The potential of DoorDash's advertising business

Let's talk about parlaying the selling of tangible convenience into additional dollars

Jan 1

Earlier this month, we left off at part one of two of our look into Uber and DoorDash’s (DASH 0.00) increase in resources and dedication toward generating revenue through advertising. Similar to Uber, DoorDash also made an announcement at the beginning of Q4. Introducing new ad solutions aimed at consumer product good (CPG) brands, DoorDash provided both self-serve offerings on the platform itself, and third-party integrations with Pacvue and Flywheel.

Even though both Uber and DoorDash’s new advertising solutions cater to CPG brands, the paths by which we get there are different for the two companies. In my last post, I posited that Uber’s overarching business is one that focuses on the selling of movement (i.e. movement of people to places or of food and items to places). However, I can’t say that DoorDash sells quite the same thing.

Who are you, DoorDash?

In a recent episode of Allison Schiff’s “AdExchanger Talks” podcast, DoorDash’s VP of Ads, Toby Espinosa, works quick to dispel the public’s notion that DoorDash’s core mission is to simply be a restaurant delivery company. Instead, Espinosa zooms out and suggests, as I paraphrase, that the company’s focus is to connect local (both small and large) businesses with customers.

This idea of bridging businesses and consumers is accomplished by the selling of convenience for goods, as Espinosa rattles off a list physical goods as examples. In other words: DoorDash isn’t in the business of movement like Uber; instead, it is in the business of selling “tangible convenience”.

DoorDash’s canopy: layers within an ecosystem

Up until Q3 of 2020, DoorDash earned their bread and butter through the delivering of food from independent eateries, as well as from restaurant and fast food chains. Diversification in revenue sources came in August 2020 when the company added on-demand grocery delivery. This inclusion of groceries in the portfolio of deliverable commerce gave way to chances for additional and recurring weekly purchases on DoorDash’s platform. Creating another way for consumers to spend effectually realizes a possibility for growth by increasing convenience and decreasing friction.

Let’s use Espinosa’s comparison of DoorDash to an ecosystem—it’s a pretty apt one. Using a concentric circle model, we can place the north star of tangible convenience in the centre. From there, we’re able to add the layer of DoorDash’s first revenue driver—restaurant food delivery—followed by another one that encapsulates vertical expansion (groceries, retail, and pets) at the local delivery level.

Next, we have the nationwide iteration of food shipments and convenience shopping. The former is an evolution of the local restaurant food delivery, sending the convenience of food as nourishment and as gift (retail) across the country. As for the latter, DashMart served as DoorDash’s entry into their partnered vendor and merchant model by becoming its own operator of such a business, selling grocery and convenience items.

And on the outermost layer, we have the growing ads business. I suggest that this organization sits atop the rest because of the leveraging of data and purchasing behaviour from everything downstream:

DoorDash’s owned-and-operated retail stores (DashMart)
Partnered large retail (i.e. grocers and big box), and restaurant and fast food chains
Unique merchants (such as independent restaurants who have only one location)

There are other DoorDash products in existence, including their financing arm, that I haven’t mentioned here. The picture that I’m trying illustrate is one that focuses directly on how I see DoorDash leveraging its core mission into a revenue stream that stands to grow considerably within the next several years. Ancillary products and services will continue to be developed, for sure, but they will most likely be done to complement the outlined skeleton of this ecosystem, as opposed to supplant it.

What do these components all amount to?

As the company continues to evolve, so have their ad offerings. Prior to the launch of the grocery and retail verticals, the ceiling for ad revenue not an incredibly high one. DoorDash’s foray into the space had restaurant and fast food stores compete against one another in sponsored listings and with performance-driven (e.g. buy one, get one) incentives. In an industry that is notorious for its slim margins, the amount of spend and the number of small- and medium-sized businesses ready to participate most certainly wouldn’t create a runaway revenue hit. However, the launch of such a product served more as a proof of concept than anything else. It demonstrate that conversion didn’t only happen from Google’s search ads, but also on DoorDash’s platform itself.

Restaurants and fast food chains using ads for visibility and customers make sense, but what about in the retail sector? Sure, a CVS and bid for dollars against a Walgreens, but there’s a far more lucrative option if we consider one level down: the companies who have products sold at these major retailers and grocers.

Espinosa refers to these instances as the brands within a brand. With a 45% marketshare in the convenience-market delivery sector, aided by 25 DashMart locations in US and Canada, it’s not a surprise that brands, such as Clorox and PepsiCo, are willing to tap into spending for eyeballs at DoorDash’s digital shelves. It’s nothing new to these large brands who have been playing the “slotting fees” game since the ‘80s. After all, paying for physical prominence is just another form of advertising.

Getting in early with DoorDash’s CPG ad offerings also provides the opportunity for brands to regain control over their own visibility. Over the last few years, grocers, such as Kroger, have been using proprietary research to decide what products to stock and where they should go. If I didn’t think that there was a high ceiling in terms of ad revenue from restaurants, what about this use case for CPG brand? Well, HNGRY’s Matt Newberg estimates (at around the 45’ mark) that this money traditionally spent with offline grocers could translate to a $250B potential that’s up for grabs in the digital retail advertising space.

It’s not to say that DoorDash should shelve the small-and medium-sized business (SMB) ad products. Revenue from small businesses spending ad dollars can provide a great incremental. However, the current dominance in convenience-market delivery sector marketshare is something to take advantage of right now. It presents a compelling case that can rival Uber’s ability to advertise across different mediums and environments, and negate Instacart’s first-to-market (or is it grocer?) advantage.

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