How DoorDash Works – Business & Revenue Model Explained
How DoorDash Works – Business & Revenue Model Explained
DoorDash has become a well- known name in the USA, and its growth has been disruptive, making businesses, as well as the people, wonder; what’s the DoorDash model, and how’s it doing so well.
DoorDash has, without a doubt, created a lot of hype in the market. Since its inception, investors have generously provided backing to this endeavor.
DoorDash has continually piqued the interest of investors, and it’s because of the success the company has had after its inception. There is a steady rise in the popularity of the application. Even though there has been a lot of obstacles in the company’s journey, it has still maintained its appeal. The involvement of so many investors has allowed DoorDash to spread its wings and explore other avenues for growth. It is truly becoming one of the fastest-growing businesses. Know how much does it cost to build an app like Postmates or DoorDash.
This unique journey that DoorDash has had has made it an interesting study, and we’re going to explore various dimensions of the business. We’re also going to discuss what today’s environment means for the company. The Global pandemic that has taken the world in its grip has surely challenged businesses around the world to evolve and adapt to the current condition. We’re going to discuss what it means for DoorDash, and how the company’s future is going to be affected by it. So, without further ado, let’s begin.
What is DoorDash?
DoorDash is an America based on-demand prepared food delivery service that was founded by four Standford students Tony Xu, Stanley Tang, Andy Fang, and Evan Moore in 2013. Since its inception, DoorDash has been on a roll.
The company has the backing by Y-combinator. Being a technology company, it uses user logistics to provide users with food delivery services from Restaurants.
Initially, the company began in Paulo alto, and since then, it has expanded to more than 4000 cities, and more than 340, 000 stores across America and Canada.
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Here are some of the basic facts about the company.
- The company came into existence in Palo Alto in the year 2013.
- The company is the brainchild of four Stanford Students Tony Xu, Stanley Tang, Andy Fang, and Evan Moore.
- The idea for the service sprang from their talks with a woman named Chloe, who is the owner of a macaroon store in Palo Alto called Chantal Guillon.
- The company’s headquarters are in San Francisco, California.
- The company has Y-Combinator Backing.
- DoorDash surpassed GrubHub in 2019, the largest third-party delivery service till then.
- As of 2019, DoorDash is the largest third-party delivery service in the USA.
- As of 2019, DoorDash was the employer for 2019.
- As of December 2019, the company has a total revenue of $900 million.
Now, let’s track the growth of the company in a timeline stretching from its inception back in 2012-13.
Tracking DoorDash: A Timeline
- The company got its start in October 2012, when four Stanford students decided to come together to experiment on an idea. According to Stanely, one of the founders, they initially tested the need by making a landing page by the name of PaloAltoDelivery.com. The success of this experiment became the fuel that ignited the idea for DoorDash. They made their first delivery on January 12, 2013.
- Y Combinator was the first to back the venture, only five months after its founding, and two months after its launch, and gave the company its initial boost in March 2013, with the seed funding of $120, 000.
- After seven months of founding, on May 21, 2013, DoorDash was incorporated in Delaware. Only next month, in June 2013, the company officially named itself DoorDash.
- After nine months of launch, and a year of founding (October 2013), the company raised $2.4 Million in second funding from investors in a seed round. The investors in the round included Khosla Ventures, Pejman Mar Ventures, Andy Rachleff, and Russell Siegelman, Charles River Ventures, SV Angel, Paul Buchheit.
- The third round of funding was in May 2014, raising $17.3 in Series A round. Sequoia Capital led the round, along with existing investors Khosla Ventures, Charles River Ventures, and Pejman Mar Ventures, and Ted Zagat.
- The company’s board of directors got a new addition with Sequoia’s Alfred Lin.
- The round brought the value of DoorDash up to $73.5 Million.
- In June 2014, the company expanded geographically to include LA in its design and opened DoorDash LA. On the same track, the service also made itself available to Bostonians in September 2014 and opened up in Boston. At the same time (Spetember, 2014), the company included cyclists into the delivery service, keeping factors like speed, optimal distance, as well as items to be delivered in check.
- The Shinkansen (Japanese bullet train) became the inspiration for the company’s new logo, which company unveiled in November 2014.
- In March 2015, the company raised $40 Million (Series B). The round led by Kleiner Perkins also included existing investors Sequoia Capital, Khosla Ventures, and Charles River Ventures. At the end of the round, DoorDash valued at $600 million. Another addition to the DoorDash’s board is John Doerr 0f Kleiner Perkins.
- The company added its service to the mobile platform and launched its app on Android in April 2015.
- In N Out sued DoorDash for trademark infringement and unfair competition in November 2015, a day before DoorDash announced its partnership with KFC. Although the suit got dismissed after two months, DoorDash agreed to stop its delivery from In-N-Out restaurant locations.
- Around the same time, in November 2015, the company expanded outside of America for the first time and opened up in Toronto, Canada. By the end of 2015, the company was in more than 250 cities and 22 markets with thousands of restaurants.
- The fifth round (Series C) of funding was in March 2016, and Sequoia Capital led it. Existing investors Kleiner Perkins and Khosla Ventures along with and new investors Y Combinator Continuity Fund and Wellcome Trust also participated. DoorDash raised $127 Million, and the company valued at $700 Million.
- In conjunction with a partnership with Anheuser-Busch, DoorDash started the Alcohol delivery services in Southern California in June 2016. In the November month of the same year, the DoorDash started offering group orders, integrating with iMessage.
- Next month, in December 2016, the company launched DoorDash Drive, a fulfillment Product, allowing businesses to deliver in areas outside the DoorDash marketplace. By the end of the year, the company had expanded to 28 markets across more than 250 cities.
- In January 2017, the company partnered with Starship Technologies and started testing integrating delivery robots into the company’s operations.
- In April 2017, the company partnered with zero-emission electric bike company GenZe and started offering bikes to employees (Dashers) in Los Angeles, San Francisco, Vancouver, and, Washington D.C.
- In September 2017, the company acquired Buying Rickshaw, the same day local delivery platform.
- DoorDash introduced the group delivery system for its iOS and Android apps in September 2017.
- In March 2018, the company raised $535 Million in funding. SoftBank Group led the round with participation from existing investors Sequoia Capital, GIC, and Wellcome Trust. Jeffrey Housenbold from SoftBank and Jeremy from GIC joined the board of directors. After the funding, the company valued at $1.4 Billion.
- In April 2018, the company partnered with Walmart and ventured into grocery delivery.
- In August 2018, the company raised an additional $250 Million, bringing the company’s value at $4 Billion.
- By December 2018, DoorDash had come to the second position in the US food delivery sales, only behind GrubHub.
- In February 2019, the company raised $400 million, bringing the company’s total funding to $1.4 billion, reaching a total valuation of $7.1 billion. By March 2019, DoorDash exceeded GrubHub in total sales, at 27.6% of the on-demand delivery market.
- In May 2019, DoorDash raised an additional $600 million in funding. On August 1, 2019, DoorDash announced that it acquired Caviar. Later on in the same month, the company announced the acquisition of Scotty Labs. The company also announced a partnership with Mercato, an e-commerce platform.
- As of May 2019, the company has expanded to more than 4,000 cities and has 340,000 stores across America and Canada.
- The company is currently worth more than $13 billion and is the largest third-party delivery service in the USA.
- On February 27, 2020, DoorDash revealed that it has confidentially applied to go public.
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How DoorDash Works
Placing the Order
With a large selection of restaurants to choose from, users have a lot of options when it comes to eating. Users can see the top orders from customers in any restaurant and take their pick. With smart AI integration, users also get recommendations for new choices, based on their previous orders. Users can choose from all the options available and place their orders.
Paying the Bill
Once users have placed the order, the next step is to pay for the order. Based on the Restaurant, and the delivery location, the total charge is calculated. Users can pay through the app. When the users have paid, the order gets forwarded to the respective restaurant for preparation and packing.
When the order is ready from the restaurant’s side, delivery personnel (Dashers) pick it up and start toward the delivery location. Dashers can pick up orders whenever they have downtime using the app.
Users can track the progress of their orders thanks to the tracking feature available to the users on the app.
Dasher’s goal is to be as efficient as possible in delivering the order. The fee for delivery goes to the company, and the company pays dashers for their work. However, based on how the customer receives the dasher’s effort, dashers usually get tips from users. Users can also rate their experience with the dasher, the delivery, and the order, using the app.
It is basically how the app works. Users can order from the website, or through their app.
Business Model of DoorDash
Before we explore how the DoorDash works, let’s first get familiar with some basics.
Here are some interesting facts about DoorDash
- The company has a Y- structure business model. It unites users, eateries, and people who are free to work as delivery agents.
- The delivery personnel associated with the company are called Dashers.
- The company secures its commission from the businesses, and it’s near 20%.
- The delivery fee for the users is between $5- $8 for the users.
- The company today delivers in more than 4,000 cities across America and Canada.
Now, as mentioned above, the company has a Y-structure business model. Let’s discuss the various components of this structure.
The Eateries are an integral part of the DoorDash workflow. These food places have a lot of different reasons to be with the app. Let’s see.
- For food joints that don’t have any home delivery services, DoorDash has a lot of traction. Since DoorDash has its efficient transport network, it is an asset to any food business.
- Businesses who are looking for alternate ways to reach an audience also find it useful. With DoorDash’s popularity and wide range, these restaurants can benefit and reach a new audience, and deliver to the existing userbase.
- Businesses that don’t have a proper sitting plan can enjoy the benefit of home delivery with Doordash.
After Businesses, the segment has to be the users. Let’s see what comprises the user base of DoorDash.
- People who love food but don’t have time or the energy to dress up and go out to eat enjoy DoorDash.
- A corporate world that has no time to waste can arrange small or big orders (Group Order) with DoorDash without compromising on their work schedules.
- People who don’t have kitchens in their apartments, or can’t use their kitchens for some reason.
- People who find cooking challenging, and prefer to eat out enjoy DoorDash service.
From small to big, every eatery can benefit in one way or another from DoorDash, and this has been the secret behind the service’s popularity.
Now, here are a few of the service features that make DoorDash a popular option among its user base.
- Top Menu – Users can see what’s the popular choice of users in different restaurants, and find out what’s best to eat.
- Suggested List – On the bases of user choice, the app employs AI to give a suggested list to the users that they might like to try.
- Schedule Delivery – With hectic routines people might have, it’s convenient to schedule the orders beforehand. DoorDash allows users to set delivery dates beforehand to avoid last-minute confusion or any other inconvenience.
- Live Tracking – From the moment the order leaves the restaurant, users can track its journey through the app in real-time with live tracking.
- Dual Rating – Users can better describe their experience with a dual rating system, which involves a separate rating for the Food and delivery, and the Delivery personnel.
The customers also get dedicated customer support twenty-four-seven, which is a big convenience for them. The competent customer support of DoorDash has helped users and also DoorDash itself by helping it understand users as well.
Last, but by no means, at any least, are the delivery personnel, or the Dashers.
- People looking for flexible jobs, with adaptable timings are fit for Dashing. These candidates need to have conveyance for delivery.
- People looking to get a nice job with excellent tips are also dasher material.
Dashers get a flat payment for their deliveries on a weekly bases and usually earn more than $600 (US). Tips from customers are a big part of Dasher’s motivation to work for DoorDash. Dashers can set their working schedule, and if they’re efficient, they are more likely to get great tips as well. It is easy to be a dasher, and the benefits are worth the effort.
Now, let’s take a look at the Revenue model of the company.
DoorDash Revenue Model – How it Makes Money
DoorDash has been able to generate a lot of interest in itself from the investors and to do that, an efficient revenue model is necessary. For any service like DoorDash to do well in the market, it needs to show robust returns. Only then are investors interested in backing such ventures. With its swift rise in the market, DoorDash has continually won the confidence of the investors.
There are several ways in which DoorDash generates revenue. Let’s talk about these different methods of revenue generation.
1. Business Commissions
DoorDash provides businesses with means to reach their target audience, without any added effort. It makes it possible for any user to order from their favorite food places, even if those eateries do not have their delivery systems. It is a tremendous service to the eateries that cannot afford to have a transport system or want to focus on their products rather than the transport.
For providing this service, DoorDash gets a commission from the business, which is usually around 20%. Eateries do not mind paying the commission, as it saves them a lot of effort.
2. Delivery Fee
DoorDash has an extensive transport network of its own, and it employs delivery agents, called dashers, to deliver various orders that are placed by the customers. These customers get payments by the company. Depending on their performance they also get tips from the customers.
DoorDash charges a commission from the businesses to get the orders to their customers. Along with that, DoorDash also charges the customers a delivery fee, which is anywhere between $5- $8. Through DoorDash, customers can order food from places that don’t deliver. With so many choices of restaurants and dishes and easy and innovative features, customers find it easier to use the app than to go through a lot of effort.
Along with the previous two services, DoorDash also Provides Advertising services to eateries. Although businesses are listed on the website and app for the users to see, they don’t get any preference and are dependent on the user reviews.
With DoorDash Advertising, businesses can come to the foreground of the process, and reach more people than before. It is a crucial part of DoorDash’s revenue generation as well, and it also provides businesses the opportunity to leverage the extensive reach of DoorDash.
This is how DoorDash generates revenue and has managed to come to the forefront to become the largest third-party delivery service in the USA. The growth graph of the company has been impressive, and it shows no sign of slowing down.
What the future holds for DoorDash?
In 2019, DoorDash became the most extensive third-party delivery service in the USA, getting ahead of GrubHub. It was able to do so thanks to constant innovation and smart business strategies. Being a technology company, Doordash tries to make the service as accessible to businesses as well as users. Its dedicated customer support is also a reason for its growing popularity. By the year-end of 2019, and the beginning of 2020, DoorDash showed no signs of slowing down.
In a time when businesses are finding it hard to navigate, and have little choice in terms of working, DoorDash has been making some moves to ensure that it can benefit as many businesses and people as possible.
The company confidentially filed for an IPO in February. During the epidemic, the company has been trying to help businesses stay in the workspace, ensuring a safe workflow.
Here’s what the company has been doing during the 2020 epidemic.
- The company waived commission fees for 30 days for restaurants that signed up for DoorDash and Caviar by the end of April.
- The company added 100,000 independent restaurants to DashPass for free and gave discounts on commissions for existing restaurants on DashPass.
- In its efforts to help restaurants, the company set aside $20 Million for Marketing.
- Along with contact-free deliveries, the company gave out 1 million sets of hand sanitizer and gloves to delivery drivers.
DoorDash has been trying to keep the local businesses going and has innovated to heed the call of times. It keeps growing, even amidst the ‘Cov*d’ epidemic. Services like DoorDash are going to have to adjust to carrying on through these challenges. DoorDash seems to be going in a hopeful direction with all its actions during 2020.