Delivery used to be synonymous with pizza, with almost all other kinds of food predominately catering to take-out or dine-in customers only.\u00a0 However, in 2004, GrubHub was founded by Mike Evans and Matt Maloney to change that.\u00a0 Initially, the service was imagined as an online menu aggregation tool, allowing customers to digitally view menus before going to a restaurant.\u00a0 However, over the course of the first decade of its existence, GrubHub evolved.\u00a0 From its humble beginnings, it transitioned into a platform that brings hungry customers, restaurants, and delivery drivers together.\u00a0 Today, GrubHub is a publicly traded company that has 22.6 million active users and processes over 500,000 orders daily!<\/p>\n
GrubHub\u2019s value proposition as a platform extends to all of its various constituents.\u00a0 For customers, it has opened up the world of delivered food from pizza to virtually any restaurant or type of food imaginable.\u00a0 This allows them to order food directly to their residence, work, or social events without ever leaving the premise.\u00a0 For many, this time savings and increase in choice represent a significant benefit\u2014businesses can order food instead of catering, for example, and busy professionals can spend more time working without interruptions for the acquisition of food.\u00a0 In addition to delivery, GrubHub provides customers 24\/7 customer support and order tracking (an especially important feature for hungry stomachs).\u00a0 For restaurants, GrubHub\u2019s platform creates value in a number of ways as well. \u00a0Because GrubHub uses its own drivers, it relieves restaurants of the burden of operating a delivery service that isn\u2019t their operational specialty, especially for small \/ local venues that don\u2019t have the resources or experience to run this additional service.\u00a0 In addition, it provides restaurants with an expanded customer base, partially owing to the fact that food types are searchable by its broad user base, resulting in sourcing new customers and free awareness for its partner restaurants.\u00a0 Lastly, it provides standardized software to the restaurant partners which facilities taking orders, thereby saving them time and resources while streamlining the delivery process.\u00a0 Finally, GrubHub creates value by employing drivers to deliver its food.\u00a0 These \u201cgig economy\u201d workers benefit from flexible work schedules, casual culture, benefits, and free food.\u00a0 Additionally, drivers can receive tips for good service, further increasing their compensation.<\/p>\n
GrubHub captures value by charging restaurants a per-order commission via a tiered system.\u00a0 Higher tiers receive greater exposure on the app and thus attract more customers.\u00a0 In addition, GrubHub (usually) charges customers a delivery fee.\u00a0 This revenue offsets their marketing, salaries, and contractor costs.\u00a0 GrubHub is currently the only profitable delivery platform, though its margins have shrunk considerably from 2018 to 2019\u2014down to $1M net profit from $23M net profit in 2018.<\/p>\n
While GrubHub has managed to scale dramatically from its inception as a platform, it still faces great challenges as the market catches up. \u00a0While it enjoys moderate cross-side network effects, its networks tend to be locally clustered groups (no one orders delivery from an extreme distance).\u00a0 Thus, they are less defensible in this respect\u2014other companies can (and have) entered various portions of their market successfully.\u00a0 While GubHub has a generally positive brand image, their business model has proven to be highly vulnerable to competition.\u00a0 Customers simply have very little brand loyalty when it comes to food delivery, making multi-homing to competitors easy and commonplace.\u00a0 Differentiation in this environment is difficult, because in the end the food either gets to its destination satisfactorily or it doesn\u2019t.\u00a0 Most delivery services thus provide pretty comparable services, and only compete on selection, ease of use, and price.\u00a0 Since restaurants and drivers are happy to multi-home as well, selection is very difficult to differentiate on.\u00a0 The result is virtually all delivery services have competed on price.\u00a0 New entrants with VC money to burn have succeeded in gaining localized market share by driving prices down.\u00a0 This has greatly strained GrubHub\u2019s profit margins and called into question the long-term viability of their platform as competitors become ever more numerous.<\/p>\n
Going forward, GrubHub may need to look to network bridging strategies to remain viable.\u00a0 Whether through supply chain integration with restaurants, exclusive contracts, or expanding their services beyond food to other things like groceries, medicine, or postal service, GrubHub needs to innovate quickly to find higher margin annexes to boost its bottom line.\u00a0 Unfortunately, many of these will ultimately be indefensible as well as time goes on.\u00a0 Defensive moats in commodity services like delivery are incredibly difficult to create and sustain in the presence of multi-homing and localized network clusters.\u00a0 Thus GrubHub may, at the end of the day, serve as an educational example for a great idea that simply was too easy to replicate.<\/p>\n","protected":false},"excerpt":{"rendered":"
GrubHub has scaled profitably and brought together restaurants, hungry people, and drivers, but can they sustain their business amidst rampant competition?<\/p>\n","protected":false},"author":11573,"featured_media":11782,"comment_status":"open","ping_status":"closed","template":"","categories":[2699,550,2081,2033,2050,2737],"class_list":["post-11781","hck-submission","type-hck-submission","status-publish","has-post-thumbnail","hentry","category-cross-side-network-effect","category-incumbent-platform","category-localised-network-effects","category-multi-homing","category-multi-sided-platform","category-price-war","hck-taxonomy-organization-grubhub","hck-taxonomy-industry-food-and-beverage","hck-taxonomy-country-united-states"],"connected_submission_link":"https:\/\/d3.harvard.edu\/platform-digit\/assignment\/platform-business-challenges\/","yoast_head":"\n