Analysis, Unicorns, Doordash and Pizza Arbitrage

The other night I switched on the wireless in the motor and on Radio 4 was the usually boring program Analysis (listen here).  But this episode about dot com unicorns was particularly good.  It sunk it's teeth into dot com companies and didn't let go.

Stand out amongst its anecdotes was the case of Doordash (A US version of Just Eat) and Pizza Arbitrage about which you can read more in detail here.  

 The Manager of Pizza Arbitrage recieved complaints from customers about his delivery service.  This was news to him as he didn't have one.  He then realised that they were actually buying his products through Doordash.  He then realised that they were paying less for the pizzas than he sold them for.  This was because Doordash were trying to increase market share.  He then calculated the difference between his price and Doordash's price and realised that if he ordered the Pizzas himself the price differential would be pure pre-tax profit.

So he got a friend to place an order for 10 Pizzas.  Doordash delivered them to his friend's house just down the road and his friend sold them back to the Manager of Pizza Arbitrage.  All perfectly legal.  And so they did it again ...and again ...and again ...and again.  Doordash were bleeding money but they didn't care.  Doordash don't make a profit but they don't care.  Doordash as a "market disrupter" exist purely to increase market share in the delivery business.  They then go to the Managers of the businesses and ask for a fee to take on their delivery services.  Pizza Arbitrage were having none of it but saw a way to make a buck out of silly investors' greed.

It raises the question how long can businesses like Doordash, Just Eat and Deliveroo go on when all they actually offer is website services.  As they say down Dragon's Den the business model is hard to scale up too because all anyone is making is tiny tiny margins on manual labour.  The upfont operating costs of these companies are actually very large ...so when will their investors ever get their investment money back....?

Well...