Instacart, an on-demand grocery delivery service, announced a $220 million funding round this week, bringing the total amount of funding raised to $275 million, and values the company at $2 billion according to the New York Times. Having lived through the first Internet bubble and the rise and fall (read: crash) of Webvan, I’m not entirely sure I’m happy about this ginormous valuation but was intrigued enough by the numbers to take a closer look.
First, while Webvan’s model was complete, vertical ownership of on-demand grocery deliver from the food warehouse all the way to delivery vans and drivers, Instacart boasts that it’s all about the software. Said Mr. Mehta, Instacart’s chief executive: “we don’t hold inventory, we don’t own warehouses, we don’t own trucks. The changes we make are software changes.” Its business model is to partner with grocery stores which price their own goods on Instacart in return for paying Instacart a fee to service their locations. They also charge customers for the delivery.
This model of on-demand grocery delivery within the hour really exemplifies the boom times. After all, customers are willing to pay for this service when their time is more valuable than their money, and that happens when more people are employed and earning better salaries. Yet, while I am a fan of Google Express, I’m probably not going to be using Instacart any time soon. Not that the site and applications aren’t sweet, shopping with friends for an event, favorites to make making reorders faster, availability of almost everything, as opposed to Google Express, which, for now, doesn’t deliver refrigerated items. Add to that a one-hour delivery promise making it really on-demand, where again, Google Express usually has time to deliver later the same day or the following day at the latest.
Yet, way back when I used Webvan for grocery deliveries, my experience was that when everything worked, it was great. The problem was when it didn’t, for various reasons, and deliveries were late, rescheduled for another day, or significantly incomplete, causing me to complete the order at a local store by myself, with greater urgency, the very task I was trying to avoid. Eventually, after a few bad experiences, with late and cancelled deliveries and too many missing items, I stopped using Webvan.
Instacart might have the same challenges. It wants to be the Uber of grocery shopping with a similar, on-demand workforce, but when it promises delivery within an hour, it needs to be able to deliver, literally. By their temporary nature, Instacart’s contract workforce isn’t as committed to the brand and customer experience as full-time employees could be. Also, I didn’t see anything similar to Uber’s driving rating system on Instacart, which, while flawed in its own way, still serves to somewhat weed out the bad drivers. Are Instacart’s on-demand workers subject to background checks? Finally, is surge pricing in Instacart’s future? Will we see higher delivery costs in times of high demand, such as before Thanksgiving, under the premise that paying the delivery workers more will get more of them out to shop?
When Instacart’s CEO says that the basis of his business is software, I beg to differ. I believe it’s about excellence in operations and the customer experience, which go beyond the actual product. When they persuade me that they understand that, I’ll try using them.