The potential of DoorDash's advertising business
Let's talk about parlaying the selling of tangible convenience into additional dollars
Earlier this month, we left off at part one of two of our look into Uber and DoorDashโs (DASH 0.00%โ) 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 DoorDashโs 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 Uberโs 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 canโt say that DoorDash sells quite the same thing.
Who are you, DoorDash?
In a recent episode of Allison Schiffโs โAdExchanger Talksโ podcast, DoorDashโs VP of Ads, Toby Espinosa, works quick to dispel the publicโs notion that DoorDashโs core mission is to simply be a restaurant delivery company. Instead, Espinosa zooms out and suggests, as I paraphrase, that the companyโs 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 isnโt in the business of movement like Uber; instead, it is in the business of selling โtangible convenienceโ.
DoorDashโs 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 DoorDashโs platform. Creating another way for consumers to spend effectually realizes a possibility for growth by increasing convenience and decreasing friction.
Letโs use Espinosaโs comparison of DoorDash to an ecosystemโitโs a pretty apt one. Using a concentric circle model, we can place the north star of tangible convenience in the centre. From there, weโre able to add the layer of DoorDashโs first revenue driverโrestaurant food deliveryโfollowed 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 DoorDashโs 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:
DoorDashโs 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 havenโt mentioned here. The picture that Iโm 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. DoorDashโs 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 wouldnโt 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 didnโt only happen from Googleโs search ads, but also on DoorDashโs 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 thereโs 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, itโs not a surprise that brands, such as Clorox and PepsiCo, are willing to tap into spending for eyeballs at DoorDashโs digital shelves. Itโs nothing new to these large brands who have been playing the โslotting feesโ game since the โ80s. After all, paying for physical prominence is just another form of advertising.
Getting in early with DoorDashโs 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 didnโt think that there was a high ceiling in terms of ad revenue from restaurants, what about this use case for CPG brand? Well, HNGRYโs Matt Newberg estimates (at around the 45โ mark) that this money traditionally spent with offline grocers could translate to a $250B potential thatโs up for grabs in the digital retail advertising space.
Itโs 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 Uberโs ability to advertise across different mediums and environments, and negate Instacartโs first-to-market (or is it grocer?) advantage.