grubhub with an offer. >> There was a time last year when VC was investing in this in private markets, and they really loved this whole theme.

11:08They like it much less now. They don't like it in part of Uber, either. So, I'm not really sure about what sort of scenarios I haven't given it a whole heck of a lot of thought where you put some combinations together, and the two pieces together are worth more than what they are right now. We've seen a lot of >> But, something unexpected happened.