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I want to take you back to 2019 now. It was a time when Grubhub CEO Matt Maloney was coming to grips with a new reality. The company's third quarter results were mediocre. The outlook for the next quarter was even worse. So Maloney had to explain what was going on to his shareholders. He wrote a letter. And in this letter, there was this one line in particular where you really get the feeling that Maloney was frustrated.
Recode's Jason Del Rey is here to help me tell this story. Jason, you want to do the honors? Sure. It's kind of quick. Here's the quote. We believe online diners are becoming more promiscuous. Promiscuous. What a word. What Maloney meant was diners weren't using Grubhub alone to order pizza and pad thai. They were hopping from DoorDash to Uber Eats to Grubhub in pursuit of deals. They were...
Getting around. Not usually the kind of language CEOs use with shareholders. Yeah, it's pretty provocative to talk shit about your own customers.
and to put it in writing. He said that diners were becoming promiscuous and that they weren't loyal to one platform. The CEO, whether he meant to be joking or not, talking about how online diners are becoming more promiscuous. Yeah, that's exactly why you're seeing so many people be promiscuous, because they're just trying to find the cheapest deal and then whatever they can get delivered.
Matt Maloney's generally a pretty candid guy. I've talked to him a bunch over the years, and you'll hear from him later in this episode. But at the time, he was frustrated. Grubhub had spent years as the market leader in restaurant delivery. But by fall 2019, Grubhub was no longer on top. Earlier that year, DoorDash overtook Grubhub in sales for the first time ever. And competitive pressure was closing in from all sides.
Uber had gone public just months before and was flush with cash. Good news for Uber Eats, its delivery service. And these competitors were doing everything they could to win our delivery dollars. The fight for consumers, promiscuous or not, was on. Every business decision traced back to us, our taste buds, and the pursuit of our loyalty or lack of it. Because every single dollar counts when multiple companies are battling to come out on top of an ultra-competitive new industry.
This is Land of the Giants from Recode and the Vox Media Podcast Network. I'm Amadal Yakber, food writer and host of the show's first ever miniseries, Delivery Wars, a collaboration with Eater. Instead of looking at just one company, we're looking at an entire industry.
I'm Jason Del Rey, senior correspondent at Recode. A lot of major tech companies, winning companies, have fueled growth by delaying profits. That's where much of the on-demand restaurant delivery industry is today.
In this episode, the story of how we got here from the point of view of the people who built it, investors, executives, and founders, and what motivated the key decisions that changed how delivery works and changed how we eat. Grubhub has been around for longer than almost any other company in this industry. And so Grubhub's story is also the industry's story in a lot of ways.
So that's where we're going to start.
Matt, first I have a message for my four-year-old daughter, which is that the Grubhub animated commercial is her favorite commercial. And she makes me wiggle my hips anytime it comes on, which you don't want to see. I don't even know why she wants to see, but... Yes, and I learned via YouTube about a month ago that it also has connections to the broader Jimmy Neutron universe, which...
It was clearly by design. - Matt is of course Matt Maloney, the founder and CEO of Grubhub. We didn't call him up to talk about my hips or Jimmy Neutron conspiracy theories. We called him to tell the story of his company and this industry from the beginning. - In 2004-ish, I would say that takeout restaurants was about as unsexy a marketplace as you could get from a tech perspective.
But back in 2004, Maloney didn't necessarily want glitz and glamour. He was just a guy in Chicago with an engineering background who wanted to eat delivery food. And he wanted a way to find delivery options hassle-free. What I realized was that there was a huge demand, myself included, for the restaurants that delivered to me. And there was no lookup. There was no database available.
And so he and a colleague made one. In 2004, Grubhub was born. It was a website that gathered the menus of restaurants that already offered delivery and put them in one place. Restaurants could also pay Grubhub to get better placement on the website. It was a fairly simple model. The entire marketplace was created just from the realization that takeout restaurants needed a way to advertise their services. So that's what we built.
Maloney says this is key to understanding his company. Grubhub has been an advertising business since the beginning, a way for restaurants to reach hungry people more easily. Back then, Grubhub didn't even deliver. Grubhub just connected customers with restaurants that already offered delivery. It would be many more years before apps would connect with gig workers to provide restaurants with delivery.
But back in the early days, Maloney was looking for ways he could make more money through the platform. And he hit on one idea that helped lay the foundation for the industry as we know it today. Online ordering through the Grubhub website.
A customer could go to the site to find out which restaurants delivered. And then those customers could also use Grubhub as a portal to place an order with the restaurant. Grubhub would take a cut of the order total. The restaurant would make the food and send out its own delivery workers. And so that's how the Grub business model was created. That's how we built our business.
And that business model really worked. It worked so well that by 2014, 10 years after Maloney had founded the company, Grubhub was on top of the restaurant delivery industry. 2014 was a really good year at Grubhub. Grubhub, the online food delivery and ordering service going public today at the New York Stock Exchange. Is the stock expensive? I think it's up because people love the service. Going public is the holy grail for a startup.
But even with Grubhub's success, the road to its IPO wasn't all smooth sailing. Maloney says he kept getting the same question from investors and bankers as he explored going public. Well, aren't you going to get smoked by Seamless? Seamless was an app that was doing the same thing as Grubhub, but it basically owned New York, where most of those bankers and investors worked. No, I'm a banker or an investor in New York, and I use Seamless four times a day, and I've never heard of Grubhub.
So Maloney had to convince those bankers that Grubhub wouldn't be crushed by the competitor with name recognition. In 2013, on the road to its IPO, Grubhub merged with Seamless. Let's make a deal happen and then go public as the only player in the market. That's what we did. Grubhub was already big. Merging with Seamless created a giant in the industry. No other company could even come close to competing. But there were a few new players that were going to try.
We tend to invest in companies that are creating new markets. Nabil Hayat is a venture capitalist and general partner at Spark Capital. And the way we figure out whether it's going to be a new market is really looking for almost cult-like behavior from the consumers of that product. Does this product deliver what feels like a magical experience?
In 2013, Hyatt had one of these magical experiences. He was in a meeting with an entrepreneur and the guy ordered a fancy juice from across town via the Postmates app. Hyatt had never heard of Postmates, but he knew a breakthrough product when he saw it.
And when a Postmates delivery guy dropped the bougie juice off at the meeting just minutes later, Hyatt was blown away. I want to just take a second to point out how different this is from what Grubhub was doing. Remember, Grubhub only worked with restaurants that already had delivery workers. Postmates and another startup called DoorDash, they were adding something new. They were providing their own workforce of delivery drivers to restaurants.
This is the beginning of the shift to gig workers. DoorDash and Postmates made it possible to get delivery from restaurants that had never offered delivery before. Nabil Hayat tracked down Bastian Lehman, the CEO and co-founder of Postmates, to see if this company and this idea, on-demand delivery, was worth funding.
because investors at the time were very skeptical. The history of the space was that people had conversations about companies like Cosmo, which was a late 90s Postmates, DoorDash-style company that would deliver anything to you in a massively unprofitable way and kind of blew up in the dot-com crash. I think I'll go out for a magazine. You're going to go out for that? Cosmo.com has magazines.
Ready? I think I'll go get a video on some chocolate ice cream. You're going to go out for that? Cosmo.com has videos on ice cream. Cosmo.com was founded in 1998, but it folded just three years later in 2001. Spent around a quarter of a billion dollars of investor money in those three years alone. The business model, though, it's a familiar one now.
Cosmo promised to deliver stuff fast from your neighborhood with their own drivers. And it was super cheap. So you can see why some investors who remembered Cosmo might be just a bit skeptical of a company like Postmates. But a lot had changed since 2001. Cosmo launched before smartphones. You couldn't just download an app back then. So if you wanted to order Starbucks through Cosmo, you had to fire up the good old dial-up on your desktop computer.
And no smartphones. That means the gig economy as we know it today, it didn't exist yet. There was no one hanging out with their phone waiting for alerts from apps to pop up to give them directions on where to go, what to pick up, and where to take it. The whole process was way more complicated back then. And expensive. Cosmo employed its delivery workers. They got $9 an hour plus $1 per delivery and benefits. ♪
In 2014, Nabeel Hyatt saw another Postmates metric that really impressed him. Consumer churn was basically nothing. If you had four deliveries from Postmates, you were a long-term user, and that's the underpinning of the stability of the business. Lehman, Postmates' founder, had already secured some funding for the company before Hyatt's firm, Spark Capital, came around.
But in 2014, Hyatt and Spark Capital led a round of investment totaling $16 million. That was more than triple Postmates' last round of funding. It was a big risk.
But we believed in the company. We believed in what they were building. We saw the long-term value and profitability of that company, if we could get there. And so we took the risk. But it turned out that Hyatt wasn't the only venture capitalist willing to take a risk on a newly revived idea. Alfred Lin of Sequoia Capital was one of DoorDash's earliest supporters. He actually passed when the company first approached him in 2013. But then he caught up with DoorDash CEO Tony Hsu a few months later.
I happened to be at this dinner and Tony was telling me the nuts and bolts of his business, how much he's taken down the processes into smaller and smaller processes to stitch them together to ensure quality. And from that dinner, we went to work. So Lin made up for the mistake of passing on DoorDash the first time around. His firm Sequoia Capital led DoorDash's next round of funding, a $17 million investment in 2014.
Within months of each other, DoorDash and Postmates were getting a decent amount of attention from venture capitalists. But investors like Alfred Lin and Nabil Hayat, they were pretty much the exception. It was early days in the delivery wars. It was not only unclear who would come out on top, but if anyone would. The prevailing opinion in 2015 was that these companies couldn't scale and they wouldn't get profitable. These companies. Let's take a minute to actually talk about what he means when he says these companies.
So there was Postmates, which, questions of profitability aside, was big in certain markets, especially Los Angeles. And it was also announcing major expansions by 2015. Postmates is launching its London delivery service.
There was DoorDash, which was already securing big partnerships. Kentucky Fried Chicken is teaming up with DoorDash. Uber Eats as we know it had basically just launched in 2015. Uber this morning is delivering more than people. With the firepower, technology, and funding of the ride-sharing giant behind it. Uber was routinely locking in round after round of VC funding, each round in excess of a billion dollars. There were a lot of other companies duking it out at the time as well.
You had names like Caviar, E24, BiteSquad, Foodler, Munchery, Waiter. It goes on and on. And yeah, there was Grubhub too. Grubhub was still the biggest company in the game by far. While the new guys were scrounging for early investors, Grubhub had just IPO'd. Companies like DoorDash were basically fleas to Grubhub, the big dog in the market. Until they weren't.
After the break, the story of how Grubhub went from king of the industry in 2015 to a distant third place today. And which company was the one to seize the crown?
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Grubhub CEO Matt Maloney was carefully watching Postmates and DoorDash in 2015. The startups had enough investors by then, and customers, to catch his attention. And their business model was different than Grubhub's. Remember, Postmates and DoorDash were using gig workers to deliver food from restaurants that didn't have their own delivery workers. Now, that often meant partnering with restaurants that wanted to deliver but didn't have their own workers to do it.
But sometimes it meant something different. It meant listing thousands of restaurants on their platforms without the restaurant's consent. I mean, I got to give him credit. Like, that is scrappy. Like, that is a great way to piece together a marketplace in the face of a behemoth competitor, which at the time was grub and seamless. And that, as Matt Maloney points out, is exactly what Postmates and DoorDash were doing.
building the marketplace. DoorDash especially made a fundamental bet early on, on selection, that the way to build a customer base was to make sure that they could get delivery from as many restaurants as possible. It's a strategy that had worked before. Amazon and Jeff Bezos have long believed that in e-commerce, you need to have the largest product catalog on the face of the earth. DoorDash was attempting a version of this strategy.
The version was this: "List a wide selection of restaurants with or without their permission." Here's how it worked. So a DoorDash customer would order and pay the app for, let's say, a banh mi from a Vietnamese place a few miles away. Behind the scenes, a DoorDash driver would accept the order, go into the restaurant, place the order, wait for the shop to make it, and then drive the order to the customer's door.
That's pretty much the best-case scenario. Here's where things got sticky. The menu on the app might be out of date. Say a customer orders a short rib banh mi, but that was a seasonal item. The driver goes to place the order, no dice. The order is canceled. Hungry customer calls a restaurant to complain. Restaurant is confused. They don't even offer delivery on apps or at all, and they have no idea who this customer is. No one is happy. Everyone is hungry.
Many restaurant owners were upset when they found out they'd been listed on a third-party delivery platform. They said they didn't offer delivery on purpose. And if they wanted to work with the apps, they would have signed up. And it was up to them, the small business owners, not tech millionaires, to make that decision. But DoorDash investor Alfred Lin? He was kind of baffled by the reaction from the restaurants. If we had to go back, now that we know that there was some merchants who don't like it,
We have done things differently, maybe, but at the time we're like, wait a minute, think about this. It's just extra orders. Why would they complain? There definitely were some restaurants that were pumped to get the extra business. And a DoorDash executive I talked to said that sometimes the practice worked as a sort of proof of concept. A restaurant may not have been convinced the first time around that working with an app would bring in any new business. But when delivery drivers started showing up again and again,
some restaurant owners changed their minds. They wanted to partner with the app now. Meanwhile, Grubhub's Matt Maloney, sitting on top of the industry, he saw this practice and said, "Nah, not our thing. We're better than that." We were against that in principle because we wanted to build restaurants business that didn't really work if the restaurant didn't know we were working with them. We wanted to have positive and integrated relationships. And profitable relationships.
If a restaurant didn't know it was listed on a platform, it certainly wasn't going to pay commission fees to the apps for orders that were placed on the platform. Maloney felt like the math just didn't add up. But Maloney did feel pressure when it came to expanding delivery options. Postmates and DoorDash were growing fast, and Uber had just morphed its flimsy, ultra-limited lunch service into a full-blown restaurant delivery business.
These companies were expanding the idea of restaurant delivery. New customers were buying it, and Maloney wanted in, but he also wanted to keep the customers he already had. And so Grubhub, the restaurant advertising business, got into the delivery business too.
In 2015, for the first time, Grubhub joined its competitors and began offering delivery workers to restaurants that wanted them but didn't have their own. The service launched in more than 50 cities. It was a decision born of competitive pressure, and it paid off for the company, a surprise to the industry skeptics. It was kind of a confusing situation for investors and for analysts and, you know, at times for us because we kept expecting to see,
our numbers go down or us not hit our expectations or something happened and nothing happened. We just kept growing faster. Not only would Grubhub grow, it would also turn a profit on an annual basis for the next several years. While the other companies, they'd mostly just grow. DoorDash, Postmates, and Uber, they were all aggressively pushing into new towns and cities, and in some cases, even new countries. That costs a lot of money.
money for things like advertising campaigns and those discount offers you see popping up on your phone. It was money that had to be spent if the companies wanted hesitant investors to open up their wallets. So it wasn't about turning a profit. These companies had different priorities.
Every Wednesday, Christopher Payne gets an email with the subject line, Now Dashing. It's a list of the new cities where DoorDash is launching. Payne is the president of DoorDash. There was this one Wednesday in 2019 where he had to do a double take. It said Owensboro, Kentucky. I was born and raised in Owensboro, Kentucky. It's a town on the Ohio River of 50,000. And I was like, oh my God, we're going to be everywhere.
Payne joined DoorDash in 2016. At the time, he believed what they were building was going to be huge, eventually. There were some seriously shaky years. In 16 and 17 and even parts of 18, it was very tough sledding in terms of raising capital for this space. I actually think that did us a tremendous favor. You know, we had to be very disciplined about everything.
how we expanded. And ultimately, I think that served us very, very well. The prevailing wisdom at the time was that the suburbs were deadly for a business like DoorDash. There was not enough restaurant selection to populate the app. The customers, they were spread too far apart. The economics couldn't work out. DoorDash bought into that at first, until this request came in directly to Payne. Cover my stores.
Delivery is really important to me. I want all my guests to have access to delivery. From the Cheesecake Factory, in a meeting with the president of the company. Finally, I was like, why don't you just give me the list of your stores in priority order that you want us to cover, and I will cover those stores. And that's exactly what we did. This is what people in the business would call differentiation. DoorDash was showing that, sure, you could do what everyone else was doing and deliver burritos from mom-and-pop shops in big cities.
But if you want pumpkin cheesecake in the suburbs, that's DoorDash. Getting the big chains on the platform did a bit to solve the selection problem in the suburbs. But the customers were still way farther apart compared to urban areas, which meant a driver had to schlep a way greater distance to deliver an order.
On the other hand… Traffic is not as problematic as it is in urban environments. So people often ask me, how far will you deliver the food? And it's actually the wrong question. It's actually, how long does it take you to deliver the food? DoorDash had brought the on-demand wars to the suburbs. It was lining up powerful allies in the form of chain restaurants nationwide. And the company was still listing restaurants without their knowledge.
It seemed these tactics were persuasive when it came to raising money. In 2018, that skepticism from investors transformed into dump trucks full of cash. DoorDash raised more than three quarters of a billion dollars over the course of the year. That included a monster investment of $535 million led by the Japanese investment firm SoftBank. Here's Nabil Hayat of Spark Capital, that early investor in Postmates.
When I think about seminal moments in the history of on-demand, I think about the early foundings of those companies in 2011, 2013. I think about the 2015 era where no one would fund the businesses. And then I think about 2018 where SoftBank was
went around and spoke to most of the players and then decided to put a $535 million round together to invest in DoorDash. Hyatt says the cash quickly turned into momentum. With half a billion dollars in the bank for DoorDash, they were able to spend massively nationally
to grow their number of customers in a market fast enough in order to create a flywheel where then the merchants, those restaurants wanted to pay attention to them, which meant then the drivers knew that they were going to get orders, which meant they could spend more on firing more and more customers. And it just gave them an escape velocity from spending massive amounts on marketing that Postmates couldn't match
Grubhub was also having trouble keeping up. As DoorDash was growing through 2018 and 2019, Grubhub's sales growth began to slow. And unlike his competitors, CEO Matt Maloney had public market shareholders to appease. That's when he wrote the infamous letter to shareholders. Right, the one explaining the company's underwhelming third quarter results where Maloney dropped the promiscuous bomb.
On page six of that letter, though, he announced something else. Something that was a huge deal for the company. It was a strategy to offer more selection to customers. A strategy Grubhub admitted a point to avoid in the past. Grubhub announced that it was going to list restaurants without their knowledge or consent. We announced...
That, you know, our growth expectations were decreasing because DoorDash was basically spending so much money in our markets. And we said, you know, in order to counter this threat, we are going to adopt the same strategies that we have publicly denounced time and time again, because we are at a strategic disadvantage here.
By not doing this, by allowing this to happen on moral grounds and not participating, we believe we're at a strategic disadvantage. We're going to start doing this. It's kind of a crazy and rare thing for a public company CEO to admit, right? Which seemed like essentially, we don't want to do this thing. We don't really believe in it.
but we're going to anyway. Yeah. I mean, I've always competed extremely aggressively and there was a tactic that I did not think was sustainable. I still don't think the tactic is sustainable. So yeah, we didn't want to do it, but it was clear either it needed to be outlawed or we needed to do it because they kept raising more rounds. Like there was no end in sight to the bleeding.
DoorDash kept raising more rounds of venture capital funding. And Grubhub, the company that was once the giant in the space, the first IPO, the company that had spent several years growing revenue and making a profit, by the end of 2019 was actually losing money and playing catch-up. Maloney was trying not to sweat it. DoorDash wasn't a public company, so he couldn't get a full picture of its finances. But the information he could find made things look unsustainable for his leading competitor.
Rapid growth was expensive. And at some point, Maloney says, DoorDash would have to show that the company could make a profit. That's how the markets are supposed to work. This was a behemoth of a money-losing company, like just an astronomical. And we were just waiting for it to implode. Grubhub would wait it out.
And then something happened to disrupt that corporate strategy and a whole lot else. Bars, restaurants, coffee shops all closed. Elected officials taking unprecedented measures to keep people safe. For restaurant and bar owners nationwide, a familiar dread is growing. Coronavirus is on the rise and their businesses are on the line. The pandemic gutted the restaurant industry. But at the same time, it provided major gains to the delivery apps.
Academics from Emory University and Columbia University, they ran the numbers. And they estimated that sales through these third-party delivery platforms doubled from 2019 to 2020. But they also found something less promising for the delivery companies. That in a world without a devastating global pandemic, the industry's growth would have actually slowed way down.
In other words, the trouble Grubhub's Matt Maloney had been counting on to slow the growth of DoorDash and other competitors, it didn't happen. Instead, each third-party delivery app got a boost. And DoorDash got a huge boost in particular. The company accounted for the majority of U.S. restaurant sales through these delivery apps during the pandemic.
This wasn't just bad news for Grubhub. Postmates also had been battling it out in this space for years. And even though the startup had raised nearly $1 billion in funding over those years, it just wasn't bringing in the same amount of investments as DoorDash or Uber, which was hard for venture capitalist Nabil Hayat to watch. He'd been an early investor in Postmates, a believer in it, and had served on its board since 2014. It's hard to fight, you know,
war with two companies that have 10 times your capital to use day after day, month after month. Postmates executives wondered whether it was time to sell. In July of 2020, Uber announced that it would buy Postmates for more than $2.5 billion. Though Postmates executives and investors still say the company could have gone public on its own. They absolutely could have stayed an independent company. And it sounds like you're...
your heart would have, maybe your heart and mind would have, would have enjoyed that taking that shot.
I needed a big sigh there, Jason. I think Postmates is a great brand. I would have been very happy for it to stay independent. It was a great exit for the founders, for the investors. So it's hard to feel sad about the ending, except that we're here to build lasting institutions and enduring institutions.
You spend so much time with a company, you just want to see it win. But getting bought for more than $2.5 billion isn't a bad way to exit the battlefield. Looking at market share for the on-demand restaurant delivery apps today, DoorDash now owns nearly 60% of the U.S. market. That's according to the consumer research firm Bloomberg Second Measure. A newly combined Uber Eats and Postmates comes in second with 25%.
And Grubhub, the one-time king of the industry, just didn't grow as fast. Now it has just 17% of the market and is in third place. I asked CEO Matt Maloney, what is that like? You've now gone from the biggest, oldest player, you know, to seeing market share gains and DoorDash by third-party data standards, you know, the biggest player in the U.S. How did this make you feel?
How did it make you feel? I don't know, I think is the right answer. There's a lot of conflicting perspectives inside my own head. I'm not even talking about other people on the team or shareholders. On one hand, hindsight 2020, of course, we would have done a lot of things differently. On the other hand, how could you imagine a situation where
The greatest restaurants in the world would effectively be on the brink of disaster at the same time. You look back on historical decisions, you're like, yeah, well, that one was, you know, that was pretty sound and logical. And that one was pretty sound and logical. And that was pretty sound logical. But then at the end of the day, you're like, well, somehow I fucked it up. And like, I think that's what you're asking me is like, how, like, how are you like, how do you process all of this?
It is. It's incredible. I mean, it's incredible to see what's happened in our industry. In June 2020, a European delivery company called Justy Takeaway announced that it was buying Grubhub for $7.3 billion. That deal was just recently finalized. Grubhub is now part of a global delivery company. It's not independent anymore, and Matt Maloney is not a CEO.
When the deal went through, Maloney took on his newest role, the head of Justy Takeaway's North American operations. None of these businesses wanted this pandemic, but they did benefit from it. More people on the app spending money, more restaurants looking for a lifeline, signing up for the services and paying commission fees, and more everyday people looking for work.
In a lot of ways, despite the tragedy of the pandemic, there could not have been a better year for these delivery platforms. Except DoorDash, Grubhub, and Uber all reported losses in 2020. They weren't profitable.
Daniel McCarthy is a professor of marketing at Emory University. We already referenced some of his research on the pandemic and the third-party delivery apps. If you go to a company like DoorDash, obviously they were just kind of purely given a gift by the pandemic. So to not be profitable in like a pandemic year or the year after, that really would lead some people to say, well, you know, will this company ever be profitable?
This question, will this company ever be profitable? It also applies to the entire industry. Uber lost more than $15 billion over the course of the last two years alone. Those losses cover both the rideshare and delivery businesses. DoorDash reported net losses for every year that we have public data. So 2020, 2019, and 2018. And it lost money in the first quarter of this year as well.
But as we just heard, DoorDash has also completely crushed competitors when it comes to market share. Sales have also boomed during the pandemic. DoorDash says it now partners with 175 of the top 200 restaurant brands, including Chick-fil-A, Chipotle, and Wendy's. And the company IPO'd in December. So let's pick apart a bit of this dissonance. An industry that is not profitable, but an industry that seems to be flourishing. What's going on here?
Sounds like it makes no sense, I know. But when you talk to executives in the industry, one of the first things they'll say is, it's still the early days. Now, if you zoom out, you know, what we see overall is the opportunity is absolutely enormous. You have opportunities.
a category that is yet to grow a lot more. This is Pierre-Dimitri Gourcote. He's the senior vice president of delivery at Uber. He's in charge of Uber Eats. And what he's saying here is something we heard from DoorDash as well. They're still growing. The industry is still growing. They're taking the revenues or sales and reinvesting them back into growth.
That's why you're not seeing profits yet. And that means Uber, but frankly, a lot of the players that are out there want to make sure they continue to invest in that growth. And so they don't want to pull the brakes. We don't want to pull the brakes too quickly. And we want to make sure we are actually able to lean into that growth. If you quit spending too soon, you lose out on market share and you watch your competitors win more restaurant partnerships and also more customer dollars.
Another thing that's happening in 2021, there's just not a lot of pressure from investors to be profitable. This is true for a lot of the tech world. We are living in an era of free money, essentially. Karan Girotra is a professor at Cornell Tech. And when he says free money, here's what he means. Interest rates have been low for years and near zero since the beginning of the pandemic.
So people who have a lot of money in the bank, they're looking to make an investment that has the potential to give them a return that's more than, well, zero. There's a lot of money going around, which means, and whenever that happens, people are much less picky about who's going to survive, who's not going to survive.
And in one sense, that's a very good thing because these companies can raise money. They can have longer and longer runways. So that all seems like they don't need to be profitable. That free money helps people kind of postpone the time to be profitable to further out. Now, at some point, the chickens have to come home to roost. One possible scenario is a major change in economic conditions. In that scenario, investors want less risk. And unprofitable, fast-growing companies...
are risky. Another thing that comes up a lot when you talk to these executives about profitability is that you're looking at the wrong metric. They point to something called adjusted EBITDA. It's an acronym. Bear with me. It's a type of profitability metric, but it strips out certain expenses.
These are expenses like stock compensation packages for employees. Getting stock or stock options is super common at young tech companies. But at the same time, there's no cash being handed out. So companies argue that if you count this kind of expense, you're actually not seeing the core economic health of a company.
Critics of this approach say expenses like stock-based compensation, they're still expenses. As Warren Buffett once wrote, if compensation isn't an expense, what is it? Adjusted EBITDA may not get the coveted Buffett vote, but it certainly gets store dashes. If you look at Adjusted EBITDA, the company made an annual profit for the first time ever in 2020. Uber did not. But the company has promised that by the end of 2021, it will.
So I asked Gaur Koti, the head of delivery at Uber, why the company is feeling the pressure now to make that promise. Any business at some point needs to be profitable if it wants to be self-funded. I think it's kind of the right time for us to prove that we can and will be a sustainable business that doesn't need to keep asking for money, basically. Each company will eventually have to prove that it can turn a profit. The question isn't if, it's when.
In the near term, there are some headwinds facing the industry, things that could change the math for investors and moneylenders too. The research paper that Daniel McCarthy recently put out, it found that as pandemic shutdowns lift and more people get vaccinated, people who flooded the delivery apps for the first time during the pandemic likely won't stick with them. They'll go back to eating in restaurants. And there's something else that all these third-party delivery companies are watching very closely right now.
Something that could fundamentally change the way the apps work. And something that could also push off traditional profitability even further into the future. Once you're considered an employer, then you have to provide workers' compensation insurance, unemployment insurance. You have to ensure that you're providing minimum wage and overtime. Ultimately, your labor costs go up by about one-third.
The on-demand delivery economy is powered by gig workers. So what happens if those workers get added to the payroll of the tech companies? I don't want to give my time, my energy, my effort, my gas, my miles, my vehicle's lifespan to DoorDash for less than minimum wage. That's next on Land of the Giants Delivery Wars.
Land of the Giants Delivery Wars is a production of Recode, Eater, and the Vox Media Podcast Network. Nora Wuzwuz is the show's producer. Megan Kinane is our editor. Jolie Myers produced this episode and is our showrunner. Adrienne Lilly engineered this episode with help from Brandon McFarland. Alex Letterman is our fact checker.
Sam Altman is Recode's editor-in-chief. Amanda Kluh is Eder's editor-in-chief. Nishat Kurla is our executive producer. I'm Jason Del Rey, senior correspondent at Recode. And I'm your host, Amit Dalyongar. If you like this episode, order another on your favorite podcast delivery app. And please leave us a rating and review on Apple Podcasts. We'd really love to know what you think of the show. And subscribe if you haven't already to hear our next episodes.