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It's because of how a "loss" is calculated. Let's say that an average customer will yield $20 a year for the next 10 years in profit to Doordash. Depending on
by treis 6y ago
It's because of how a "loss" is calculated.
Let's say that an average customer will yield $20 a year for the next 10 years in profit to Doordash. Depending on your discount rate the net present value of that customer is something like $150-175. If Doordash can acquire that customer for $100 worth of advertising and discounts that is a 50-75% return. Obviously they do that and do it as much as they can.
So what will their balance sheet look like if they can do that for 1 million customers? They'd spend 100 million dollars on advertising against a profit of 20 million dollars for a loss of 80 million dollars. Everyone on HN then makes fun of them for losing so much money and jokes about selling $2 for $1. But they actually turned 100 million dollars into 150-175 million dollars worth of customer value. In other words, they made a bunch of money this year and they just won't realize the profits until 5-10 years from now.
- prewett 6y agoThe problem is that delivery is a commodity business; there's not much of a moat keeping a DoorDash customer from going somewhere else. The customer is pretty likely to churn if a cheaper alternative shows up, they get cold food, whatever, in which case DoorDash isn't going to record their theoretical future profits.
- petra 6y agoRestaurant Food is not exactly a commodity. It's more a habit, and around 70% of people are loyal customers of some restaurants. And UberEats, for example, currently has helped to create 4000 virtual restaurant brands. As for cost, at the scale UberEats, DoorDash, etc operate, there's no reason they wouldn't have access to the lowest cost providers.