Many people assess the attractiveness of a business by looking at the value it creates for consumers. In reality, those two are unrelated.
Food delivery, for instance, solves a major pain for consumers, yet, the highly competitive landscape (typically 2-3 delivery services in each market) and low switching costs make it an unattractive industry to be in.
For instance, Uber spends ~$43.5 to deliver an average $40 order (estimated cost breakdown provided below) which explains why the delivery provider decided to exit eight markets earlier this week.
The on-demand economy (ecommerce, food delivery, fuel delivery, etc.) has been a blessing for us all, especially in these times. Yet, most players in these industries struggle to make money – I’ve discussed ecommerce unit economics in more detail here.
