Where Postmates Failed
How did this pioneer fall behind?
I have had a fantastic run with food delivery apps over the past five years. It started off with taking advantage of Grubhub’s new user and referral bonuses ($7 off every order!) in my freshman year of college. Through college, I had signed up for nearly every delivery app multiple times to milk as much free (or heavily discounted) food out of VC-funded delivery apps as possible. And in my second semester of senior year, this run with food delivery app reached its’ apotheosis.
By second semester senior year, I had managed to successfully arbitrage Postmates’ relentless onslaught of promotions for customers with their bonuses for delivery drivers. I ended up making nearly $1,600 from Postmates for delivering food to myself.
It was a crazy and exhilarating time. And a story that landed me with over 600,000 views on Tik Tok across two videos.
Through that experience, I probably learned as much as an outsider can learn about the details of Postmates’ operations. So, it was a poignant moment when I heard the news that Uber was delivering an all-stock $2.6B coup de grace to Postmates.
In spite of the Uber-esque blitzscaling that opened the opportunity for me to memorably make some money, Postmates was in distant 4th place nationwide in delivery share. Outside of its dominant grip of delivery in LA, Postmates was the straggler in virtually every major market. With the business world abuzz around the news of Uber swooping up Postmates for $2.6B, I began to ponder Postmates’ fate and how we arrived to this moment.
What’s special about Postmates?
Of all the delivery apps, Postmates offered the widest selection of merchants. It extended beyond food delivery — you can order products from the Apple Store, items from CVS, and much more — and appeared to have endless celebrity shoutouts.
Most importantly, Postmates appeared to be at the forefront of innovation in the delivery space with their membership product — Postmates Unlimited — that allowed customers the ability to avoid delivery fees and small cart fees in exchange for $9.99/mo or $99.99/year. Postmates even struck a partnership with Capital One’s dining-oriented Savor credit card, where Savor cardholders got a year of Postmates Unlimited for free. Soon after the Capital One partnership, Mastercard began offering $5 off any Postmates order of $25+ on cards belonging to their World Elite tier, including the Capital One Savor card. Around the time I joined Postmates as a courier, they unveiled Postmates Party, which allowed customers to share the delivery from popular restaurants to get free delivery.
What Postmates Did Right:
- Virtually every restaurant and convenience store is available on Postmates (even if they weren’t directly partnered with Postmates) so you’re more likely to find the restaurant you want on Postmates versus other delivery apps. DoorDash started listing restaurants they haven’t partnered with and they recently expanded beyond restaurants and added on convenience stores.
- Avid delivery customers can subscribe to Postmates Unlimited to avoid delivery fees for $9.99/mo or $99/mo. Reduces ordering friction for customers (don’t have to think about varying delivery fees!) and increases a customer’s propensity to order while generating more reliable recurring revenue for Postmates. DoorDash, Uber Eats, and Grubhub have since copied this membership product, signaling that this was a winner.
- Partnered with Capital One to offer Postmates Unlimited as part of the Capital One Savor card benefits and partnership with Mastercard to offer $5 off orders of $25+. Win-win-win for credit card companies, Postmates, and customers. Credit card companies get to offer an attractive benefit, potentially without footing the full bill. Postmates acquires a large customer bloc in one swoop. Customers get subsidized. DoorDash has since copied this playbook by partnering with Chase to offer free DashPass (DoorDash’s counterpart to Postmates Unlimited) and other DoorDash benefits to cardholders. Ever since Square sold Caviar to DoorDash, Square’s Cash App cardholders get 15% off on DoorDash orders. SoFi cardholders got 20% off on DoorDash from March-June 2020. In my view, these card partnerships yield stickier customers than traditional free trial and standard promotions because card partnerships are longer-term than a 30 day free trial so there’s more opportunity to build customer trust and inertia.
- For non-Postmates Unlimited subscribers, popular restaurants near you have free delivery through Postmates Party. Great for customers, great for Postmates. Uber Eats has also implemented this feature.
What went wrong for Postmates?
Chamath Palihapitiya, who formerly led Facebook’s famed Growth team, boiled down the key to successful Growth Marketing to figuring out the fastest way to allow a new user or customer to experience as much of value proposition as possible. For Facebook, they found that new users that didn’t add at least 10 friends couldn’t experience the value proposition of Facebook and ultimately wouldn’t convert to a reliable monthly active user.
I can only speculate on Postmates’ findings regarding how to convert a new user into a returning customer, but Postmates did a subpar job of showing new users the full differentiated value of Postmates. Instead of impressing new users with its’ unparalleled selection and showcasing perks unique to Postmates, Postmates aggravated new customers with one of the most bait-and-switch-y promotion of all time.
The promotion? $100 off delivery fees
To stand out of the crowded field of sign-up delivery promotions, Postmates threw out an eye-popping offer: $100 of free delivery credit. For context, sign-up promotions for delivery apps typically congregated around $5 to $10 off your first order. $100 definitely turned heads and almost definitely converted into new sign-ups.
How To Turn “$100 off” into the Most Feckless Promo of All Time
Unfortunately, the $100 of delivery credit only applied to the delivery fee. Not to your overall order. It didn’t even apply to the substantial 15–25% service fee despite the service fee fundamentally serving as a disguised delivery fee. So, a new user went from excitedly thinking she would be feasting on $100 of free food to staring at a $100 order ballooning past $140 from service charges and suggested tip. The silver lining? A measly $2.99 delivery charge waived. New users who didn’t immediately close out of Postmates after this tremendous whiplash of disappointment may have cleverly thought “well, at least I can get free delivery for my next 33 orders”. But then, they would discover that the ‘$100 of free delivery credit’ only lasted for 7 days from signup.
All in all, this promotion is a contender for the most underhanded, misleading, underwhelming promotion of all time and a masterclass of how to disappoint a new customer.
Speaking of Service Fees
Perhaps you stuck around on Postmates because Postmates was the only delivery app that offered delivery to a specific restaurant you love or you were able to get free delivery through Postmates Party, Postmates Unlimited, or some promo code from Postmates. You were still stuck with the highest service fees in the industry.
Postmates service fees: 15–25% (Postmates explains that their service fee is a variable percentage-based fee and does not share the exact percentages. However, from my experience with Postmates, the service fee is usually around 20%, but sometimes can dip to ~15%.)
DoorDash: 11% (reduced to 5% with DashPass on orders above $12)
Uber Eats: 15% (reduced to 10% with Eats Pass on orders above $15)
GrubHub/Seamless: 0–15% (I’ve seen it range dramatically based on restaurants, but also restaurants on Grubhub/Seamless often require min. order of $10–30)
Considering that promotions rarely applied to service fees despite existing as a quasi delivery charge hidden under taxes and fees, the sticker shock associated with the highest (and unpredictable!) service fees in the industry were certainly customer hostile and surely served as a headwind in Postmates’ expansion into new markets.
How Postmates Should’ve Leaned Into Its Differentiated Value
In spite of the misleading $100 sign up promotion and frustratingly high service fees, Postmates had two winning core features that they should’ve led with in their marketing and onboarding:
- Postmates Unlimited
- Widest Selection of All the Delivery Services
While Postmates did heavily promote Postmates Unlimited within the app, Postmates should’ve swapped the $100 of delivery credit sign up promotion and an onslaught of delivery fee promo codes for:
- $15 off first order (which should apply to the entire order subtotal) and free Postmates Unlimited for 30 days without credit card required. In most markets, $15 is the minimum order size for free delivery to apply. By initiating the customer relationship with $15 off first order, you ensure that the first order is above $15 and avoid the customer trying to order below the minimum order size for free delivery on their first order.
- Onboarding quests for new users that showcase the breadth and depth of selection on Postmates. Reward the customer for making their first order from a convenience store, their first non-food order, etc. At the end of the onboarding, prompt the customer to refer a friend for another $15 off and another free month of Postmates Unlimited. People assume delivery apps are for ordering food, blow their mind by letting them know that you can get almost anything delivered on Postmates! Once they’re amazed, why wouldn’t they tell their friends about their favorite delivery app?
- Waiving service fees on orders above $50 on Postmates Unlimited for partnered restaurants. The unit economics of delivery suck on small orders since the delivery courier alone needs to be paid at least $3–4 on an order. But on larger orders, delivery is actually profitable. Consequently, the goal should be to encourage people to do Group Orders with their friends or order for the whole family. However, with a 15–25% service fee imposed on the customer, the cost of a large order becomes prohibitively expensive. $12–13 in service fees plus tip makes a strong case for picking up directly from the restaurant. Yet delivery apps charge restaurants 20–30% of the order and should be able to be profitable on the restuarant -borne fees alone on large orders, so it strikes me as wildly short-sighted to not waive or reduce service fees on large orders to drive growth in profitable large orders.
The Peril of Misaligned Marketing and Product
Postmates’ product team built a solid product as evidenced by the entire industry copying its Postmates Unlimited product along with DoorDash and Uber Eats each implementing items that Postmates did right. Postmates’ marketing team crafted a campaign that undoubtedly caught a lot of people’s attention (including mine) and converted into signups. They kept GMV growing by blanketing those signups with endless free delivery promos.
Individually, they did their job well. Holistically, they did their job horribly.
At the end of the day, if your core innovation is a delivery membership product with the broadest set of merchants, you shouldn’t have to give free delivery promos. You should be giving people the experience of Postmates Unlimited— an experience of never having to think about delivery fees. You should also be highlighting that you’re the only delivery app that delivers from the Apple Store, CVS, 7–11, etc. But they didn’t and thus, Postmates’ superior product lost because they failed to showcase their full value to new customers.
