The Uber-Postmates Combination Isn't Worth the Outrage
The Uber-Postmates acquisition is barely worth the paper it’s been printed on.
After failing to acquire Grubhub earlier this year, Uber eked out a small win by buying Postmates for $2.65 billion. It couldn’t have come soon enough for both companies. Despite getting battered on every front for alleged price-gouging, it’s no secret that food delivery services are struggling to survive. The competition between Uber Eats, Grubhub, Doordash, and Postmates is less like Microsoft-Apple and more like Sears-Kmart. Anti-trusters like Sens. Elizabeth Warren and Amy Klobuchar should have bigger priorities than kicking this withering industry while it’s down.
The problem is that third party food delivery has never been profitable. The tech for ordering is easy to launch; just check your local pizza place’s website to see that. But nationally scaling this process requires an absurd load of contracting that even Netflix would gawk at. To get these aspiring tech giants off the ground, investors threw heaps of money at them, hoping they’d rapidly scale, dominate the market, and rake in profits.
That’s standard tech industry practice — except the profits never came.
During those initial steps, tech companies often charge little or nothing as they build a customer base. When their investors inevitably demand profits, the companies monetize. Think Tinder, which started out free, but now pulls an annual $1.2 billion off subscription services. Doordash did something similar, taking a loss on ridiculously underpriced orders to attract consumers. Hilariously, one pizzeria started ordering its own pizzas en masse from Doordash, making $8 a pizza off the price difference. It wasn’t sustainable.
Yet when deliverers raised prices above the restaurant menus, they ticked off enough New Yorkers to provoke a class action lawsuit for “unlawful price restraints.” While “frustrated New Yorkers” may be a given, their frustrations aren’t unreasonable. Third-party drivers can be too unreliable, their apps too inflexible, to justify paying fees beyond food and delivery.
Where they and many antitrusters go wrong is in calling these companies ‘monopolies’ (and not just because there were four of them). Neither restaurants nor customers are being forced into the gig economy. Uber, Grubhub, and Doordash aren’t just competing with each other — they’re competing with restaurants’ own delivery workers and, God forbid, consumers picking up their own food. Half of food delivery is still restaurant-to-consumer. Any cartel-like collusion between these platforms to raise prices would just drive people back to their local pizza place’s website.
And sometimes high prices tick off New Yorkers enough for Mayor De Blasio to sign price controls into law. There’s just no winning.
The only workable solution, then, is cutting costs. Mergers reduce the total expenses on marketing or contracting. That’s why Uber tried to acquire Grubhub. Within the week, however, Uber was slammed for “pandemic profiteering” by House Antitrust Subcommittee Chair David Cicilline, a man too powerful to be consistently misusing the word “monopolize.” Instead, Grubhub was sold overseas, while Uber was left to mop up an even smaller company. Postmates comprises just 8% of the third-party food delivery market.
Too little, too late.
I don’t mean to argue that monopolies or tech companies are, in broad terms, good. After all, monopolies decrease innovation. They also need serious regulations when the cost of entering the market gets too high for real competition—Comcast, for instance, is hated because they have no motivation to improve their service. But sometimes monopolies form because multiple firms are genuinely unsustainable, and one firm operates better. The New York Stock Exchange successfully played that role for over a century.
Ultimately, busting trusts just to trust-bust then becomes pointless political posturing.
Rather, the strongest criticisms of merging delivery services come from their employees, who correctly highlight problems with the treatment of gig economy workers. They understandably prefer the choice between more companies to choose employers that treat them better. But then the solution is stronger labor regulation, not choking unprofitable companies like Uber Eats and Postmates. If they go down, they let thousands of workers go. Maybe they still won’t survive. Maybe D.C. will block further merging between Uber, Grubhub, and Doordash. For now, though, merging is the best Postmates can do to stay alive.
Besides, if job choice is really what we’re after, three surviving employers during a worldwide recession is certainly better than two.