Hot start-up delivery services are doomed, dumb business models

Posted by John T. Reed on Dec 29, 2020

I have long noted that Uber and Lyft are unprofitable and unable to ever be profitable. Their business model does not work.

But I and others have thought that maybe delivering THINGS rather than humans could be profitable because you can cram more into the same space, they are ready when the delivery driver needs and can be delivered almost any time.

Apparently not. Today’s WSJ says Instacart—hot start-up—is booming in terms of gross revenue. I do not know if Instacart makes a profit. In typical hot start-up fashion, the Journal did not deem that a material fact.

But the Journal did say that Instacart’s 10% of the gross price of the delivered groceries rendered the Instacart delivered orders unprofitable for supermarkets.

Checkmate.

Bottom line. There is little technology in transportation and few economies of scale. So where is the profit? I would not be surprised if Instacart and other similar delivery services do not make a profit and have no hope of making one with the possible exception of eliminating the drivers with self-driving delivery vehicles. But even there, why would supermarkets need Instacart.

One of the tricks of the gig economy is to avoid all the “suck up to employees” HR crap that has made American companies uncompetitive and outsourced millions of jobs to nations without such HR burdens. Gig workers are independent contractors. But the HR burden is finite.

Apparently, the trick of getting rid of the HR burden via independent-contractor status is not a big enough trick to make either Instacart profitable or to enable Instacart to charge supermarkets a low enough fee for the supermarkets to make a profit on Instacart orders.

Transportation of freight is an ancient, profitable business for UPS and FedEx and DHL in the continental U.S. It is NOT for USPS, Instacart, and other hot start-ups. Transportation is NOT high tech.

Transportation of people is NOT profitable for Amtrak or, at present, for airlines. Most urban mass transit is unprofitable and operated and subsidized by government. Long-haul bus service is apparently profitable, but not so exciting as to draw new companies.

What Instacart and Doordash and the rest do is not new, it is not or at least should not be “hot.” And, pardon my insistence on pointing out this fact which the vast majority believe to be irrelevant: it is not profitable.

The way to get rich is to do something once, but sell it a million times. Microsoft does that with Windows software. They have a multiplier, namely, the server that downloads, almost without incremental costs, Windows to customers once they pay for it.

In my business, I write a book once then have it replicated pretty cheaply by a book manufacturer.

That low-cost or no-cost economy-of-scale multiplier that makes copies does not exist in the Instacart or Uber etc. business models.

Every additional increment of new business forces them to hire a new driver with a car and buy gasoline, etc.

Engaging in such businesses may let a gig worker pay his rent, but these are not net-worth-increasing activities for Instacart or the supermarkets.

There is no million dollar, let alone billion dollar, business here. The inevitable IPO is a fraud. Its buyers are fools blindly thinking that anything with the slightest hint of computer technology benefits from Moore’s Law or has a multiplier or that anything “new,” even a service that has been around for centuries like delivery, is a hot, billion dollar start-up.

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