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UberEats, yet another food delivery app ?

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The first move towards UberEverything, the mother of all platforms.

When UberEats – the delivery arm of the ridehailing giant – was launched in 2014; the market was already crowded with online food ordering and delivery platforms. In most urban centers, one could get delivery from restaurants via different apps already. So how should we examine Uber’s launch into this space ? Is food delivery the real endgame, or are we merely witnessing the proverbial “sustaining innovation” curve leading to UberEverything.

Uber’s competitive advantage:
While customers associate Uber with ridehailing, its main value proposition lies in logistics. Then the question becomes : if anyone could get a car under a few minutes to get from point A to point B, what else could be transported ? The UberEats app is hence a first attempt at testing the previous question putting the driver, the food and the customer at the right spot at the right time, in a way that has seldom been done before. Uber appears to hit all of the critical factors for food delivery regardless of location:

  • A large user base (demand-side): perhaps the most valuable asset of all, millions of people are active Uber users ready to be converted or “cross-sold”. As described by McKinsey in a 2016 report, delivery platforms are sticky with 80% of consumers rarely leaving [1]
  • Massive and relatively-cheap-to-acquire supply: not only does Uber already have cars on the road, hence not needing to build capacity from scratch, moving into UberEats will actually help increase utilization across its different businesses (ridehailing + food). Consequently, the same driver that had just dropped you at your house, might handle a food delivery right afterwards
  • A world-class dispatch algorithm: having created the market for ridehailing in the first place, Uber enjoys an unmatcheable headstart in how to organize efficiently and quickly amongst available cars, listed restaurants and famished users
  • A global presence: while Uber does face many local competitors in the food delivery business, there are no real global ones

What’s next: 
After the company announced the creation of its “UberEverything” division [2], UberEats seemed to be but a first variation of the core human transportation service. There is little doubt that Uber will venture into an array of other sectors where it will continue to leverage its main competitive advantages. What’s more, the emergence of autonomous vehicles could offer Uber almost endless new possibilities. Perhaps even too many…
As the company keeps pursuing this frenetic growth, and locking-in hundreds of millions of customers worldwide, it is still to this day struggling to turn a profit, and it is therefore not out of the woods yet.

Uber will not become UberEverything until a best-practice profit-making model is identified. But how long would it take to get the model standardized and optimized? Perhaps the irony of platforms stickiness is that users get addicted to cheap or subsidized services, leaving the company that chose this strategy with the onus to “make do”.

[1] https://www.mckinsey.com/industries/high-tech/our-insights/the-changing-market-for-food-delivery
[2] https://medium.com/uber-design/a-beginners-guide-to-uber-everything-f981392a43df

6 thoughts on “UberEats, yet another food delivery app ?

  1. Thank you for the great post, YZ! It is interesting to see how Uber is going to expand its services beyond ride-hailing. Actually Uber is pretty behind regarding their expansion of service compared to peers in Southeast Asia. Go-jek, a ride-hailing app focusing on motorcycle in Indonesia, has expanded into 10-20 services using the platform (I wrote about their service in last year’s TOM blog: https://rctom.hbs.org/submission/go-jek-motorbike-taxi-changing-the-landscape-in-indonesia/). The reason they expanded its services rapidly mainly comes from a cheap labor cost in Indonesia (if Uber provides a cleaning service by sending cleaning staff to each household, it will probably cost almost $100), but it is interesting to see how the service evolved rapidly in emerging markets. I also wonder the expectation to quality is higher in customers in developed countries in the US, so it also may make Uber difficult expand its services easily.

  2. My problem with Uber Eats is that depending on the city, I think it can be difficult to coordinate the car and the restaurant at the most optimal moment. Thinking about this from an operations perspective, the beauty of a restaurant having its own car is that it can send the food out whenever its ready with their personal fleet waiting. They can coordinate the consolidation of multiple orders on its own based on factors including where the destinations are, how long the food takes to make, and thinking about how to ensure quality once it gets there (getting the food into the car when it will still be hot upon arrival). It’s hard for me to imagine that Uber has an advantage in this space (as of yet). Eventually I can see them developing a content management system that is coordinated with the kitchens so that they could one day. They certainly have the capital to make the investment, but I’m skeptical that it will be a superior competitive experience in the meantime. Currently there’s too much to coordinate between cars available, time food is ready, and the conservation of trips that Uber has yet to crack. For now, I stick with marketplace level of Seamless.

    1. Valid point.
      Based on my research it appears that UberEats has actually started working with “fake” restaurants (ie kitchens that prepare meals and have them picked up by Uber). This model has the advantage of perfectly espousing Uber’s logistical competitive advantage.

  3. Surprisingly enough, I think it is interesting to mention that UberEat is actually the only business where Uber is making a profit! Why is that? Can Uber leverage similar models that allow it to finally become (at least slightly) profitable? The interesting element of UberEat business model is that it is a 3 party platform, that involves drivers, customers and finally restaurants. While in the traditional Uber model, as you pointed out, heavy user subsidies have made extremely difficult for the company to make money on their riding service, in this care Uber can take advantage of the third player involved and gain some margin from the restaurant – as well as charge the customer more for a service that they value as additional to the simple ride. What else will UberEverything deliver in the future? The more parties they will be able to combine in a single platform the more value it will create for customers and finally the more profit it will be able to capture.

    1. Great and accurate insight !
      I believe the “more than 2” party platform is exactly the new underlying challenge being tackled here. Should this be successful, Uber will have demonstrated its capability to move beyond what has been done so far, while at the same time increasing its scale and network effects across many “user segments”, taking a cut on each.

  4. What do you think of UberEats competitors? It seems that you have identified the potential of UberEats to leverage the Uber platform – nevertheless, I still struggle to see the true value creation? And until there is value creation, can you capture value and thus become profitable? I really doubt. So I buy in your view that Uber may be digging its own grave, in a race to the bottom. However, so was Amazon – yes, Amazon were lucky with AWS, but they turned their e-commerce around – so it can be done.

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