DoorDash: on-demand delivery at your door
With its logistics algorithms, an army of crowd-sourced couriers and the use of location data, DoorDash aspires to change the same-day delivery landscape.
Hungry? Don’t have food in the kitchen? Don’t want to step out of your comfy, warm home? DoorDash got you covered with only a few clicks, in under 45 minutes.
DoorDash is a technology company that enables customers to order meal from their favorite local merchants online and have it delivered to their doors in less than 45 minutes. Since its founding in 2013, the startup has rapidly expanded in 23 major markets in the US and Canada, including Boston, San Francisco, Chicago, Los Angeles and Toronto.
Its mission? To help small businesses grow, offer affordable convenience to consumer, while at the same time give underemployed people flexible work. The VC-backed company has enjoyed rapid growth, raising nearly $60 million to date, with current fundraising talks giving it a valuation of around $1 billion.
A business to connect demand and supply
Part of the rapidly growing on-demand economy, DoorDash adds value to the “last mile” of the same-day delivery business. The company aims to leverage the inventory of merchants built-in naturally within cities, using an “army” of delivery workers to distribute it at the appropriate time to the right consumers based on a dynamic demand.
It offers consumers a diverse selection of restaurants that goes way beyond pizza or Chinese food. Merchant options, that are located in the consumer’s vicinity can range from upscale restaurants to fast food chains. After ordering following a few simple steps, the customer can access real-time order status information, always knowing the estimated delivery time. Furthermore, he can see when the restaurant started preparing the food, when the delivery worker arrived at the merchant, when he/she left the restaurant, or if there’s a delay with the order.
Merchants get an easy way to expand their reach, boost their to-go business and quickly reach new demographics. Contrary to many of its competitors, DoorDash has partnered with many restaurants that do not have a delivery service. It gives them the ability to outsource this service while simultaneously add an online ordering option.
DoorDash uses the delivery fee it charges customers (usually $6) in order to compensate the delivery workforce. The company earns revenue by charging a commission to restaurants based on the order’s value (estimated to be in the 20% range).
Crowd-sourced operations
DoorDash has tens of thousands of delivery workers, but only employs around 120 people. Due to the limited peak times of food delivery, using contract workers as delivery workers and paying them per job made the most sense. DoorDash uses the contractor model, first popularized by Uber. “DoorDashers” as they are called, can earn up to $25 an hour and get to keep 100% of tips.
DoorDash heavily leverages logistics algorithms in order to match drivers to delivery orders and root them to merchants and customers. According to founder Tony: “How do you determine which driver should get which order? How do you time it so there’s no wasted time at the restaurant? How do you determine whether or not more than one order should go to a driver? How do you estimate how long it takes to make something?”
The company uses machine learning technology to estimate delivery and execute it in a timely, mistake-free fashion. The driver rooting algorithm helps take the smartest route between shops and the customer’s home. “The dispatch system self-learns and adapts to different variables based on driver inventory, time of day, and expected demand. It also uses a capacity-planning algorithm to ensure that it has the right number of drivers available at any given time”. In addition, DoorDash pulls smart technology to forecast restaurant preparation time, so that drivers don’t show up too early and wait for meals to be prepared, or too late so that food gets cold.
The way ahead
Can DoorDash survive in the super crowded same-day delivery space? Uber and airbnb dominated their respective industries having had the first mover advantage and quickly becoming a market leader. Can DoorDash do something similar? Much will depend on its ability to continue enriching its list of merchants, rapidly penetrate new markets and manage to “enlist” enough DoorDashers to meet the demand.
The company ultimately plans to expand beyond just food delivery. Having built its logistical delivery infrastructure in a given area, it should no longer be limited to delivering only meals. With so many competitors around the country, offering a holistic same-day delivery service with a wealth of options might be the answer.
Sources:
[1] https://medium.com/backchannel/doordash-wants-to-own-the-last-mile-27c03098a657#.3mxhuaf16
[3] http://www.wired.com/2015/11/doordash-could-be-the-next-unicorn-or-the-next-sign-of-disaster
[4] http://techcrunch.com/2014/05/22/doordash-17-3m-sequoia/
Hey Nikos,
Towards the end of your article, you are raising the question whether door dash will be able to expand its delivery service from food into other point to point delivery alternatives. In e-commerce you currently see a trend to “click on demand” services. In other words, you order online and connect local stock in your city (CVS, 7-Eleven, Groveriy chains, etc.) directly to consumers. This will enable you, to for instance order convenience products such as tooth brushes online and then get them delivered to you in a matter of a couple of hours. While I truly see the demand for this kind of a business from a customer perspective, from an operating model perspective, you face two key challenges. First, the name of the game is density. This means you need to balance the number of deliveries are you able to deliver in a certain period of time, the corresponding salary a courier could make from it (in order to be competitive to for instance work uber) and the price you are able to charge. I think a delivery fee of $6 is rather on the high end considering meals of $10 per person. The only reason why food in particular is working well on that price level is that many people are sharing delivery fees when getting a delivery into the office for lunch time. Second, in order to reduce transaction times you need a sufficient IT integration with local stores. While doordash probably used their own IT platform for restaurants as an interface, they would have to integrate with the ERP systems as well as the more complex operational processes of local store chains (CVS, 7-eleven, etc.) which can be complicated and time consuming. Personally I believe there is a future in klick on demand but like you have written competition is fierce. UBER for instnace will have the unique opportunity to combine delivery of parcels as well as of passengers in one operating model. I am curious to see how doordash will evolve in the next couple of years.
Best, Max
Thank you for you post, Nikos. I think that DoorDash is a very interesting company that more efficiently matches labor demand and supply. Max raises an excellent point around the importance of density. Similar to how Uber’s competitive advantage in the ride-sharing business is the density of its drivers, and the subsequent consumer benefit of quicker rides, I think that density of delivery people will also be important. The denser the delivery person population, the quicker the delivery.
If we broaden the scope of delivery-person density to contract-labor density, Uber already has a significant market share of the contract labor density. I see this being a significant competitive advantage to uber. In addition, Uber can offer these laborers jobs during non-meal peak hours, which DoorDash cannot do. Uber may thus be the more attractive choice for contract laborers, and its underlying costs may be lower since a “ride” could combine a meal delivery with person transportation. This lower underlying cost model could be transferred to consumers, thereby giving consumers a better deal as well. If Uber seeks to compete in this space, what is DoorDash’s competitive advantage?