Who is going to pay for Uber Eats?

1. The two ways platform implies cost savings 

Uber Eats is a food delivery platform that heavily invests in advertisement and branding to attract clients from both ways (a reference to the two way platform): vendors or restaurants and purchasers or meal purchasers. The model of two ways platform makes the cost of client acquisition to platform cheaper than that available to restaurants (source).

2. B2C to B2B transformation is the main lever for value creation

Arguably, the most powerful value creation mechanism that Uber Eats offers to its associate vendors is transformation of B2C transactions to B2B — instead of servicing hundreds of meal purchasers, restaurant deals with Uber Eats alone. This leads to number of optimizations implied in this very transformation mechanics:

• Fixed costs to hire an Acquisition team are transformed into Variable costs per purchase that are paid to Uber Eats.
• Pure cost saving on administration and dispatching of orders, etc — money and stuff hours savings.

On the face of it, Uber Eats highlights one key raison d'être of its product — the Cost of Customer acquisition that it offers to associate vendors is lower than that available to independent ones.

3. Externalization of cost to adherents happens when the perceived value is the highest

This is when Uber Eats silently externalizes their GTM cost to vendors by making them place Uber Eat friendly signs on the shopping windows, etc, which further lowers their cost of client acquisition.

“Uber Eats extends its brand presence into merchants' physical premises through Uber Eats tapes, stickers, light boards and other merchant branding materials.” (source)

But, there emerges the main battle ground — customer retention and repeated orders. It’s in the light of repeated orders and the cost thereof that Uber Eats value ( or raison d'être) is tested further. 

4. Owned traffic arguments comes in negotiations when objections rise

On the part of the platform this requires new arguments in the power negotiations, including — owned traffic or customer base. Operating customer data and employing optimization logics over the system of behavioural biases of vendors, including time, information and psychology biases, Uber Eats creates an illusion of owning its own customer base, which is another argument to pay them commission per each order.

For example, a recent research in the Journal of Retailing specifically identifies reduced access to customer data and reduced control over customer relationships as downsides restaurants can experience when working with food-delivery platforms. (source)

Illusion lies in the fact that the whole “customer base” is premised on the Discounter model, which is the rule of the game that’s enforced on the vendors.

5. A flexible discounter model is something that is disguised as owned traffic

What is the difference between a restaurant and a Dark kitchen? It is an existence of the brand and a will to take its own economic decisions. In an extreme, under the mask of their own traffic a platform may accumulate a segment of highly price-sensitive customers that take part in the dynamics of the “optimization spiral” when clients optimize their own consumption preferences in response to a platform’s bias towards owning its traffic, something that a platform tends to use as a bargaining chip against new adherents. In other words, in return for a pledge of loyalty shoppers require discounts and bonuses that buy them meals cheaper than otherwise. This is what a platform like Uber Eats bears onto vendors as its own bargaining instrument.

For example, the interesting evidence thereto is that Uber has introduced an Offer Redemption Fee, meaning restaurants can now incur a fee when an offer drives an order. It demonstrates that customer acquisition through discounting is not simply a free benefit generated by the platform. (source)

6. A discounter model ghosts the restaurants

The optimization spiral tells one thing: someone is superfluous amongst the platform’s participants. Restaurants must choose to either stick to the constant role of executors of the algorithms' will, that is to say, become a commodity from the platform’s perspective or go flickering, i.e. to alternate between being present and absent on the platform, depending on the availability and participation effectiveness. Effectively, the logics of platform’s algorithms make a restaurant superfluous where it does not obey to the optimization pattern that’s ongoing on the platform, because there’s always some other substitute that obeys and, thus, enables execution platform’s function.   

7. A “flickering absenteeism” tends to be a preferred strategy for vendors

Restaurants frequently multi-home across food-delivery platforms (source). From a Wasteless Growth perspective, this can be interpreted as a form of ‘"flickering absenteeism"…

This is a part of oncoming optimization by restaurants that relates the structural constraints imposed by a platform. Yet, this is fundamentally disadvantageous for the platform. Their preferred strategy is price optimization or optimization for the best buying power for a customer’s euro, which is only attainable when every restaurant is on and the competition between them is ongoing.

8. Uber Eats fights flickering mode by building walls and shifting to more reliable clients

In response to disengagement trend a platform tends to:

• Build internal limitations on operation in a flickering mode
• Search for other markets where participants may not disengage that easily.

Internal limitations or walls for vendors may include flat subscription fees and / or different levels of commission, depending on the number of orders through the platform.

For example, Uber's France help centre currently documents different marketplace packages, including 20%, 25% and 30% delivery-related marketplace fees, depending on the package. (source)

Shift to other markets is, for example, when Uber Eats opens white label delivery called “Uber Direct”.

9. Chasing new clients duplicates the value and makes Uber Eats lose its appeal

Yet, shift to other markets entails a significant decay of product value that Uber Eats brings (raison d'être for clients). Simply saying, the platform must prove once again why Uber Eats, which becomes harder in the new markets. For example, the core value creation lever — B2C to B2B transformation and the resulting cost saving across non-material business processes — is simply not relevant when a company moves to delivery of packed food from city shops. There may appear other value propositions, like Fixed to Variable costs transformation, etc but they seem less powerful than the original one. So, retaining Uber Eats and Uber Direct in one company seems problematic, including as regards the duplication of Value Proposition often leading to schizophrenia on the part of the clients.