This post was a part of our look at "How the Creator Economy Can Save the Hospitality Industry". To learn more about how we're helping hospitality entrepreneurs thrive in a new era, check out The Hospitality Stack.
This is a bit of a different flywheel than is typical at Back of the Napkin VC. It's part of our look at the transformation of the hospitality industry, which you can read more about here. We also recently wrote about the positive flywheels that DoorDash generates here. We call this one a "degenerative flywheel" because it extracts more value from its stakeholders than it creates. Rather than generating momentum as it scales larger, this system is ultimately self-destructive.
The delivery experience consumers have come to expect from third party apps, like DoorDash, is subsidized by the degenerative flywheel of third party delivery. The platforms lack leverage over the consumer (who can switch freely between apps), so they apply pressure on the restaurant and courier sides of the markets. Restaurants’ margins are obliterated, and, critically, their customers are absorbed into the app’s ecosystem only to be resold back to them and their competitors as “incremental revenue”. Couriers are beholden to the volume of orders on the platform and lack bargaining power over essentials like wages, benefits, and fair treatment. Consumers ultimately lose as percentages of their restaurant transactions that were once recycled back into the local community (employee wages, vendor expenses, and real estate) are extracted by platform “take rates”.