Fantastic and thoughtful analysis. I thought it might be worth revisiting your assumptions though.
1) Alfred sells for $32 / week for 1 visit; $59 / week for 2 visits so the unit economics there change the math above.
2) Facebook’s opex will look very different to Alfred’s. Think about the R&D and SG&A requirements of a business that thrives on scalability of its technology and marketing (Facebook) and Alfred whose costs are mostly incurred at the COGS level. The bigger question is whether they can acquire customers profitably in the long-run (sales and marketing expense). You mentioned they’ll need to monetize on partnerships and I think that’s right. They’ll need to find additional revenue streams to improve customer lifetime value.
I think one of the really interesting things you note is that Alfred does not hire 1099s. That’s a big departure from places like Uber and so on. The fully-burdened cost is much higher but, you’re right, it could improve the retention of its workers. The question is: do people care who is taking care of their things as long as it’s done right? One of the reasons 1099 works for Uber is because it works for their business model — namely, people usually just want to go from point A to point B regardless of who their driver is. My gut says people will care and want to “know” their Alfred.
Glad you ended up writing about this, Damjan. It is fascinating how this chat platform took off when many others didn’t. I think you hit the nail on the head though: the institutional knowledge thesis is not to be underestimated. There is a growing repository of internal knowledge and so it is no wonder users want to stay as close to it as possible. What Slack will really need to hone to further link business and operating model is being able to build a strong, scalable back-end that can very effectively parse that enterprise’s knowledge so that when a user makes a query, they get the best results.
I like the partnership approach and GrubHub has significant share in a winner-takes-most marketplace but there is something to be said about the Postmates of the world who, short of cooking the food, take care of the entire supply chain. I see those players more as a delivery infrastructure platform than anything else. Consider the proportion of restaurants that don’t do takeout for instance or those whose delivery capacity has maxed out but their kitchen’s hasn’t. Providing a distributed delivery force expands the take-out market and that’s disruptive. However, as you mentioned, with the acquisition of Restaurants on the Run, Grubhub wants to get into this business too. That will be no easy feat — there is significant logistical expertise that’s required to scale something like that efficiently and they don’t have that core competency as a result of their existing operating model.
Great pick of a very ambitious business. At Bessemer Venture Partners, we invested in Marc Lore (Jet’s CEO) when he was building Diapers.com/Quidsi. He’s a brilliant guy. However! I think this is an extraordinarily uphill battle for Jet and so frankly, while the business and operating models look aligned (SmartCart = activity-based pricing = better pricing), I don’t think it’s defensible.
First, I’m not sure how valuable the dynamic pricing system is: if they are providing laundry detergent to me for $5 because I live around the corner from their distribution center but someone who lives far away gets quoted $7, then I’m going to buy it at Jet.com and he/she will be it from Amazon for $6 (since Amazon doesn’t discriminate). In other words, I’m likely going to cherry pick what’s cheapest for me. And if there is true value in this approach, wouldn’t Amazon do it themselves? Their product culture is very customer-oriented and I wouldn’t doubt their ability to roll something out despite their massive existing infrastructure. Is Jet unequivocally selling its products for lower margin than Amazon does? That is perhaps even more dangerous. I would not be surprised if Jet has been running at negative gross margins to reach the scale it has in such a short time and that just isn’t sustainable.
Secondly, this business is enormously capital intensive. Part of their value proposition is that they’ll have their own fulfilment centers (a la Amazon) and that requires money. Since their core business burns cash instead of generating it, the company will require significant funding. My guess is 100s of millions of dollars. How many investors are prepared to underwrite this kind of business?
Good luck, Jet.
Very relevant choice of company, Ellen, and at an exciting stage in their journey. I’d like to explore one aspect of Postmate’s business model further and that is the fact that Postmates can help deliver almost anything. I think this horizontal approach actually works better than, say, a food-only delivery service because operating this way lends itself to faster scalability — the more deliveries (of anything) that are requested, which always be greater than the number of food deliveries, the more “postmates” are out there.
I do think that the price point still remains quite high and as a result, it’s usually a nice-to-have and not a must-have. How can they tweak their operating model to help their business really scale and succeed at providing quick and affordable deliveries? At scale, will this mean a change in the way postmates are compensated? Or will power users help subsidize the long-tail of orders? Or will it be a mix of both or other things? Since orders tend to be smaller dollar amounts, it’s hard to get enough dollar contribution from each order to justify whatever they’re paying for customer acquisition. What will really help them take off is by encouraging larger dollar items and higher repeat usage. What are they doing to encourage that kind of user behaviour?
Great choice of company. RTR has been hugely successful but I would argue that the operating and business models are actually quite challenged. I think the tension arises between the business model, which allows women to rent dresses they otherwise could’ve bought as-new, and their operating model, which requires renting out dresses that are not new and that get more and more “not new.” They’ve done things to mitigate this but as you point out, it’s a hugely capital-intensive process and it’s hard to control how users treat the garments once they have them. Are there innovative methods RTR employs to incentivize garment care when it’s out of their hands?