The food-delivery company wants to bring you more than just food.
On the latest episode of Recode Decode, hosted by Kara Swisher, Kara sat down with DoorDash CEO Tony Xu and COO Christopher Payne to talk about the delivery company’s busy 2018 — and why the company is thinking about delivering more than just food.
“We started with food just because it was the hardest problem,” Xu said. “It’s not just because it’s high frequency, but because if you can figure out food … if you can deliver something in 30 minutes, you can deliver something in an hour. The reverse is not true.
“If we wanted to make t-shirts and we wanted to sell them online, we might sell through an Amazon or an eBay or we might buy ads from a Facebook or an Instagram or a Google,” he added. “But if we wanted to open a t-shirt store on the street, on Market Street, and we wanted to get business, how do we do that? It’s not obvious. There aren’t obvious business partners that you would go to.”
Below, we’ve shared a lightly edited full transcript of Kara’s conversation with Tony and Christopher.
Kara Swisher: Hi. I’m Kara Swisher, editor at large of Recode. You may know me as someone who gets avocado toast delivered to my house every day because I’m told that’s what the millennials do, but in my spare time I talk tech, and you’re listening to Recode Decode from the Vox Media Podcast Network.
Today in the red chair is Tony Xu and Christopher Payne, the CEO and COO of DoorDash. It’s the on-demand food delivery app that Tony co-founded in 2013. Tony and Christopher, welcome to Recode Decode.
Tony Xu: It’s good to be here.
Good to … So, how’s it going?
Christopher Payne: Thanks for having us.
How’s it going in the delivery business? We got lots to talk about.
Tony Xu: Yes.
So, I just want to sort of get a sense, why don’t we start with you, Tony, where the company is now. There’s been a lot of different stories. We’ve written a bunch of stories about where it is right now. Why don’t you give us an update of DoorDash?
Tony Xu: Sure. Well, DoorDash is on track to be the largest delivery platform in the U.S., and it really was the culmination of a lot of things we did when we founded the company, but 2018 kind of is when a lot of these things materialized. For starters, we 5X’d our geography. We started the year in 600 cities. We’re now live across 3,000 cities, and at some point in the next year we’ll be serving over 75 percent of the U.S. households. We now serve 69 of the top 100 restaurants in America, which is …
These are the chains, the large-
Tony Xu: Yeah. A lot of them are the chains: Wendy’s, Chipotle, Cheesecake Factory. That’s more than all of our peers combined. We’re starting to deliver other types of things. In 2016, we built our Drive platform, which lets stores deliver through their own apps and their own websites. So today, we deliver the vast majority of Walmart’s groceries in about 500 stores, 70 markets in the U.S. So, a lot’s happened.
So, talk about the delivery business in general. I mean, there’s a million competitors in this space. When you started in 2013, they were talking … Google was sort of wandering around, Amazon, obviously, and others. So talk about your principal competitors right now in this space, because I think people are confused because Uber is involved, Uber Eats and things like that.
Tony Xu: Yeah. So, there’s always been a lot of players. I mean, food is a big category, and I think the misunderstood thing about food is that it’s actually largely still undelivered.
Right. Meaning … What does that mean?
Tony Xu: So, food, the restaurant business, will see about $800 billion in sales in 2017, 2018, and about 5 percent of that is delivered, but if you actually look in certain segments, like pizza, we all know pizza is delivered. Half of pizza sales actually are delivered, but non-pizza, it’s a single-digit percentage number. So, we’re still in the super, super early innings, and I think that’s one of the things that’s not well understood. It’s gonna be the largest industry out there because we do it 20 times a … We eat 20 times, at least, a week.
Tony Xu: So, that’s really still the state of affairs for the market, but in terms of the big players, I think you’re seeing a couple of players rise to the top. We’ve been the fastest growing for the past year, year and a half, growing now over 250 percent year on year.
Mm-hmm. So, talk about the competitors. Try to name them. I know you can do it.
Tony Xu: Yeah.
Chris, I’ll let you do it if he doesn’t want to.
Tony Xu: So, I think what you see is that there have been companies that started in the past, and most of these companies, whether they’re the Grubhubs of the world, they’re lead-generation companies. They didn’t do the deliveries themselves. As a result, most of the market was actually not served. So, outside of New York City, nobody did delivery. That’s the biggest thing.
What DoorDash has done is really allowed any one of the 250,000 restaurants that we serve today to offer that, and so that is a big part of why we’re the No. 1 player.
All right. I’m gonna ask Chris, then. Competitors, let’s talk about them individually. Google.
Christopher Payne: Yeah. Google’s not really in the restaurant space at this point. They did Shopping Express a while back.
Shopping Express, right.
Christopher Payne: It seems to be sort of …
Because you’re all gonna converge on delivering everything, I presume.
Christopher Payne: Yeah, 100 percent. Our vision is definitely last-mile logistics, so we started with restaurant food delivery. We now do grocery with Walmart, and you’ll see more expansion in the years to come.
In that area, Amazon is the other competitor. How do you look at that?
Christopher Payne: Because we are a last-mile logistics platform and power, say, Walmart’s deliveries, Amazon is a potential future ally, or they’re a potential competitor. There is a service called Amazon Restaurants. It’s very, very small today, sub 5 percent market share, so it doesn’t seem to be a major initiative for them, but I hope to see them as an ally in the future because we’re connecting all local businesses to all local consumers. That’s the vision that Tony created, and we want to be able to deliver anything to anyone in real time.
Right. So, talk about that, because I’ve been doing a lot of this, using a lot of delivery services lately, most of them Amazon, actually, Prime Now and various things, testing the various … Uber Eats and things like that. Talk about how it’s … I’m trying to get people to understand how the business is moving, because there’s lots of different parts, but eventually everyone’s gonna converge on the same idea of whatever you want, whenever you want, however you want.
Tony Xu: Yeah. I mean, I think it’s important to start with one of the earliest pioneers in this space, which was FedEx, back in 1972. Actually, many of the models that you talked about, whether it’s the Amazons or other types of retailers, really still are predicated on that model, which is we go door to door to door and we make drop-offs, and we drive pretty much the same routes every day. It’s the milk person’s route. That largely hasn’t changed in the last four decades.
However, that’s not the way we shop. I personally don’t know what I’m gonna eat for dinner tonight. I don’t know when I’m gonna buy my next Coca-Cola can or pair of jeans. I’m just gonna buy them when I need them, and I think most people do. So, there hasn’t existed this local real-time service. If you think about it, companies like Amazon have certainly grown delivery of their own goods. There doesn’t exist that system for all the businesses on the streets.
Mm-hmm, and Amazon, presumably, is a competitor with them also, and they want another alternative to that, correct?
Christopher Payne: Competitor to …
To all these local businesses.
Christopher Payne: Yeah. I mean, I think that’s right. I think one of the things we’re trying to do is empower local businesses, and a lot of local businesses do not have the capability to deliver on their own. One of the things that started the company with Tony was going door to door, and he talked to merchants, and they were having to turn away business, catering business, because they couldn’t deliver cookies, in this case.
Christopher Payne: So, one way to think about this is DoorDash, we’re trying to sort of allow the little business to compete with the big businesses.
By providing a platform.
Christopher Payne: Yeah, by providing a platform that they couldn’t build otherwise.
All right. Let’s talk a little bit about the founding. Tony, why don’t you talk a little bit, because not everybody knows who you are. Explain, because there’s a bunch of these services, but talk about how you decided to start it.
Tony Xu: Yeah. We started the company to really help small businesses, people like my mom. I grew up working out of my mom’s restaurant as a dishwasher, and my mom’s story is one where she came to this country, she wanted to be a doctor, but the U.S. didn’t recognize her license because we immigrated from China. It was a different license, and we only had $250 in the bank, so we couldn’t put her through school.
So, long story short, she had to work three different jobs, one of which was at a restaurant, to save up enough money to open up a medical clinic, which she did after 12 years, and she now still runs in her 19th year. So, we started the company wanting to help people like her, and we went to different businesses in the Bay Area, whether they were restaurants or cake shops or retailers, and a few of them would tell us how they would turn down 10 to 15 delivery orders a week, which was just absurd.
Which is business, right.
Tony Xu: Yeah, it’s a lot. I mean, 10 to 15 a week, and you’re running a 400-square-feet, 800-square-feet shop, you’re gonna go out of business. It’s just a matter of when. It’s not like delivery hasn’t been done before, but in their defense, why is it that 99 percent of businesses don’t deliver? Why is it that 85 percent of restaurants don’t deliver?
So, my co-founders and I did some deliveries ourselves, and we figured out two things. One, it’s impossible, basically, to have your own delivery fleet. You never have enough. If there’s a spike, let’s say Stanford throws a midterm or something like that, and on most nights, tonight’s Tuesday, you’re gonna have too many, and you can’t just flex up and down to meet your demand.
The second challenge is just the way that delivery systems are set up is that they’re set up in routes. They’re not set up to do things just in time, and that’s why FedEx does not deliver to you on demand, and it’s also why Amazon and others don’t do that as well. So, we believed that there was this opportunity to help all these businesses effectively make the shift from selling you experiences, i.e., you’re going into the store, to convenience, and they needed a business partner to help them. They needed a delivery network to help them. They need marketing to help them, and we plan on building all of the services for them.
All right, and when you think about it, Chris, when you think about it … Talk about your background a little bit. Now, you came from a whole bunch of different places.
Christopher Payne: Yeah.
Christopher Payne: I’ve been around about … So, I was at Microsoft for a long time, 15 years, right out of college, and then I was at Amazon. I was one of the first GMs beyond books. Amazon was just a bookseller when I was there. I did a little startup that got sold to eBay, and I ended up running eBay North America, and then prior to joining DoorDash I did an ill-fated stint as the CEO of Tinder.
Yes, yes. I remember your ill-fated stint. We’ll go into that later.
Christopher Payne: I bet.
Yeah. How’d that go?
Christopher Payne: It went great.
No match. It didn’t match.
Christopher Payne: I was definitely a swipe left, no question.
Swipe left. So, the conceptual idea, you had been working at Amazon just selling, just regular selling, and Amazon had not gotten … Amazon had been essentially a retailer that used online services to do it.
Christopher Payne: Yeah. Amazon was a first-party retailer when I was there. We had just gone into third-party selling for the first time before I left.
Right, which was a big move for them at the time.
Christopher Payne: Yeah. We bought a company called Junglee, which was a service in that area.
Junglee, mm-hmm. Right. All right. So, when you think about the delivery space, because I think one of the things is a ton of money is going into it. You guys have raised how much total?
Tony Xu: Just under a billion.
That’s a lot of money.
Tony Xu: It’s a lot of money.
A lot of money. Explain why for regular people, because you’re a proxy for a lot of these, a lot of these delivery … some of which have not worked out at all. I wanna talk about why these don’t work out, and what the funding environment for these things are like, and why they continue to put money into it.
Tony Xu: Yeah. It’s actually kind of ironic because we share the same investors as Webvan. If you think about …
I’ve read about Webvan.
Tony Xu: If you think about DoorDash’s earliest investors, Andy Rachleff is a seed investor in DoorDash. He was an investor from Benchmark in Webvan. Sequoia Capital, John Doerr from Kleiner Perkins, all three of those investors were some of the original investors in Webvan, and we were lucky …
Explain Webvan, for people who don’t know.
Tony Xu: Oh, sorry. Yeah. Webvan was a grocery delivery service in which they built these warehouses in cities, and they would put …
Tony Xu: Yeah. It was a great team that would bring groceries to your home, and the root cause, at least when I saw some of the data, was that there wasn’t enough demand. It was just too early, and actually, one of their cities was profitable. That was actually San Francisco at the time, but because there wasn’t enough demand in other markets, and because they had invested so heavily in these warehouses, and time that with the downturn, it was difficult to raise further capital, and that’s why the business shut down.
There also wasn’t mobile. There wasn’t a lot of things.
Tony Xu: Yeah.
There wasn’t a practice of doing it. There wasn’t a … People didn’t get used to doing Uber the way … People didn’t get used to doing it in the way they order now.
Tony Xu: Yeah. I think there were at least three big things. The first is that there wasn’t the consumer demand, and today, thanks to many different types of companies over the past decade and a half since Webvan’s founding, have taught us how to shop online, for just about anything.
Second, to your point, there wasn’t mobile, so there wasn’t this ability to tap into this on-demand workforce, and the comment there is that there’s also changes in the labor market. One of the things that’s similar about the Dashers on the DoorDash platform that fulfill all the deliveries and the consumers is that they all value their time. As a result of that, they’re picking and choosing their jobs wherever and whenever they live and work.
The final thing I would say here is that a lot of the merchants now are ready. They’re ready to make this transition from selling experiences to also selling convenience, and I think this is the greatest business model change …
Experiences, you mean going into the restaurant?
Tony Xu: Going into the store, and …
Or store, or whatever.
Tony Xu: This is the biggest business model shift in commerce. Restaurants have three kinds of costs. They have people costs, they have food costs, and they have real estate costs. In the delivery business, they really only have food costs. They are not gonna add extra real estate. They don’t even need to add extra help in the store until it gets really, really busy. So, the delivery business is really a great business model for most of these stores.
And I think that restaurants are starting to get that. They’re starting to see that from a lot of these national restaurants that are doing this for the first time. When we announced many of these delivery partnerships, this is the first time that a Wendy’s or a Chipotle or a Cheesecake Factory have done delivery in almost 40, 50 years.
Or ever. So, could you could talk about the operations of that? Because one of the things that you are doing is giving them … At some point, Chipotle might wanna do that themselves or have their own business doing it, and one of the things you guys have done more than anyone is target these big chains.
Christopher Payne: Yes. Yeah. I spend a lot of my time, I would say personal time, working with the large restaurants, very demanding customers. One of the things we try to do is be excellent at that. You can imagine if you’re a Cheesecake Factory on a Friday night and you layer in 20 percent more volume with DoorDash, if that doesn’t integrate with your operations and go smoothly, it can be challenging.
So, that’s one of the things we focus a lot of our energies on, is customizing the operation, integration with their point-of-sale system, getting the Dasher to the right place in the specific store. You can imagine the store at Union Square in San Francisco, if you’ve ever seen the Cheesecake Factory …
Yes, it’s way upstairs. Yeah.
Christopher Payne: … it’s on top of the … At times when it’s super busy, we actually have a runner that goes downstairs and hands off the food to Dashers in their vehicles. That’s the type of thing it takes to actually win them over, because a lot of these restaurants were not designed for delivery, and they weren’t designed to have 30 percent more volume on a Friday night or a Saturday night. So, that’s sort of where we, I think, have differentiated ourselves, and that’s why the top merchants tend to partner with us.
On the Chipotle question that you asked, Chipotle actually does its own delivery through its app, so if you download the Chipotle app, behind the scenes, that’s DoorDash doing the delivery. They’re also on DoorDash’s application from a consumer perspective. If you were an employee at Chipotle, you wouldn’t even know. There’s just an on-demand order coming into the point of sale. They fulfill that to a DoorDash Dasher that comes into the door, and it goes well.
The business is so nascent. It’s so early that the tide rises for everyone. When we run a promotion on DoorDash with Chipotle, they do more in-store. When they run a promotion in-store, we do more on DoorDash itself.
But what would be the reason, again, why a large chain wouldn’t do this themselves?
Christopher Payne: Well, I think the question is what do you mean by “do it themselves?”
Have their own delivery service.
Christopher Payne: Have their own application? Have their own website? That’s our recommendation, is they should do both. They should be on DoorDash, and they should have their own channels, and many do. Wingstop does. Chipotle does. Five Guys does. But many do not. Our pitch is you should do both. But the ability to build a last-mile logistics platform, a technology platform, is very, very challenging.
That’s what I wanna get to.
Christopher Payne: Yeah. I don’t think many restaurants are going to be doing that. Some have. Panera has, and have done a great job with it, but that’s the exception, not the rule, for the …
Why would they do that?
Christopher Payne: Yeah. So, first of all … Oh, why did Panera do it?
They wanna control the whole experience, presumably.
Christopher Payne: Yeah. I mean, I think they thought they had a system that could do it. They did it a little before sort of DoorDash got to critical mass. I’m not sure whether in today’s world where DoorDash exists, it’s in 3,000 cities, if that would make sense to start from scratch. This is challenging. It’s challenging software.
It’s one of the reasons I joined the company. It’s like, you have to predict every night in three-mile circles around the country how much food is gonna be needed in that, and so therefore, how many drivers are gonna be needed. Super challenging to do that, a very hard software problem, and then the thought of being able to balance supply across just your one store, it just doesn’t work. It’s why it’s never gone beyond pizza, predominantly.
Christopher Payne: As an individual store thing, it doesn’t work.
One of the things I think people really don’t understand is the economics of these things, how you guys make money. I would like to explain it. Explain, Tony, if you could, how you all work when you have these relationships.
Tony Xu: Yeah. So, we collect money two ways. First, we collect a fee from consumers, so that’s in the form of a delivery fee and sometimes a service fee. And the restaurants pay us a commission on the order. A percentage of the food.
Right, for your service of delivery?
Tony Xu: Yes.
Like it’s your fee, essentially, of doing it.
Tony Xu: Yes.
And then whatever they get on top of that is extra money that they would get from what they’re selling?
Tony Xu: Yes.
Right. So, when you get this much money, a billion dollars in investment, what are you doing with that money?
Tony Xu: Well, a few things. Number one, we have to go to all of these cities. And going to cities …
This is just in the U.S.?
Tony Xu: U.S. and Canada.
I meant North America.
Tony Xu: Yeah, yeah, yeah. It’s in North America today. Going to cities is expensive. We have to build a fleet, we have to sign up restaurants, which requires sales people. We have to hire people centrally, this is one of the hardest things that we do, which is we run a decentralized operation city by city, but we also have central teams.
Similar to Uber did, initially.
Tony Xu: A bunch of teams. We have engineering centrally, we have marketing centrally, we have a few other things centrally. And so building out the fleet, city by city, marketing to get the business going in each one of those cities, it’s almost like starting a new business every single time.
Tony Xu: And then there is the build-out of the central team, so hiring. Those are the biggest sources of investment.
All right. Talk a little bit about the economics of it, how you guys did this year in terms of doing that. Because one of the things you could beat on would be price with someone else under-pricing you, presumably. Like an Uber Eats coming in and trying to go to the same businesses, because they’re trying to go to small businesses and they were already on the road with their cars. That would, to me, be your closest competitor. Maybe I’m wrong, is that correct? Uber Eats, right now, I’d assume.
Tony Xu: Yeah. I mean, I think if you look at where the U.S. is, there’s two players gaining share. It’s DoorDash and Uber. And DoorDash is growing 65 percent faster.
OK. I just got an earful from Dara Khosrowshahi, that’s why, about how great Uber Eats is.
Tony Xu: So I think you are seeing the field move towards a smaller number of players.
Meaning that there’d be two or one, or what happens to the Grubhubs in the others?
Tony Xu: Well, I think that’s probably too early to say on the exact …
Tony Xu: Yeah. I think that’s … but I think if you look at how consumers are buying and where they’re buying, it’s really going to two players right now.
All right. And how do you look at that market then, when you look at a market of that, of how you compete against an Uber which has a fleet of cars that are already moving, they already have a fleet, essentially.
Tony Xu: One of the things that’s interesting about the Dashers is they’re actually not the same people that deliver food and deliver people.
Tony Xu: So the average Dasher on the platform is in their mid 20s. The average ride-sharing driver in your favorite service is early 40s. Forty percent of the Dashers are female; 15 percent roughly in ride-sharing are female. And that’s for safety concerns. So first point is that they’re actually not the same people. In fact, in most of the country, the overlap is less than 10 percent.
Which is good because finding qualified people to do this is difficult.
Tony Xu: Yeah. And, well, one of the things that we found is … so, the Dashers on the platform come to us in two groups, from universities and from retail. And most of these folks already have a full-time job, they’re just trying to add to it. I think one of the things that’s interesting about how labor is changing for the tens of millions of folks looking for flexible work is that you have to put yourself in the shoes of where are they coming from? And if you’re in school, 80 percent of your efforts are focused on school-related stuff. And so you may have some time to look for a part-time gig.
If you’re working in retail, the number of hours that you can now work has been dwindling over the last 10 hours, 10 years, excuse me. And so in retail now, you can work between 25 and 30 hours typically in any city. And so you’re looking for this gig that’s between 10 and 15 hours a week, but you need to pick those hours, because you already have something that’s occupying the majority of your week. And so that’s really that void that we fill.
And, Chris, when you’re talking about the idea of this workforce, presumably, as COO you do operations of these things, when you’re in this … really, it’s an area I’m gonna be talking a lot with Gavin Newsom about, a lot of governors are really interested in like what happens to this workforce and how do we define this workforce.
So you have a big one, Uber has a big one, Airbnb sort of has a big one, even though it’s not quite the same because nobody is moving around, but there’s temporary workers. There’s gotta be a new way to designate them. Why don’t you talk a little bit about this, because you were business … you know, Ikea just bought TaskRabbit, same thing, which is … we’ll see what happens with that.
Talk a little bit about that, the concept of that, how you start to manage this new kind of workforce. Because you can say they’re temporary, college students or whatever, but this is gonna be the reality, I think, for a lot of people.
Christopher Payne: Well, I mean, if you talk to the average Dasher, they love the flexibility of being able to Dash on DoorDash. If you say, “Why do you do this?” You’ll get the answer of, “I can make incremental money.” The No. 1 reason sort of a Dasher leaves Door Dash is, “I met my objective.”
So a lot of times, you’ll hear Dashers say, “I was saving up to go on a vacation.” I talked to one recently that said, “I was saving up to take a class at a university and DoorDash enables me to do that. And then I come back to it.” You’ll have many people come back to it. To me, that’s a service that we’re bringing to the world at large, the U.S. and North America, and I think that’s very, very powerful. I think a lot of the question about whether this is employee versus independent contractor misses a little bit of the point. This is like work for people and it gives them immense flexibility.
Right, well that’s your argument.
Christopher Payne: It is, it is.
Some people make the argument they need health care, they need, you know, as more and more of the population becomes this way, we have to redesignate employees in new ways and new fresh ways to think about how they move with health care, how they move with all kinds of rights that they don’t have in these environments.
Christopher Payne: Yeah. I think what you’ll see is that as the legislatures will opine on this … But I mean, we very much believe these are independent contractor roles. I do believe …
Well, you have to, right?
Christopher Payne: I do believe that as time goes by, there will be more things offered for people to do more on the platform. That’s definitely one of the things we try to do with people that do lots and lots of deliveries on the platform. But, you know, to me, the foundation here is one of bringing opportunity to, in our case, hundreds of thousands of Dashers. And I think that’s very powerful.
To do that? But, Tony, do you see this designation changing, or figuring out a new way to look at workers?
Tony Xu: Well, I think the issue shouldn’t be about classification. I mean, if you think about what is the root problem, the root problem is, how do we maximize all this flexibility, which Dashers love, and provide a security blanket for those who need it?
Tony Xu: That’s the root problem.
Right, 100 percent.
Tony Xu: And what ends up happening though, Kara, is that there’s lots talked about and reported on the classification, but it turns out, in these types of classification issues, lawyers make millions of dollars, Dashers get $50 in their pocket. That doesn’t solve the root problem.
What has to happen is we have to work together as an industry … but the way, also with other types of industries that have contractors — warehouse workers, truckers, doctors, and many others — and team up to figure out how to actually solve the collective benefits problem.
And we collect benefits, that’s the way you put it. Do you imagine that there has to be an industry solution to this? Because this is a really interesting issue as we move forward, because people aren’t going to be employed, correct? Because how many Dashers do you employ right now?
Tony Xu: There are over … well, we don’t employ them.
Okay, I know. That you don’t employ.
Tony Xu: There are over 700,000 on the platform.
Right. And same thing with Uber, same thing as you iterate through the system. How is the competition for workers going then, or Dashers or TaskRabbits or whatever, what is the competition like? How do you look at it?
Tony Xu: Well, it’s really different by geography. You know, while it’s really, really competitive here in the Bay Area and competitive in places like Boston, where no one owns a car or only 11 percent of the population drives a car. In most of America, it’s not. In most of America, people drive cars. In most of America, people would love these types of opportunities. And, again, I think it’s, again, why. Why is because this is an augmentation to what they’re already doing. If it were not, if it was a true substitute and replacement, I think that might be different.
Right. So thinking about where it’s going as a business, when you think about what else you’re going to deliver, you obviously start with food. What do you look at? What do you think the most promising areas are for you guys?
Tony Xu: Well, we started with food just because it was the hardest problem. It’s not just because it’s high frequency, but because if you can figure out food … if you can deliver something in 30 minutes, you can deliver something in an hour. The reverse is not true.
People don’t care.
Tony Xu: Exactly. And so we look at what people like to buy and we look at how often they buy it. And we also look at whether or not it gives the Dashers the opportunities in the right hours of the day.
So, for example, we mentioned that we deliver groceries from Walmart. We do this for 500 other stores.
Which was a big coup, by the way, for you to get this contract with Walmart, but go ahead. Working with them.
Tony Xu: It’s been a great partnership. And one of the big benefits of partnering with Walmart is that grocery deliveries actually happen at very different times than, say, when restaurant meals get bought. And so as a result of that, Dashers now have even more choice, there are more work opportunities in different hours of the day in which they can deliver different types of things.
And so you can work a couple hours in the morning delivering Walmart groceries, or you can choose to deliver longer and extend that into lunch.
Is there anything you wouldn’t deliver?
Tony Xu: Not that I can think of.
So where are you moving? Groceries, food, then what?
Tony Xu: Well, what else do you buy?
Well, I’ve had a lot of bad delivery experiences recently.
Tony Xu: Oh, okay. Tell me about that.
Christopher Payne: Washing machines.
Tony Xu: Oh, yeah.
Everything. No, it was dishwashers .
Christopher Payne: Oh, it was dishwashers, sorry.
Tony Xu: Dishwashers.
But then it was a shelf, then it was a bed, then it was a this. And Amazon did everything flawlessly. Flawlessly, and I hated them for it. I have to say, I really wanted them to screw up and they didn’t. There was not one.
Tony Xu: Not one.
Not one, everything was right. They delivered the right thing, they delivered it at the right time, they gave me the right texts. It was really quite astonishing.
Tony Xu: And imagine if you can do that from all the stores in your city.
Tony Xu: You can have even more choices of buying …
Well, Prime Now is from some stores. It seems like they’re going to stores, right?
Tony Xu: It’s from their own warehouse.
Christopher Payne: It’s their warehouse, I believe.
Yeah. But it seems like they’re pulling from all over the place. I think at one point they were pulling from a store. I couldn’t tell, it seemed like they were pulling from a store. Nonetheless, it was really flawless. And so it troubled me for local retailers to worry about how they were going to survive.
Tony Xu: I mean, the way I think about this is there is no company out there today that is a business partner to the businesses locally. If you think about it, if we wanted to make t-shirts and we wanted to sell them online, we might sell through an Amazon or an eBay or we might buy ads from a Facebook or an Instagram or a Google. But if we wanted to open a t-shirt store on the street, on Market Street, and we wanted to get business, how do we do that? It’s not obvious. There aren’t obvious business partners that you would go to.
Tony Xu: And so I think there’s a massive opportunity to be that unique company.
All right. We’re here with Tony Xu and Christopher Payne, the CEO and COO of DoorDash. Tony started the company in 2013. What prompted you to do this? Sorry, I’ve heard your story, but I’ve utterly forgotten it. You just decided this was … ‘cause of your family’s business.
Tony Xu: Well, it wasn’t about delivery, it was about helping businesses.
Helping businesses do better. When you’re thinking about doing this, when you’re gonna do a startup, what was the impetus for doing that? You just thought this was a good idea?
Tony Xu: We treated it like a project.
Like a project.
Tony Xu: Yeah. And it was to answer three basic questions, which was, is this something that people want or is this something that just Silicon Valley people want?
Well, yes. But you know my line, you know my famous line.
Tony Xu: No, what’s your famous line?
San Francisco is assisted living for millennials. But go ahead, move along. Think about it.
Tony Xu: But that’s why actually our first market outside of Palo Alto …
Has to be San Francisco.
Tony Xu: No! It was east San Jose.
Tony Xu: It was because we wanted to see if this could be a mainstream product, not a Silicon Valley product.
Right. It’s a bunch of young men.
Tony Xu: And we’re actually much bigger outside of the Valley than we are in the Bay Area.
What’s the biggest area besides this?
Tony Xu: We’re really big in the Midwest. I mean, think of it. So I grew up in the middle of the country, and in the middle of the country, it’s hard to get convenience. If we lived in New York or San Francisco …
Well, New York has always been a delivery city.
Tony Xu: Right. No, no, but if we lived in New York, we don’t even have to get delivery, we can just walk down the stairs and we can throw a rock and hit a thousand stores. That’s not true in most of America.
Tony Xu: And so, no, we actually started out by figuring out, can this actually work in a less dense place? Because if you can make it work there, you can make it work in a New York or a San Francisco. If you can make it at a price point work for middle America, you can make it work for the Bay Area. Not the other way around.
So, yeah. It started like a project. And it was, is this something that mainstream America wanted? Number two, is this something that restaurants wanted and pay us for? And number three, is this something that we could afford, in terms of partnering with the Dashers?
So, what’s it like being a startup right now, for both of you? I mean, you’ve been in big companies, Chris, pretty much. What is the startup environment now? It’s not quite as sunny as it was, it feels like.
Christopher Payne: I love it.
All right, all right. Well, because you’ve been at like big, giant, horrible companies.
Christopher Payne: Exactly. I mean, I love the speed. The thing I like … it’s funny, with DoorDash, lunch happens every day, dinner happens every day, so we get a report card sort of twice a day. And the pace is such that we’re launching, constantly, new products, new features, trying to listen to the customer.
You know, the launching to the 3,000 cities this year was a monumental undertaking. And it was awesome to be able to see us do that in 12 months. The thing that surprised me is that the markets we launched are actually doing better than the markets we launched four, five years ago. And I think it speaks to what Tony was saying, is that these cities did not have these capabilities.
So if you look at Cincinnati, Detroit, Indianapolis, Jacksonville. We just launched Burlington, Vermont, believe it or not, just to give you a flavor for where we are now. Bremerton, Washington. They’re doing incredibly well because they’ve never had this capability. So I love it, I thrive on building something that people love. I was a customer before I joined DoorDash.
But the startup environment, I think it has changed. You’ve collected all this money for investment, and now, there hasn’t been a big startup lately, there hasn’t been a big startup environment right now. It feels like it, just think of the last big startup was Uber, Airbnb, yours. There was a class of them that hasn’t happened since then.
Tony Xu: I think there are a lot of startups. I think what’s tough being a startup right now is you want to make concentrated bets, as a startup. You want to go all-in on a few things and bet well and bet correctly. And one of those things is getting great talent. But that talent, right now, is so dispersed in a lot of these mini projects. And I think that’s one of the big reasons why you’re not seeing maybe more bigger startups. Because I think while it’s never been easier to start a company, I don’t think it’s ever been harder to scale a company. It’s expensive.
Tony Xu: The capital … We talked about this. It’s hard scaling quality, not just of hiring but building the product, building decentralized teams. That’s really hard right now.
What about the image of Silicon Valley? Has that been affecting you all at all? Do you feel like it has or does it just bypass you because you’re not really doing social media or the other things that are sort of in hot water? The image of tech has gotten beaten up, I think, recently.
Tony Xu: Yeah. I mean, I think we’re very cognizant of that. I think the fact that we started the company with a mission to help merchants and because that’s in the cultural DNA I don’t think we …
Rather than destroy people. Right. Right.
Tony Xu: Well…
Well, no. A lot of startups say, “We’re here to destroy” or disrupt or break down.
Tony Xu: Yeah. No. I think because that’s in the cultural DNA … We never sought that kind of attention.
Tony Xu: It’s one of the reasons why we were fairly understated and under the radar in our five-year history.
Mm-hmm. In terms of doing… ?
Tony Xu: Getting coverage or doing a lot of the social media.
What does it take now to be an entrepreneur? I think a lot of people sort of are interested in … There’s a lot of focus on the mistakes that entrepreneurs have made, but what are the important things to be an entrepreneur right now? When you have a company that you’re trying … You’re at the point where you have got to reach escape velocity, presumably, right? That’s the moment your company seems to be at.
Tony Xu: Yes.
Where you go to the …
Tony Xu: We’re past that. We’ve been very fortunate where the breakout product-market fit has happened.
What do you think the key parts are to doing that for these companies that are sort of on the edge?
Tony Xu: Okay. Well, there’s some things that are in your control and some things that are not. I would focus on the things that are in your control. I would say, first, you have to have a big reason for why you want to do something. Inevitably, you’re going to have tough times. We’ve had ours.
Well, talk about one of those.
Tony Xu: Yeah. I mean, yes, we talked about DoorDash raising almost a billion dollars but previous to 2018 DoorDash raised $180 million, which is a lot of money but relative to some of the peers in the space it’s a tiny single-digit percentage of what the peers have raised.
Tony Xu: The external world was very negative about our space.
Explain why. Because there was so much competition, because…?
Tony Xu: Yeah. Well, a couple things happened. I know there’s a lot of wonders right now about the macro environment but in 2016, let’s be clear, there was actually a downturn in the first quarter.
Tony Xu: LinkedIn lost half their value in a day. Salesforce did that in something like a week. That was also when DoorDash was raising its series C. Not the best timing.
Tony Xu: That wasn’t what we had planned for and so it was difficult. Through those two years, we really had to hunker down to make sure that the business model would work on the money that we had and then after that, stepped on the gas, raised the money that we did … I mean, we raised 80 percent of our lifetime financing in one year. That was 2018.
Tony Xu: I think to be an entrepreneur today, you have to have a much bigger goal than just making money or building a product. I think the second thing that you have to do is you have to find great people who are in it with you for a long time. I think right now one of the toughest parts about being a startup is teasing that out when you’re hiring and assembling a team. Are you here just because you’re collecting a portfolio of great names that might go public one day? Are you here for the long haul when things are going to be negative and positive?
I think the third thing is you have to have a unique point of view. You have to have a point of view that’s actually different. Ours was we wanted to help merchants. It wasn’t a view that our peers shared, even though we’re all in the same space. You have to execute upon that.
Those are the things that I would focus on controlling. Then I think it takes a lot of luck. We, as entrepreneurs, don’t get to control the timing of markets. We can influence the shape, the trajectory, but we talked about the Webvan story and had they had the demand I think maybe we’d be talking about them in a different light today.
No. It was the right idea.
Tony Xu: Yeah. Totally.
I always say some things are directionally correct and then topically wrong. You know what I mean?
Tony Xu: Yeah. Timing wrong.
Tony Xu: Yeah. Temporally, [Webvan] was wrong.
Tony Xu: I think we had some lucky bounces along the way, too.
Right. Your last funding, I’m going to let you take this one, Chris, was from SoftBank’s Vision Fund.
Christopher Payne: Yes.
It’s something I’ve been railing on a lot, as you know, people who take money from thugs. How do you … You don’t have to say that. How do you think of that? Is that an issue for you all as a group? It’s something I’m writing about this week. I’m writing about it with regards to Uber because Uber took an enormous amount of money from the Vision Fund and from others. How do you think about the financial environment?
Christopher Payne: Well, it’s something we definitely talk about. I mean, it’s concerning what happened. It’s something that we look at. We haven’t …
Given back the money?
Christopher Payne: No.
Christopher Payne: No. No. This isn’t a court of law, but there’s some things that were concerning from that and we definitely looked at that.
How do you deal with that? Tony also. I was talking to Dara Khosrowshahi, he was like, “You can’t pick your investor. You can’t fire your investors. You can’t fire the kind …” Let me just be clear to people, the Vision Fund, half the money in it is from the Saudis directly from the person who probably ordered the murder of a journalist, according to our CIA, not according to our president but according to our intelligence services.
There’s been an issue around the Vision Fund and how much of it should stay in Saudi hands and stuff like that. It’s an interesting question right now because Silicon Valley is being buffeted by all kinds of ethical issues now on all kinds of issues and to operate in that when you think of the funding environment … I guess the way out of it is to go public, correct? To get into a situation where people either buy or sell your stock and you don’t have to deal with that, correct?
Tony Xu: Well, yeah. That’s certainly one way to change … to make any changes to the cap table, would be to make everybody an investor as a public business.
Is that your goal? Is that the goal of DoorDash? Where does something like that go? You’re not naturally being purchased by someone. I guess Amazon, I suppose, could buy you.
Tony Xu: The goal is to be an independent business. I wouldn’t say the goal is to be a public company as an end destination.
Tony Xu: That’s going to be a milestone on the road.
Tony Xu: Yeah. The goal is to be an independent.
By itself? To run by …
Tony Xu: Yeah. Standalone business.
Standalone business, as essentially FedEx for the next century? How do you look at it?
Christopher Payne: Nice.
Nice? Do you like that?
Christopher Payne: I like that a lot.
Yeah? You like that? Okay.
Christopher Payne: Yeah. I mean, one of the reasons …
FedEx is pretty pissed.
Christopher Payne: Yeah. Exactly. One of the reasons I joined DoorDash was …
FedEx has missed a turn, didn’t they? They really did.
Christopher Payne: This is a big thing.
FedEx missed a turn. They missed a big turn.
Christopher Payne: I thought this was a big opportunity. It is bigger than I thought. It should have been obvious to me. In retrospect, people eat a lot. They want this convenience. Then when you start to think about other categories of whether it’s flower delivery or pharmaceutical delivery or retail delivery or B2B delivery, the opportunity is immense. Tony wanted to make an enduring company and that’s sort of why I joined the company.
Part of me feels like there’s not going to be any stores someday. That’s my premise.
Tony Xu: I actually think there can be more stores.
Christopher Payne: I agree.
Tony Xu: Okay.
See, I was sitting next to the head of Walmart at an event and I’m like, “There’s not going to be any Walmarts someday.” He’s like, “Kara, stop it.” I’m like, “No, think about it. Why should there be any Walmarts? It’s all commodity stuff.”
Tony Xu: They’re just not going to be the same stores.
All right. Okay. Explain what the stores … I’m speaking to the National Retail Federation soon, in a couple of weeks.
Tony Xu: Okay.
I want to be very controversial so give me something I can tell them that’s fascinating and groundbreaking.
Tony Xu: Well, the stores are going to get smaller.
Tony Xu: I think there’s going to be two … Right now there’s about a million restaurants, depending on how you count, in America.
Tony Xu: I think there’s an opportunity where there could be maybe one day multiples of that. Maybe three to five million restaurants.
Tony Xu: Let’s take retail. If there are five million retail stores, I think one day there might be more than that. I just think that half of them are going to sell you convenience. They may be delivery-only kitchens. They may be convenience-only pickup stores for retail or delivery from those retail stores.
Then that model is going to be much higher margins, so that these merchants, these retailers and these restaurants can reinvest back into store experiences that never existed before, so that you will actually still do it.
Look, I still think that people … You’re still going to want to hang out with your family at a store.
Right. Experiential. You’re talking about the …
Tony Xu: You’re still going to go out. You’re still going to go out with your coworkers, your friends, and it’s just a matter of where. You may no longer go into a super big store that’s a format of …
Where there’s paper towels and whatever.
Tony Xu: Yeah.
I don’t know why people buy paper towels at a store anymore.
Tony Xu: What if people can redo experiences and put it into a smaller format that is less expensive to operate and more fun for you and your friends and your family?
Would you ever operate stores?
Tony Xu: We’re going to try to help people.
Look at what’s happening in China. Look what’s happening with Alibaba. Talk a little about that, because they’re starting these very fascinating stores.
Tony Xu: They are. I think the stores you’re referring to are the Hema stores where they effectively have these … It’s almost like Amazon Go plus-plus.
Tony Xu: What we’d like to do is … We started the company to help merchants. We would love to help do that. We’d love to offer the infrastructure to be able to do that, whether it’s the space, whether it’s the technology inside, whether it’s the marketing from, whether it’s the data about what’s selling, what’s not selling, what’s high quality/low quality, what’s the right price point, these types of things. We want to be a business partner to these …
Tony Xu: Yeah.
Like a logistical …
Tony Xu: That way we can actually live in a much more positive I think view of tech, which is not displacing all these jobs but actually keeping the 60 percent of jobs that are reduced by these businesses, which that statistic has been true for six decades now.
Tony Xu: In all the tech ups and downs.
Mm-hmm. What about you, Chris? Stores or no stores?
Christopher Payne: I think stores …
I think my premise is brilliant, by the way.
Christopher Payne: I think you can lead with that, though. That’ll be great.
Oh my god. They’ll have a coronary.
Christopher Payne: They’ll like that.
They’re a sponsor of ours, too. “Sorry. There’ll be no stores but thank you for the money.”
Christopher Payne: No, I think there will be stores. If you think about all this inventory is like close to you but the most convenient offering we have today is Amazon showing up in two days with your stuff. That doesn’t make any sense to me.
Christopher Payne: For me, I think the push here will be ever more convenient. It won’t be in two days. It’ll be two hours.
Christopher Payne: I think that’s the system that we’re building. That will make better use out of the real estate that exists, but it’ll require that that real estate change pretty dramatically. You need to pick/pack, you need to ship. Imagine the store of the future will be one-third front of house and then two-thirds a pick/pack operation that’s the back of the house. We’ve got the inverse of that.
That’s right. You’re 100 percent right.
Christopher Payne: Today.
Christopher Payne: I think that’s the way it will go. You’ll see that in the restaurant world as well, by the way. If you think about it …
So that the seats are less than the back.
Christopher Payne: Yeah. You’ve got a situation where if you take three-quarters of a restaurant you built that’s front of house and then 25 percent kitchen and then you layer on delivery, which we’re seeing some restaurants in Palo Alto, which is the longest market we’ve been in, up to 50 percent of their sales are now delivery at different parts of the day.
Christopher Payne: They were never designed to do 50 percent of their sales.
No. They never thought of it that way. Except only New York does things like that. It’s really interesting.
Lastly, what are the biggest trends of delivery? Drone delivery? Scooter delivery? What’s the thing you’re seeing? My son was just obsessing on drone delivery.
Tony Xu: Drones. Well, I think that will come in time. I don’t think we’re quite there yet. We’ve been working on the problem of working with autonomous systems for about three years now. I don’t think we’re just quite there yet.
Autonomous cars, autonomous everything.
Tony Xu: Yeah. Different types of vehicles on the ground, above ground, to be able to do these types … I do think that that will happen. I don’t think that that will replace humans. I think that will augment the delivery networks in a very phased way. I don’t think we’re near either side of the utopian field.
Tony Xu: I think the other thing is that … and what we’re going to hope and try to influence this is all the stores are going to have e-commerce solutions. You know, I believe that in order for DoorDash to be successful, our merchants have to be successful. For them to be successful, they must all have some e-commerce and delivery solution.
Some of them are going faster than others, but I believe that one day everyone will have those. That’s how they’re going to exist. That’s how all those stores and brands are going to keep being those stores and brands.
If they are. I don’t think there’s going to be stores. See, that’s your problem.
Tony Xu: No, I don’t think you believe that.
I do. I believe that. That’s my newest premise. It’s my newest genius premise.
Christopher Payne: That would be a sad world, though, Kara. Don’t you think?
No, because we could turn … I was just discussing this on the thing … You could turn stores into houses and people live … You know what I mean?
Christopher Payne: I think the store is a very valuable thing.
It’s an experiential thing. I don’t know if you saw my thing. It has to have one of three things. I wrote an essay about it. There were three stores on 14th Street when I was trying desperately not to use Amazon, which is really difficult because it’s so much better by a quantum level.
One was experiential, one was a store that was absolutely delightful to shop in because it was beautifully merchandised. It was called Home Rule. It was just fun to shop in. I could have found everything in there on Amazon. The way they put it together was delightful as an experience.
The second one was heavy-duty customer service, which I think is critical. Such good customer … It was a hardware store. You go in and there’s someone right there and then when you say, “I want this” it’s upstairs. You get upstairs and the person is like, “I’m here to show it to you.” It was exceptional customer service, which was great, which was a pleasure to shop in.
The other was just weird stuff like you can’t get anywhere else. It was a store called Miss Pixie’s. She just has a weird sensibility and you can’t find it … There’s nobody … Jeff Bezos is not going to compete with her.
Christopher Payne: She’s curating that.
She’s curating it in a way that’s different. These were the only ways you would win. At the same time, I still was bothered by the fact that we essentially hunt and gather still. We still hunt and gather and we shouldn’t hunt and gather at all. There shouldn’t be a minute spent hunting and gathering. I don’t think so. Thank you. That is my premise.
Tony Xu: You should present that.
I should. I have. I have. That’s my newest … I shall. You shall be reading about it soon because it’s a concept that I have. What happens to things? What happens to the way we shop? I do think delivery has moved into a quantum level of interest for especially young people in terms of, I watch my kids. Everything is delivered. Every single thing.
Tony Xu: Yeah. I think the other thing is we still need to collect a lot more information about the offline world. Not just to make deliveries better, not just how long is traffic or where is parking, that sort of thing. We do have to do that.
Even just things like inventory systems. Do you have the thing from Miss Pixie’s or not? To what if you run promotions? There’s a lot of information about the physical world that’s not online, that’s not organized well. No one has categorized that data set.
Tony Xu: That’s a lot of work.
Absolutely. Also, then lockers and things like that. I’m just really interested. The whole concept of stuff that’s near you. There’s all these things popping up that I think are really interesting experiments.
Tony Xu: Yeah. I think that’s right. I think all those experiments are along the lines of how do we get things closer to you, right? That’s really how you get faster. Ideally, we can bring everything to you, super close to you.
I’m going to test you, Tony. I’m going to test you on my next trip to Washington. All right?
Tony Xu: All right.
We’ll see how you do.
Tony Xu: Tell me which store you order from.
I will. I will, after I’ve done it.
Tony Xu: All right.
After I’ve done it. We’ll do it under the guise of another name so you don’t know.
Christopher Payne: Exactly.
All right. I’m watching you, Chris, for sure.
Christopher Payne: You’ll let us know.
All right. I will. Thank you so much. This is really interesting. It’s a fascinating area, the concept of it, and again a lot of people are getting into it and a lot of people are going to be getting out of it, I think, as you move forward, but I really appreciate you guys talking about it. We’re here with Tony Xu and Christopher Payne, the CEO and COO of DoorDash. Thank you for coming on the show.
Christopher Payne: Thank you, Kara.
Tony Xu: Thank you for having us.