Will DoorDash Be the Next e-Commerce Giant?
DoorDash is a popular delivery service that capitalizes on the human need (or want) for convenience. When the company first started its operations, there were few competitors who offered comparable services. The COVID pandemic helped DoorDash immensely, with nationwide “stay-at-home” campaigns and quarantines boosting customer interest.
Now, though, people are wondering whether companies like DoorDash can actually survive long-term. Market conditions seem favorable for home delivery services, but is that enough? Customers can easily order groceries with in-store or curbside pickup, and Amazon—the reigning e-commerce giant—offers 2-day shipping and other convenient options through its Prime service. Is the DoorDash business model able to compete with much larger companies that offer comparable services, or are they doomed to eventual failure? In short, will DoorDash be the next e-commerce giant?
The DoorDash Business Model
First, let’s examine the DoorDash business model. How does the service work, exactly?
DoorDash started in 2012 as a local delivery service in California called PaloAltoDelivery.com. From its inception, DoorDash aimed to match local restaurants with a technology-driven delivery service. Today, the service works pretty much the same way. Users download the DoorDash app, create an account, and order food from local restaurants. Third-party contractors use the app to find these delivery requests. Once a driver takes a job, it’s no longer available to other drivers. The driver then arrives at the restaurant and waits for the order. When it’s available, they deliver the order to the customer.
The program works well with few complaints. However, DoorDash has faced some scrutiny and legal action. There have been driver complaints about the way the service handles tips and whether drivers should actually be classified as employees instead of contractors. The service has mostly resolved these issues, though, and currently holds the market share for third-party delivery services.
How Does DoorDash Make Money?
DoorDash generates revenue through several methods. First, DoorDash charges each restaurant a commission for each order placed through the app. The commissions average about 20 percent, which is a fairly hefty fee for small restaurants that already have a slim profit margin.
DoorDash also charges delivery and service fees for customers who use the app. These are a percentage of the total order price and usually range from $5 to $8.
DoorDash also offers a subscription service called DashPass. This service generates additional revenue for the company but also provides a discount for customers.
The company has a few other income streams including Drive, which is essentially a limited catering service, and DoorDash for Work, which gives employers meal delivery options for their employees.
Each year since its founding, DoorDash has increased its revenue. In recent years, it’s also decreased expenses. However, while the company’s growth is impressive, it hasn’t actually turned a profit—ever.
Currently, DoorDash has over 1 million drivers and has delivered over 900 million orders. It holds 45 percent of the total U.S. food delivery market.
DoorDash vs. Other Pickup and Delivery Options
DoorDash is already the obvious industry leader. The company and business model are massively successful from an outsider’s standpoint. They’ve shown that they’re capable of strategic growth, and they’ve effectively weathered the storm of COVID, even when thousands of other businesses closed indefinitely. More than that, DoorDash has actually capitalized on the state of the nation throughout the pandemic. When millions of Americans were stuck at home for months on end, DoorDash seemed to be everywhere. But was that enough?
Some might say DoorDash is positioned for greatness. They have the infrastructure, they have the leadership, they have the business model, and they have the demand. Others, however, disagree. While consumer trends will always favor convenience over other options, DoorDash might be a house of cards, ready to collapse when competitors start showing interest in a similar service.
While we would love to see DoorDash overcome all the obstacles and become the next e-commerce giant, we just don’t see that happening. The business model leverages consumers’ desire for convenience, and this is rarely a bad idea. However, they also struggle to balance incentive with cost. This keeps customers from ever using the service on a larger scale, and many restaurants can’t afford to promote DoorDash because each order costs them 20 percent. Customers can’t afford to order all of their meals for delivery because the delivery fee is too high. Meanwhile, DoorDash still isn’t generating enough revenue to create an actual profit.
Meanwhile, industry trends feature true giants like Amazon, Walmart, and Target expanding their convenience offerings rapidly. Walmart currently partners with Instacart to provide their home delivery service Walmart+, and Target offers curbside pickup. Even restaurants are creating better delivery options for their customers. Chick-fil-a currently offers in-store drive-thru as well as curbside pickup in most markets, and most fast, casual restaurant chains offer something similar. It’s only a matter of time before DoorDash and its services are considered somewhat obsolete.
Of course, this all assumes that DoorDash proceeds with its current business model. In the past, DoorDash executives have shown a limited ability to follow industry trends and meet consumer demands as needed to survive. It’s possible they’ll adapt and overcome. Given the right conditions, delivery services have plenty of potential to thrive in the post-pandemic economy. We hope it happens. In fact, we can’t wait to see what DoorDash and its competitors do next. The future is bright.