Weekly reading – 25th September 2021

What I wrote last week

Is BNPL replacing credit cards?

My thoughts on Visa’s new benefits for U.S Signature/Infinite cardholders

Articles on Business

When to Buy Now, Pay Later, and When to Just Pay Now. “Affirm doesn’t report payments on its four biweekly payment zero-interest loans, it said, or when consumers are offered a three-month payment option with no interest. Afterpay doesn’t work with credit bureaus at all. Sezzle Up explicitly informs users that it will report on-time payments to Equifax and TransUnion. Affirm doesn’t charge late fees, but late or partial payments can hurt your credit score, and may prevent you from using the service in the future. Sezzle Up also reports delinquencies. Klarna and Afterpay revoke access to their platform until payment is made. Both companies also charge late fees, tacked onto your next payment. Afterpay charges $8, or 25%, of the purchase, whichever is less, while Klarna charges a maximum $7, or no more than 25%, of the past due amount. Klarna said it will contact users to collect payment before charging a late fee.

This delivery app went above and beyond for its workers. Then Uber took over. Cornershop’s original operating model was more beneficial and friendly towards workers. After the acquisition, life became more challenging for drivers. It remains to be seen whether the regulation in Chile will allow workers to unionize and force Uber to recognize drivers as full-time employees. This is a classic case of conflicting interests between gig companies and drivers as well as of the important role that governments play in this conversation.

Why the University of Florida gets a ~$20m cut of Gatorade profits every year. A fascinating story on a wildly popular drink.

The Most Important iPhone Ever. “What makes the iPhone and perhaps Apple special is that it seems to deliver things that nobody asks for but then everybody wants while eschewing overshooting a performance dimension that a few demand but most won’t use. The tragedy of overservice and disruption is that if you don’t shift the definition of performance eventually you run out of demand at the top of the performance curve. That opens you up to “good enough” competition from below. Instead you need to re-define the notion of performance: compete on a new basis, reset expectations. That the iPhone can find new dimensions of performance and hence demand is effectively a solution to the innovator’s dilemma.”

PayPal Introduces Customers to the Next Digital Payments Era with the New PayPal App. “The new PayPal app will introduce new features including PayPal Savings, a new high yield savings account provided by Synchrony Bank, alongside new in-app shopping tools that will enable customers to earn rewards redeemable for cash back or PayPal shopping credit and uncover deals with hundreds of merchants. Additionally, the new app offers PayPal customers a single place to manage their bill payments, get paid up to two days earlier with the new Direct Deposit feature provided through one of our bank partners, earn rewards and manage gift cards, send and receive money to friends, family and businesses, pay with QR codes for purchases and redeem rewards in-store, access and manage credit, Buy Now, Pay Later services, buy, hold and sell crypto, as well as support causes and charities they care about.”

Other stuff

The tangled history of mRNA vaccines

Stats that may interest you

“One in five consumers made a purchase using a “buy now, pay later” service within the last 12 months.

One in six consumers who made a buy now, pay later service purchase regret doing so, commonly citing high interest rates, a lack of options to build credit, or making unnecessary or unaffordable purchases.”

There have been 47 startup venture deals in Africa in 2021 so far with the average deal size of $21 million

CPC on Amazon ads is $1.27 in August 2021, up from 86 cents from a year ago, according to a survey

31% of online grocery shoppers use PayPal, according to a new study by ACI Worldwide and PYMNTS

Fuel Wasted Due to U.S. Traffic Congestion in 2020 Cut in Half from 2019 to 2020

14% of U.S consumers said they switched to an iPhone from another operating system in the last two years, a report said

Weekly reading – 8th May 2021

What I wrote last week

Amazon continues to impress with another blow-out quarter

Uber & Gopuff. Amazon Prime Video streams NFL games in 2022

Uber’s Delivery is on fire despite $600 million expense set aside for the driver dispute in the UK

Business

How Apple does M&A: Small and quiet, with no bankers. Information is extremely valuable in business. Apple’s known culture of secrecy is meant to keep competitors from knowing what it has in the pipeline. We don’t often see Apple make huge purchases. Instead of buying companies to grow the top line, they focus on the people, especially technical engineers. That’s a smart move.

A great Business Breakdown episode on Twilio. If you don’t know about the business, have a listen.

What Is a Business Model? 54 Successful Types of Business Models You Need to Know. This type of content renders expensive MBAs obsolete.

Clubhouse’s downloads plummeted in April. I have been on Clubhouse for 2 months, and yet I haven’t made it to the end of one single chat. Plus, it’s not appealing to the end users that there is no recording. Not everyone has enough time in a day to wait for talks to come and listen to everything. Not so surprising to see the app’s popularity take a huge blow. I just wonder what a16z saw in it.

Amazon Expanding Garage Grocery Delivery to more than 5,000 cities

A great podcast episode on Visa. This company probably has one of the strongest moats out there. Its market cap is higher than those of big banks.

How Shopify’s network of sellers can take on Amazon

What Is an Entertainment Company in 2021 and Why Does the Answer Matter?

What I found interesting

Green gold: Avocado farming on the rise in Africa

Playlists and podcasts? Netflix is exploring developing ‘N-Plus’

Stats that may interest you

60% of Instagram users eligible to link up with their Messenger account did use the feature

20% of electric vehicle owners in California switched back to gas because charging is a hassle. This is indeed not great news for EV as well as hydrogen cells. But I believe that the great potential of green energy cars is here to stay and we’ll overcome this challenge somehow.

Facebook Workplace reaches 7 million paid subscribers. I do wonder how far Facebook’s push into the corporate world will go. I don’t see how they can overcome the disconnect between their own brand and the seriousness that the 9-5 world carries

95% of iOS 14.5 users disabled App Tracking. There are two sides of this debate. Proponents of privacy applaud this move by Apple because it aids consumer privacy and stops cross-app tracking. Critics say that Apple’s motive isn’t altruistic. Instead, they argue that Apple wants to harm the advertising industry, to inadvertently strengthen the position of Google & Facebook and to boost Apple’s own advertising business. Well, when two parties have conflicting interests (advertisers and consumers), Apple must choose one to side with and in this case, whatever their motive is, they side with consumers.

Social commerce made up 40% of Southeast Asia’s $109 billion e-Commerce in 2020

Uber’s Delivery is on fire. Driver dispute cost $600 million, but may be a blessing for the business

Uber is well on track to a full recovery. Delivery continues to be the bright spot

Yesterday, Uber released their financial results for Q1 FY2021. In general, the overall business mostly recovered from the impact of the pandemic. Even though it made fewer trips and less revenue than last year, gross bookings rose by 24%. Mobility Gross Bookings continued to be down year over year as countries are still battling Covid-19. On the other hand, Delivery Gross Bookings increased by 166%, up to $12.5 billion from $4.7 billion a year ago, due to strong demand. To put it in perspective, Uber generated almost as much Gross Bookings in Delivery in Q1 2021 as it did in the entire year of 2019.

Uber's Mobility and Delivery Gross Bookings
Figure 1 – Uber’s Mobility & Delivery Gross Bookings

In Q1 2021, the company’s adjusted EBITDA was -$360 million, but it was up from the loss of $612 million a year ago. Mobility was still profitable, albeit down 49% YoY. Delivery and Freight remained loss-makers, but the loss narrowed compared to Q1 2020. According to Uber, Delivery was profitable on the adjusted EBITDA basis in 12 markets in Q1 2021. Take rates for Mobility and Delivery were 12.6% and 14%, respectively. Mobility’s take-rate dropped from their usual 20% range because Uber took a draw-down of $600 million for driver expenses following the High Court’s verdict in the UK that would force Uber to classify drivers as employees. Without the draw-down, Mobility take rate would be 21.5%. Delivery’s take rate has been steadily increasing since Q4 2019. As the platform continues to grow in scale and fine-tune its operations for higher efficiency, I expect to see Delivery take rate to hover around the 14-15% range.

Uber's Mobility & Delivery Take Rates
Figure 12- Uber’s Mobility & Delivery Take Rates

Driver-friendly regulations can be both a threat and a blessing for Uber

This is the first time that investors could, to some extent, quantify the impact of regulatory threats on Uber’s business. Yesterday, the Biden administration rescinded the previous administration’s rule which would have made it more difficult for drivers to be considered employees. The Secretary of Labor also mentioned that drivers should be treated as employees with benefits instead of just contractors, but stopped short of announcing a concrete policy change. That’s why Uber’s executives repeatedly emphasized that they would engage in dialogues with the federal government moving forward to find an agreeable solution and that it’s not doom and gloom yet for their business.

Some are justified in their pessimism for Uber. A driver-friendly regulation would definitely hurt Uber’s bottom line in the short term. In the long run, I am not so sure. Any new regulation regarding gig workers would affect not only Uber, but also and more importantly its smaller rivals. Every company from Lyft, Instacart, Doordash to Gopuff will have to pay more personnel expenses. But few of them have the scale and resources that Uber does. Take Lyft as an example. It operates in Canada and the US only and doesn’t have a Delivery service like Uber, at least not yet. As a result, it would have a higher driver expense per order than Uber because the latter could stretch the fixed expense over many more Ride/Order. That’s a unit economics advantage that comes with operating in more markets, more verticals and at a higher scale.

Figure 3 – Uber’s Outside Equity

Plus, if Uber decided to pay drivers more than others, it could lock in drivers exclusively on its platform and create a driver supply problem for its smaller rivals. Fewer drivers mean slower services. Slower services lead to less satisfied customers. Less satisfied customers result in less business. That’s the vicious cycle that Uber could inflict on its smaller rivals. Plus, Uber has about $13 billion in equity in the likes of Grab, Aurora or Didi. If push comes to shove, it can sell off all of it to finance its operations, something that I doubt other delivery services can do.

Other positive developments

Uber mentioned that its Delivery would debut soon in Germany. Germany is arguably the biggest consumer market in Europe and it doesn’t make sense to not have one of its main business lines in the country. As a new market, Uber may have to take a loss in the short run to establish its presence, among local competitors. Since the CEO took over, Uber has scaled back operations in areas where it didn’t believe it had competitive advantages. If they decide to launch in Germany, there may be a good reason.

This may be the first time I remember that Uber specifically called out its advertising business. While it’s not really surprising, it has plenty of potential. As a household name that has millions of users on its platform, Uber is an attractive partner to merchants. Hence, it makes sense Uber wants to monetize its valuable real estate on its app. Advertising is a higher margin business and should help Uber with its profitability goal.

Additionally, the company also mentioned that its New Verticals (grocery, alcohol and convenient items) reached an annualized Gross Bookings of $3 billion in March. The revelation contained some caveats such as: what does “annualized” mean? What is the distribution of such Gross Bookings between grocery, alcohol and convenient items? Nonetheless, with the acquisitions of Drizly, Postmates and the partnership with Gopuff, it’s a vertical to watch out for in the future.

Uber & GoPuff. Amazon streams NFL games on Prime Video in 2022

Uber boosts its grocery delivery with GoPuff

Per Bloomberg:

Uber Technologies Inc. will vastly expand grocery delivery in the U.S. this summer through a partnership with GoPuff, a fast-growing delivery startup and the owner of the liquor store chain BevMo!, the companies plan to announce Tuesday.

GoPuff will make inventory of convenience store and grocery items available to Uber customers in 95 cities starting next month and nationwide by the end of the summer, the companies said. GoPuff will handle logistics and delivery for the orders, and Uber will take a percentage of each transaction made through its app.

GoPuff, which was founded in 2013, is a delivery startup that focuses on “essential items” such as snacks, pet products, beauty products or liquor. The model on which GoPuff operates is a bit different from other delivery services. Instead of having their drivers pick up items from the stores, GoPuff distributes orders from their micro-fulfillment centers strategically located in markets across the US. According to the startup, it is now operating 250+ fulfillment centers and serving more than 650 cities.

In terms of unit economics, every order on GoPuff has to be at least $10.95. The company charges users a flat delivery fee of $1.95 for every order and claims that there is no surge price. For orders that contain alcohol, there is an additional $2 to cover extra efforts to verify identifications and meet legal compliance. To avoid the flat delivery fee, users can enroll in their rewards program called GoPuff Fam for $5.95/month.

By partnering with Uber, GoPuff is hoping to use Uber’s popularity to drive more traffic and business. Once orders and revenue increase, it will make other aspects of the business easier to manage such as acquiring drivers or pleasing investors. The risk here is that the startup is sharing the customer relationship to Uber. Handling the delivery of every order from this partnership, GoPuff still interacts with the end customers. Nonetheless, at the top of the funnel, customers will still place orders within Uber. Plus, a portion of the sales goes to Uber for the privilege to be in their app. I really hope that GoPuff will structure the deal that enables them to have a marketing communication customers at the end of every order such as a coupon or discount for direct orders.

For Uber, this partnership will boost their Delivery service. While Covid-19 has (still) greatly damaged Uber’s Mobility business, it has been a game changer for the company’s Delivery business (UberEats). In Q4 FY2020, Delivery generated more than $10 billion in Gross Bookings, up from $4.7 billion just a year before. The acquisition of Drizly and Postmates highlights the importance of Delivery to Uber and the company’s ambition to be a Superapp.

The partnership with GoPuff gives Uber extra bodies. Even with drivers under the startup’s brand, Uber can still satisfy their customers with properly filled orders. But I think this partnership may be an audition or a test for what may come next. I won’t be surprised if Uber makes an offer to acquire GoPuff. There will be a lot of synergies in case of an acquisition: similarity in services, savings in marketing and personnel. More importantly, in GoPuff, Uber would acquire a network of micro-fulfillment centers and a new delivery model.

Excited to see what comes next from this partnership and space.

With 15 NFL games a year starting 2022, Amazon is making Prime Video a strategic advantage

Per WSJ

Amazon will take over exclusive video rights for “Thursday Night Football” starting in the 2022-23 season, a year earlier than anticipated, the company and the National Football League said Monday. Initially, Amazon’s deal with the NFL called for the tech giant to begin streaming games in the 2023-24 season. Current rights holder Fox Corp. agreed to exit its existing deal for the package a season early.

Terms, including the cost of acquiring the additional year of rights, weren’t disclosed. In March, Amazon signed a 10-year deal with the NFL to stream 15 games per season on its Prime Video platform. The average annual rights fee is around $1.2 billion and that is the price tag for the additional season, people familiar with the matter said.

At $1.2 billion for 15 games a year, that works out to $80 million per game. A significant price tag. But Amazon can afford to pay it. Not because of their financial strength, but also because of their Prime base. In the latest earnings call, Amazon revealed that there were 200 million Prime members, 170 million of which watched Prime Video in the past year. American football is very popular in the US, but is not everyone’s cup of tea. Let’s say if only about 20 million US subscribers watch NFL games on Prime Video, the content cost will sit around $4 per member per game. If 40 million US subscribers (12.5% of US population, not a wild guess), the content cost will go down to $2 per member per game. The more people Amazon can get to watch games, the lower that number will be. The scale of their Prime base makes Amazon one of a handful of companies in the US that can afford to invest that much in NFL games. Also, this benefit doesn’t include additional new Prime members that are on the fence and decide to subscribe to the service because of the NFL games.

Yes. Just in terms of strategy, I think there’s probably nothing new or surprising, but just to reiterate it, we look at Prime Video as a component of the broader Prime membership and making sure it’s driving adoption and retention as it is. It’s a significant acquisition channel in Prime countries. And that we look at it and see that members who watch video have higher free trial conversion rates, higher renewal rates, higher overall engagement. And there’s great examples of places like Brazil, where you launch a video-only subscription, for example, that preceded the broader Prime membership with shipping components, and that was, as an example, a great way to expose people to Amazon.

By Dave Fildes, Amazon’s Director of Investor Relations in Q1 FY2021 Earnings Call

As an end user myself since 2017, Prime Video has gotten so much better over the last few years with a bigger content library and more originals that I actually enjoy such as Jack Ryan or sports documentaries. My friends, both in the US and Germany, also have good things to say about the service. It’s no longer a peripheral service. As Dave Fildes said, it is an important component of the Prime membership to acquire and retain customers. In the fight against Walmart and their membership program Walmart+, Prime Video will prove a key advantage for Amazon. Walmart may be able to match Amazon in a lot of things, but it doesn’t have yet an equivalent to Prime Video. Plus, it’s not cheap for Walmart to catch up with its rival. Amazon spent $3 billion in video and music content alone in Q1 FY2021, up from $2.4 billion a year ago. That’s an annualized $12 billion in content, putting it up there among the biggest spenders. If Walmart wants to enrich Walmart+ and offers an equivalent to Prime Video, they are looking at a very expensive game. Even with an increase in content and shipping costs, Amazon has still generated more than $25 billion in Free Cash Flow Trailing Twelve Months in the last four quarters. As their other businesses grow and continue to pump cash into their coffer, we may see Amazon spend $20 billion a year in video and music very soon.

Amazon's Free Cash Flow Trailing Twelve Months
Amazon’s FCF TTM

Disclaimer: I have a position on Amazon, Walmart and Uber

Weekly reading – 17th April 2021

What I wrote last week

Hydrogen fuel cells vs Batteries

Uber may deliver marijuana in the future. Update on Credit Karma and Square

Business

Business Insider has a story on Larry Page, especially when he was determined to fire all Project Managers. Even a genius like him made a mistake, it seems. Don’t be too hard on yourself.

Why Delaware is the sexiest place in America to incorporate a company

Vimeo CEO talks about how the company reinvented itself from a video platform, another Youtube competitor to a B2B SaaS company. To be honest, as a consumer, I didn’t know that Vimeo transformed itself into a B2B SaaS player.

TikTok says that it has 100 million monthly active users in the US and is planning to bring new eCommerce-focused ads products

How the pandemic helped Walmart battle Amazon Marketplace for sellers. It’s exciting to see these two behemoths go at it in the near future. While Walmart has the luxury of stores scattered across the country, Amazon is a bigger and more experienced marketplace player.

Why It’s Misleading to Say ‘Apple Music Pays Twice as Much Per Stream as Spotify’. The best article on this particular subject that I have seen this week.

Amazon Plans Furniture Assembly Service to Catch Wayfair. I look forward to reading more about this initiative. While it sounds great as first, the reality may offer some questions that Amazon has to answer. For instance, Amazon is known for pushing its drivers to complete deliveries as quickly as possible. Asking drivers to take time to assemble products goes against that mantra. Hence, how much would Amazon be willing to slow down deliveries? How much would the premium fee offset the cost of such slowed deliveries?

What I found interesting

French lawmakers approve a ban on short domestic flights. If there is a great network of trains; which I believe there is in France, this is a totally sensible decision.

Cloudflare Pages is now Generally Available

How to Create an Interactive AR Business Card Without Code

The vanishing billionaire: how Jack Ma fell foul of Xi Jinping. Jack Ma is one of the richest people on Earth and among the most influential business people. Yet, he has fallen from grace after what he said angered Xi Jinping. Another billionaire tried to lower his net worth to avoid trouble with the Chinese government. I am from that part of the world. I can tell you that no matter how rich a person or how big a Western corporation is, you don’t take your disagreement with the ruling party public. That’s one mistake you usually don’t come back from

Stats that you may find interesting

According to a new survey by National Restaurant Association, only 18% of delivery customers preferred to order from a 3rd-party app

Amazon Prime has 200 million members. 28% of purchases on Amazon were made in 3 minutes or less while 50% were made in 15 minutes or less.

Almost 20% of retailers’ sales in 2020 came from private labels

Uber may deliver marijuana in the future. Update on Credit Karma and Square

Uber’s business reportedly hit a stride in March. CEO hinted at the prospect of delivering marijuana

In a filing today, Uber revealed that it had an astonishing month in March 2021, when its Gross Bookings hit the highest level in the company’s history. Uber said that its annualized bookings for Mobility and Delivery hit $30 and $52 billion, respectively, last month. I have mixed feelings about this. At the first glance, the filing seems like a trove of good news for Uber as the figures imply that its two main business segments are firing on all cylinders. Uber’s total bookings in 2018 and 2019 were $50 and $65 billion, respectively. If the annualized numbers above are realized in 10 months’ time, that will be an impressive achievement for a company of this size, given that our societies spent more than one year in a historic pandemic.

But IF is the important word here. To be honest, I don’t really know how the annualization is calculated. Did they multiply the bookings in March by 12? Or did they multiply the bookings in the best week in March by 52? I may be ignorant not to understand the nuances in these languages, but if you invest your hard-earned cash into a company, it’s healthy to be a bit paranoid.

Another news that came from Uber is that its CEO hinted at the prospect of delivering marijuana.

“When federal laws come into play, we’re absolutely going to take a look at it,” 

Source: The Verge

Two months ago, I wrote about Uber’s acquisition of Drizly, the market leader in liquor delivery in the US. Chief among the benefits of acquiring Drizly for Uber are the proprietary technology that can verify IDs and the team that knows how to navigate the complex legal systems at the state and county levels. These capabilities will be tremendously helpful to Uber if they decide to delivery marijuana. Even in the states that allow the cannabis delivery, consumers still have to show that they are old enough; which is the perfect use case scenario for what Uber gets from Drizly. Right now, marijuana for recreational purposes is only legalized in a handful of states and is still illegal at the federal level. Some Democrats are pushing to change that and I think that it’s just a matter of time before the change takes place. Even if marijuana for fun is legal on the federal level, there will still be a lot of work to be done on the local level as each state will have a different mandate. In that case, having a team that knows how to deal with regulations from county to county on liquor delivery like Drizly will come in handy. The recreational legal cannabis market in the US is estimated to reach $27 billion by 2024. Estimates like this are usually optimistic, but even if half of that estimate checks out, it will increase Uber’s Total Addressable Market significantly.

Update on Credit Karma and Square

Last month, I wrote about Square’s acquisition of Credit Karma’s tax unit and potential benefits that the former can take from the latter

In essence, it benefits Square when customers have balance in their Cash App. The more balance there is, the more useful Cash App is to customers and the more revenue & profit Square can potentially earn. I imagine that once Credit Karma’s tax tool is integrated into Cash App, there will be a function that directs tax returns to customers’ Cash App. When the tax returns are deposited into Cash App, customers can either spend them; which either increases the ecosystem’s value (P2P), or deposit the fund back to their bank accounts. But if customers already direct the tax returns to Cash App in the first place, it’s unlikely the money will be redirected again back to a checking account. As Cash App users become more engaged and active, Square will look more attractive to prospect sellers whose business yield Square a much much higher gross margin than the company’s famous Cash App. 

Today, a user on Twitter noticed the new integration between Credit Karma and Square that would enable users to direct tax refunds straight to their Cash App account. Even though this is a logical move, how it will actually benefit Cash App remains to be seen as there hasn’t been any reporting on the overlap between Cash App and Credit Karma’s tax unit in terms of active users. Nonetheless, I look forward to seeing what Square brings to the market that stems from this acquisition.

Weekly reading – 27th February 2021

What I wrote last week

I reviewed The Spotify Play

Business

Profile of Bumble CEO

Interview with Spotify CEO, Daniel Elk

Frozen food sales have been boosted by Covid-19

When Did Generic Grocery Brands Get So Good Looking?

CBS and Showtime have a combined 30 million subscribers. Paramount+ with ads will go live with ads at $5/month in March and $10/month without ads in June

AT&T and TPG: There is No Why

What I found interesting

A COVID-19 vaccine life cycle: from DNA to doses

A look into Zuck and Kaplan’s influence on content moderation policies

Massive experiment shows why ticket sellers hit you with last-second fees

Sheryl Sandberg and Top Facebook Execs Silenced an Enemy of Turkey to Prevent a Hit to the Company’s Business

Abandoned houses in Japan can be bought for cheap as a get-away destination, but upgrading them can be very expensive

How Uber Deals with Large iOS App Size

Stats you may find interesting

Electric vehicles in the US reached 1.8% market share in 2020

This one stat is more horrifying than interesting. US exceeded 500,000 lives lost due to Covid-19

40% of Disney+ subscriber base are in the US. Because India is responsible for another 30% of the streamer’s subscriber count, the other markets such as Latin America and Europe combined make up 30% of its subscribers

86% of iPhones introduced in the last 4 years are on iOS14

Weekly reading – 20th February 2020

What I wrote last week

I reviewed the book Working Backwards. If you are interested in the culture at Amazon, have a read!

Business

Robinhood revealed it has 13 million customers, 13% of which traded options, 9% of which were African Americans, 16% of which were Hispanic.

The highest court in UK ruled that Uber drivers have to be classified as employees. Uber cannot appeal further in the UK; as a result, unless it wishes to exit the UK market, especially London, operating expenses will likely increase from now on. Another interesting detail from the ruling is that workers should get paid whenever they are logged into Uber’s system and poised to accept rides. On the other hand, Uber argued that the ruling would only apply to Uber’s Mobility, not Uber’s Delivery. I don’t know if that’s factually true, but I don’t like their chances.

Facebook practically lied to marketers about their potential reach

Scott Belsky is one of my favorite follows on Twitter. As the founder of Behance and Chief Product Offier at Adobe, he had a fascinating take on several issues related to startups and products. Here is an interesting interview between him and Patrick O’Shaughnessy

US video streaming giants face tough second act in India

WSJ’s piece on Walt Disney CEO Bob Chapek. He seems to be more ruthless on the bottom line, less burdened by creativity and the nostalgia of the Disney brand than his predecessor

What I found interesting

Jacquard by Google. The product category may be interesting, but I am not sure that folks are ready for it. It’s bad enough that we carry around our phone with us every single waking moment in this digital life. Whether consumers agree to carry another device, no matter how small, remains to be seen, especially when the device comes from a company like Google, which is notorious for tracking users.

How to be more productive, more easily

Why did I leave Google or, why did I stay so long?

Have a look at the beauty of Vietnam, from above

Interesting stats that may interest you

35 of Amazon’s sellers in India made up more than two thirds of its online sales

Source: Chartr

Weekly reading – 13th February 2021

What I wrote last week

I reviewed Exercised: Why Something We Never Evolved To Do Is Healthy And Rewarding, a book that talks about how important exercise is from a Human Evolution and Anthropology perspective

The importance of owning a relationship with your customers

I talked about Uber as a business and its acquisition of Drizly

Business

An interesting piece on the CEO of Adobe and his relationship with fellow CEOs

An interview with the richest man in Japan

A very interesting piece on the threat that Canva and Fima pose to Adobe

An interesting post on the culture of writing memos at Amazon

Bloomberg has a piece on how Tim Cook built his own version of Apple. Tim Cook’s version isn’t bad at all as the company is now worth $2.3 trillion

How Facebook is doubling down on Marketplace

What I found interesting

A story on Yuta Watanabe, a Japanese basketball player who is having a season in the NBA

According to a new study, Apple Watch can help identify Covid-19 symptoms

Interesting stats

Contactless payments are expected to grow by 6-8% after Covid

40% of consumers in the US that used a “Buy Now, Pay Later” service missed at least one payment

The App Store saw more than $10 billion in consumer spending in 2020

Apple Watch is reportedly worn on 100 million wrists

A look at Uber after it acquired Postmates and Drizly

Compared to 2 or 3 years ago, Uber is a much more focused company nowadays. Instead of stretching itself thin across the globe, losing money significantly in many markets and fighting legal battles everywhere, Uber is now present in only markets where it’s among the market leaders. In addition to selling its operations in a few markets like South East Asia, China and Russia to local rivals, Uber purposefully exited other markets that it deemed not worth fighting for. Plus, it sold operations that might have future potential, but was bleeding cash such as autonomous vehicles. I mean, innovation can be sexy and as a tech company, Uber may be tempted to pursue that, but because it hasn’t made profit as a company, it’s understandable that Uber tries to focus on what matters: Mobility, Delivery and the markets where it is confident it can generate meaningful revenue and profit.

Uber's Mobility Footprint
Figure 1 – Uber’s Mobility Footprint. Source: Uber
Uber's Delivery footprint
Figure 2 – Uber’s Delivery Footprint. Source: Uber

Mobility used to be a much bigger business than Delivery, but Covid-19 turned things upside down. Delivery has grown substantially in the past year and been the savior of a business whose major cash cow was badly damaged by the pandemic. Delivery’s gross bookings in Q4 2020 exceeded $10 billion, compared to $6.8 billion in gross bookings for Mobility. If we look at the rolling 4-quarter average gross bookings, Delivery surpassed Mobility in Q4 2020, but of course, it’s likely that once we get back to normal, Mobility will regain its crown. Delivery has seen its take-rate grow steadily since Q4 2018 to reach 13.7% in Q4 2020 and is now not so far off the long-term target of 15%. Furthermore, while Mobility has been profitable, Delivery hasn’t. The good news for Uber is that it is achieving increasingly positive operating leverage in Delivery. While its Delivery net revenue has grown fast, its adjusted EBITDA has also gone in the right direction. If Uber can make true of its plan to be adjusted EBITDA positive in 2021, it likely means that we’ll see a profitable Delivery in 2021 as well; which already happened in 15 markets.

Uber's Delivery has been on fire
Figure 3 – Delivery has been on fire in 2020
Uber's take-rate
Figure 4 – Deliver take-rate has been on the rise and is not far off the long -term target
Uber's EBITDA
Figure 5 – Delivery EBITDA is getting better and better
Uber's long term goals
Figure 6 – Uber saw profitability for Delivery in 15 markets and an improved economics in others

Uber’s main four stakeholders are end users, partners (whether they are mom-pop restaurants, well-known chains or grocery stores), drivers/deliver people and lawmakers. Lawmakers have an influential role in Uber’s future as the laws they make can have major impact on Uber’s top and bottom line. But for this section, let’s just talk about the other three.

The way I think about Uber as a business is that it connects end users, partners and drivers altogether. The more end users Uber can present to its partners, the more partners it is likely going to sign. In turn, that means Uber’s end users can have a bigger selection at their finger tips, raising Uber’s value proposition. On the other hand, a bigger end-user pool helps the company sign up drivers. Drivers have limited resources in their vehicles and time, as even the most dedicated drivers can’t drive for more than 24 hours a day. Nobody wants to drive around needlessly all day without getting paid while having to pay for vehicle expenses and gas. As a result, the more business opportunity Uber can bring to drivers, helping them better leverage their time and resources, the more drivers will sign up. When it comes to making more trips and money, do drivers care if it’s a parcel or a person that needs transporting? In return, more drivers lead to faster “delivery” (transportation of an object from one place to another), whether it’s the delivery of a person or an item. Faster delivery means that customers will be happy and stick around using Uber more. In short, it’s an intricate multi-party relationship that Uber has to manage. It’s not easy or cheap to begin with, but once Uber sets these flywheels into motion, they can gain lasting competitive advantages. For example, at the end of Q4 2020, Uber recorded 675,000 active merchants, up from 450,000 in Jan 2020. It’s unclear whether this 675,000 figure includes the 100,000 partnered merchants that Uber inherits from its acquisition of Postmates. Meanwhile, Grocery Gross Booking exceeded $1.5 billion annualized run-rate. These numbers indicate a growing ecosystem.

My understanding of Uber flywheel
Figure 7 – My attempt at creating flywheels for Uber

So how does Uber make money? In short, from all three stakeholders: customers, partners and drivers. Here is what Uber said in its latest SEC filing back in Q3 2020:

Mobility Revenue

We derive revenue primarily from fees paid by Mobility Drivers for the use of our platform(s) and related service to facilitate and complete Mobility services and, in certain markets, revenue from fees paid by end-users for connection services obtained via the platform. Mobility revenue also includes immaterial revenue streams such as our Uber for Business (“U4B”), financial partnerships products and Vehicle Solutions. Vehicle Solutions revenue is accounted for as an operating lease as defined under ASC 842.

Delivery Revenue

We derive revenue for Delivery from Merchants’ and Delivery People’s use of the Delivery platform and related service to facilitate and complete Delivery transactions. Additionally, in certain markets where we are responsible for delivery services, delivery fees charged to end-users are also included in revenue, while payments to Delivery People in exchange for delivery services are recognized in cost of revenue.

Source: Uber

On the Mobility side, Uber takes a cut from bookings (around 20-25%) paid by customers before transferring the rest to drivers. On the Delivery side, it makes money from everybody involved in an order. After paying a one-time set-up fee of $350, restaurants have to pay Uber 15% or 30% commission on every order, depending on what delivery method they choose. If they user Uber for the delivery, the commission rate is 30%. If restaurants use other delivery methods, it falls to 15%. With regard to drivers, drivers receive a fixed fee for picking up and dropping off items and a variable rate based on the distance they cover. From the end-user perspectives, there are more than one fee involved in every order. According to Uber:

– Delivery Fee: Delivery fees vary for each restaurant based on your location and availability of nearby delivery people. You’ll always know the delivery fee before selecting a restaurant.

-Service Fee: Service fees equal 15% of your order’s subtotal, subject to a minimum of $2. The fee does not apply to restaurants that deliver their own orders.

– Small order fee: Small order fees apply when an order’s subtotal is less than a certain amount. This varies by city, but is either $2 for subtotals less than $10 or $3 for subtotals less than $15. You can remove the fee by adding more items.

– Delivery adjustment fee: A delivery adjustment fee refers to an update you made after placing your order- like changing your address. It helps to pay your delivery person for extra time and effort.

Source: Uber

In short, if there is no delivery adjustment and orders are above the small order threshold, Uber typically can take at least 15% of the order from merchants and delivery fees from end users which Uber doesn’t share with drivers. If merchants don’t have in-house delivery workforce, Uber can earn more from both ends of the transaction with 30% coming from the merchants and service & delivery fees coming from end users. Mom-and-Pop merchants whose limited resources don’t allow them to retain on the books a delivery team represent a more lucrative segment to Uber. During the pandemic when delivery is a trend, these merchants may not have a choice, but to partner with the likes of Uber. The question is: what will happen when seated dining resumes? How will that affect Uber’s Delivery business?

In Q4 2020, Uber closed the acquisition of Postmates. Similar to Uber, Postmates charges merchants at least 15% on every order and its fee structure imposed on end users is, in principles, similar to Uber’s. What Postmates offers to Uber is less competition, access to Postmates’ footprint and the deliver-as-a-service capability. Instead of building the infrastructure and signing merchants from scratch, Uber can quickly snap up what Postmates has and build from there.

With Postmates, we bolstered our local commerce capability through their delivery-as-a-service offering that already counts Walmart, Apple and 7-Eleven as customers. In December, delivery-as-a-service, represented 18% of Postmates orders, and we intend to scale this out further along with our Uber Direct product.

Source: Uber’s Q4 2020 Earnings Call – From Koyfin
Uber Direct
Figure 8 – Uber’s Delivery-as-a-Service Portfolio. Source: Uber

In Feb 2021, Uber announced its acquisition of Drizly for $1.1 billion in stock and cash. I think it’s a smart acquisition on Uber’s part. Let’s look at it together. Drizly was founded in 2012 when their founders realized the complexity of alcohol distribution in the US could present a golden business opportunity. Liquor distribution in the US mainly follows the three tier system and can be pretty fragmented and complex. In short, liquor producers or importers can only sell to wholesale distributors which, in turn, can only sell to retailers who, with a liquor license, can sell to end users. There are exceptions across the states and can vary even from county to county. Added to the complexity are the restrictions on alcohol delivery. Some states allow delivery of liquor, beer and wine. Others restrict delivery to only beer and/or wine while a few prohibit delivery of alcohol altogether.

Alcohol delivery restrictions across the states
Source: Consumer Choice Center

How does Drizly make money? Drizly works with local retailers that wish to sell alcohol to consumers and charges these retailers a fixed monthly fee for the privilege. In return, retailers receive two things: marketing and an age-verification technology. Local retailers, especially smaller ones, don’t have the coins to spend on marketing nor do they have the ability to verify the legal age of buyers during the transaction. Hence, these retailers could face a huge legal liability if things went wrong and they were caught selling alcohol to whomever they shouldn’t have. Drizly offers retailers its proprietary technology to verify IDs to ensure buyers are who they said they are. Furthermore, Drizly charges consumers roughly $7 on each transaction, including a Delivery Fee of around $5 and $1.99 Service Fee. It’s important to note that retailers are responsible for the delivery task. What it means is that Drizly never takes possession of the alcohol during the transactions and therefore, doesn’t have to get a permit. By avoiding the expensive delivery business, Drizly can focus on what it does best: navigating the complex legalities, connecting merchants and consumers and marketing. On the merchant side, they are free to set up their own prices on Drizly marketplace and do not have to relinquish a cut of the sales to the company. The more alcohol Drizly can help them sell, the cheaper that monthly fixed fee becomes and the more likely retailers can negotiate a better term with distributors.

First of all, by acquiring Drizly, Uber gains access to a profitable and growing business. According to Uber, Drizly is growing at 300% YoY and already profitable on an EBITDA basis. I suspect that once we get out of this pandemic, consumers will be more aware of the prospect of alcohol delivery. Hence, Drizly will likely continue to see growth in the future, albeit perhaps not on the level that it saw in 2020. Furthermore, Drizly is a boon to Uber’s target of becoming profitable in 2021. Not only is the acquired profitable itself, but Drizly’s monthly revenue from retailers presents a much higher gross margin than Uber’s main businesses.

Second, Uber acquires a team that knows how to navigate the legal challenges in the alcohol market and an ID verification technology. Uber is well-versed in dealing with local authorities itself, but transportation is a different beast from alcohol delivery. With Drizly, Uber won’t have to start from scratch and will be able to stimulate Drizly’s growth with its much more sizable pocket.

Third, snapping up a market leader like Drizly prevents it from falling into the hands of Uber’s competitors. It’s a pre-emptive strike. Once the integration of Drizly into Uber’s platform is completed, Uber users can order the transportation of themselves (Mobility), food, groceries, parcels and alcohol all under one app. Uber’s competitors can match its offerings to some extent, but none can offer the same breadth of services like Uber, now that it adds alcohol delivery to the mix. To be able to do what Drizly does is not an easy feat, but to Uber, it’s adding to their competitive advantages.

Fourth, Uber has an advertising business that Deutsche Bank estimates to earn $1 billion in 2024. With the integration of Drizly, Uber adds to the potential clientele of advertisers and more data generated by Drizly’s marketplace.

In short, this is a great marriage between Drizly and Uber. Uber offers the smaller app its experience in building a marketplace, more financial resources, a much bigger brand name and especially marketing reach which is important to Drizly’s merchants. On the other hand, Drizly gives Uber a growing & profitable business, as well as access to a highly regulated business that is challenging to replicate.

Uber’s ambition to become a Super App has been obvious for a while. What should be encouraging news to investors is that it restructures itself to be more focused, exiting cash-bleeding businesses and unprofitable markets, and is willing to invest in its vision with the acquisition of Postmates & Drizly serving as proof. Of course, nobody can say with 100% certainty that these acquisitions will work out in the future, but in theory, I personally think that they make sense and are important pieces of a growing jigsaw.

Disclosure: I have a position on Uber.