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From: Glenn Petersen4/3/2020 11:20:55 AM
   of 853
 
The travel industry has been hit especially hard by the spread of the coronavirus disease, Airbnb included. Data from vacation rental market research firm AirDNA showed that Airbnb bookings in Beijing dropped 96% from January to March as the virus spread throughout China, while bookings in Rome, Italy, and Seoul, South Korea, saw drops of 41% and 46% — and the economic fallout could continue for months.

Airbnb has reportedly dropped its internal valuation to $26 billion as the coronavirus halts travel worldwide

Tyler Sonnemaker and Reuters
Business Insider
2020-04-03T01:25:11Z

Airbnb has been hit hard by the coronavirus pandemic as travel grinds to a halt globally. Reuters

  • Airbnb has lowered its internal valuation to $26 billion, the Financial Times reported Thursday.
  • That's a 16% drop from the company's previous valuation of $31 billion, according to PitchBook.
  • Airbnb has been hit hard by the coronavirus, which has all but halted travel globally, and was reportedly losing money even before the pandemic.
  • The revised valuation adds another wrinkle to Airbnb's plans to go public this year, which it has reportedly considered delaying due to coronavirus fears.
  • Airbnb CEO Brian Chesky predicted earlier this week that the company's business will bounce back after the pandemic, though hosts claim Airbnb's response has largely left them bearing the financial burden.

  • Airbnb lowered its internal valuation to $26 billion as the short-term rental company deals with a sharp drop in bookings due to the coronavirus pandemic, the Financial Times reported on Thursday.

    That's a 16% drop from the $31 billion valuation Airbnb received at its most recent private fundraising round, according to PitchBook.

    Employees were informed of the new valuation by CEO Brian Chesky at a company-wide meeting on Thursday, acccording to the Financial Times.

    The travel industry has been hit especially hard by the spread of the coronavirus disease, Airbnb included. Data from vacation rental market research firm AirDNA showed that Airbnb bookings in Beijing dropped 96% from January to March as the virus spread throughout China, while bookings in Rome, Italy, and Seoul, South Korea, saw drops of 41% and 46% — and the economic fallout could continue for months.

    Airbnb had also been struggling even before the outbreak, reportedly losing $322 million in the first nine months of 2019 compared with a $200 million profit during the same period a year prior.

    The decline in bookings and concerns among investors about the company's profitability have raised the possibilty that Airbnb could delay its plans to go public in 2020, with sources telling Bloomberg that timeline could get pushed back due to coronavirus fears.

    Airbnb CEO Brian Chesky promised hosts earlier this week that the company's business will bounce back following the coronavirus pandemic, saying that it has weathered crises before.

    "We are going to weather this storm," Chesky said in his video message. "We are going to get through this together. There's going to be a huge amount of business on the other side."

    However, Chesky's comments come as hosts have seen business drop sharply in recent weeks, and many have criticized Airbnb for leaving them bearing most of the financial burden. In response, Airbnb has set aside $260 million to reimburse hosts for cancelled reservations, but some hosts were unimpressed, telling Business Insider that the fund will only cover a portion of lost revenue and some property managers may see no benefit at all.

    Airbnb also successfully lobbied Congress to pass a collection of tax relief and loan-related proposals targeted at its property-manager customers, which the company said could help some hosts.

    Airbnb did not immediately respond to Business Insider's request for comment.

    (Reporting by Bhargav Acharya in Bengaluru; Editing by Sherry Jacob-Phillips)

    businessinsider.com

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    From: TimF4/4/2020 11:12:41 AM
    1 Recommendation   of 853
     
    Uber vs. Piketty
    by Don Boudreaux
    on August 1, 2015 in Competition, Creative destruction, Crony Capitalism, Inequality, Innovation, Intervention, Regulation, Seen and Unseen

    Thomas Piketty famously argues that owners of capital grab ever-larger shares of wealth, and that the single best ‘solution’ to this alleged problem is a global tax on wealth and high rates of income taxation. Problems galore fill Piketty’s book – including his failure to recognize that market-driven innovation and competition are incessantly creating new capital while reducing or even destroying the value of older capital, all in ways that move new flesh-and-blood people into the central ranks of the ‘capitalists’ while moving others onto the periphery of those ranks. (Twelve years ago Mark Zuckerberg, the son of a dentist, was no one’s idea of a capitalist. He’s now worth close to $40 billion.)

    While working together earlier this week on a business trip to California, my Mercatus Center colleague Ashley Schiller and I were chatting about Uber and the assaults that governments are now launching on this amazing innovation. Ashley had a brilliant insight, which I share here with her kind permission: Uber (and other ‘sharing economy’ innovations, such as Airbnb) allow ordinary people to turn their consumption goods into capital goods.

    Uber enables someone who would otherwise drive his or her car only for personal use to drive his or her car for paying customers – that is, to drive his or her car in an income-earning (and, hence, wealth-enhancing) manner. Uber enables a consumption good to easily become a capital good for however long the car owner chooses to operate as an Uber driver. For whatever number of hours car owners use their personal cars as Uber (or Lyft) cars, part of value of those cars becomes part of the value of an economy’s capital stock even if formal statistics do not yet register it as such.

    Uber and other sharing-economy innovations create more productive capital and create more capitalists. Government interventions against Uber and other sharing-economy innovations are, therefore, government interventions aimed not only at protecting the value of existing capital (and established capitalists) from the forces of creative destruction, and such interventions are not only obstacles to market forces that improve consumers’ access to goods and services; in addition, such interventions are assaults against market forces that increase the amount of wealth-producing capital that ordinary people are able to own, control, and profit from.

    It’s more than a little ironic that France gives the world not only an economist who insists that massive taxation is required to prevent existing owners of capital from growing ever more rich and powerful at the expense of those of us who today are not relatively significant owners of capital, but gives the world also the single most obnoxious example of government intervention that blocks market forces from doing what the French economist says cannot be done by the market and must be done by the state.

    UPDATE: Over at BleedingHeartLibertarians, Steve Horwitz furthers this discussion.

    cafehayek.com

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    From: Glenn Petersen4/6/2020 4:45:05 PM
       of 853
     
    Airbnb is raising $1 billion amid fallout from coronanvirus

    Published Mon, Apr 6 20204:00 PM EDT
    Deirdre Bosa @dee_bosa
    CNBC.com

    Key Points

    -- Airbnb raised $1 billion in a new round of funding led by Silver Lake and Sixth Street Partners.
    -- However, the company’s valuation has fallen to about $26 billion from $31 billion in 2017 as its business slows due to the coronavirus pandemic.
    -- It’s still unclear if Airbnb plans to go public this year.



    Airbnb CEO Brian Chesky.
    John van Hasselt | Corbis | Getty Images
    _____________________

    Airbnb is raising $1 billion, even as the coronavirus crisis hits the travel and hospitality industries especially hard.

    In a press release, Airbnb says that private equity firms Silver Lake and Sixth Street Partners will invest $1 billion in a combination of debt and equity that will support Airbnb’s ongoing work to invest over the long term.

    The company did not disclose the latest valuation. But in early March, it lowered its internal valuation to $26 billion, from the $31 billion figure it raised money at in 2017, according to two sources familiar with the matter. Over the last month, travel stocks Expedia and Booking Holdings have declined about 40% and 17%, respectively.

    The terms of the round were not disclosed, but a source familiar with matter said, “there is no rachet or any other coercive terms. It’s attractive for Airbnb.” The source added the funding doesn’t depend on Airbnb’s performance or reaching a target date to go public.

    The fundraising comes as travelers cancel trips amid the global coronavirus pandemic and the start-up grapples with a slowdown in bookings.

    It also bucks the trend of venture capital deals simmering down as the markets plunge on coronavirus fears. Investors told CNBC they predict fundraising rounds generally stalling and reaching less eye-popping valuations.

    As CNBC reported last month, Airbnb has fielded “significant interest” from investors over the last few weeks.

    Silver Lake and Sixth Street are new investors and, according to a source, the company chose them because they are “focused on the mission” and “believe travel is enduring.”

    Private equity deals in the U.S. involving tech companies have grown in recent years as some of the sector’s best-known names boost their capital for such deals.

    In early March, Twitter announced a $1 billion investment from Silver Lake.

    Sixth Street Partners, launched in 2009 with seed money from TPG, has over $34 billion in assets under management.

    In a press release, Silver Lake Co-CEO and Managing Partner Egon Durban said, “while the current environment is clearly a difficult one for the hospitality industry, the desire to travel and have authentic experiences is fundamental and enduring.”

    He added that Airbnb’s business model is “particularly well suited to prosper as the world inevitably recovers and we all get back out to experience it.”

    Morgan Stanley served as financial advisor to Airbnb and Simpson Thacher served as legal advisor to Airbnb. Kirkland & Ellis served as legal advisor to Silver Lake and Sixth Street Partners.

    It’s still unclear how a fundraising round could impact the company’s plans to go public. Airbnb had said it planned to debut this year, but the economic shift resulting from the COVID-19 pandemic has thrown that possibility in question again.

    cnbc.com

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    To: Glenn Petersen who wrote (780)4/7/2020 9:35:25 AM
    From: Glenn Petersen
       of 853
     
    Can Airbnb Survive Coronavirus?

    Feargus O'Sullivan
    CityLab
    April 3, 2020

    The short-term rental market is reeling from the coronavirus-driven tourism collapse. Can the industry’s dominant player stage a comeback after lockdowns lift?

    What will happen to home-sharing in the wake of coronavirus? It’s one of many questions about the fate of pre-pandemic sharing-economy juggernauts like Airbnb. That company and its competitors have transformed the market for travel accommodation in recent years, reshaping neighborhoods and whole cities in the process as short-term rentals swept through heavily touristed parts of the world. But with tourism on hold, national economies staggered, and public attitudes about shared space very much in question, the prospects for that industry are now murky.

    In the immediate future, things look dire indeed. Across the world, Airbnb bookings have tanked. Data analysts at AirDNA say that bookings across Europe collapsed in March, dropping 80% compared to the previous week in the week beginning March 9, and another 10% on top of that in the week of March 16. In the U.S., where virus response lagged, the figures for falls in booking are uneven, but scarcely less dramatic. By the middle of March, bookings in New York City, San Francisco and Seattle had already dropped more than 50% compared to the week beginning January 5, with drops of over 35% in Washington, D.C., and Chicago.

    To weather the crisis, Airbnb has reportedly canceled all marketing activities, put its founders’ salaries on hold and slashed those of top executives by half. It has halted all but essential hiring, may postpone going public and has not ruled out layoffs. “Airbnb is resilient and built to withstand tough times and we’re doing all we can to strengthen our community and our company,” the company said in a recent statement to Reuters.

    In a fast-evolving situation, Airbnb has offered blanket cancelation of any pre-lockdown bookings made for stays up until May 31 — which antagonized hosts who thought the cancelation policies they had agreed with guests would hold. Acknowledging their anger, company founder Brian Chesky outlined the company’s dilemma in a statement: “If we allowed guests to cancel and receive a refund, we knew it could have significant consequences on your livelihood. But, we couldn’t have guests and hosts feel pressured to put themselves into unsafe situations and create an additional public health hazard.”

    To repair the relationship, Airbnb to set up a $250 million fund, in order to compensate hosts for up to 25% of their lost income, with an additional $10 million bailout fund for super-hosts. U.S. hosts will also be eligible to apply for relief from Covid-19 stimulus payments, a bailout that Airbnb is also asking the national government to extend to hosts in Canada.

    These measures could help the company regain goodwill from hosts, which will be important once tourism revives. But when that revival could come, the form it might take, and what it could look like in the cities where Airbnb has been most prominent remain mysteries.

    Mobilizing for the crisis

    For now, many of those now unrented units are being put to good use. Short-stay hosts worldwide have offered stays in over 100,000 units to people in need, whether that’s accommodation for medical staff in Italy who want to stay near their hospitals and self-isolate during the crisis, or homeless residents of cities such as Barcelona, where the city has struck a deal to rent 200 short-stay apartments to allow people who would otherwise be on the streets to self-isolate.

    Beyond that, there are many ways the situation might evolve when the immediate crisis recedes.

    A rural revival could come first

    If, as the crisis stabilizes, lockdowns are lifted and some travel resumes, home-share listing in cities might not be the first to revive.

    “I think that in more isolated rural areas, Airbnb is likely to be pretty resilient,” says Marie Hickey, head of commercial research at U.K. real estate consultants Savills. “It could be the case that we don’t see a truly sustained recovery in overseas visitors until well into 2021, and the market that will bounce back quickest may be the domestic leisure market.”

    While people might be more wary of traveling to other countries, urbanites who have been cooped up in city homes under lockdown may well take the opportunity to travel somewhere nearby for some open space and fresh air once it is safe to do so.

    Hotels fight back

    When travel to cities returns, it may not be Airbnb that reaps the benefits. Some experts think there may be a medium-term swing back toward traditional hotels once the travel industry starts to revive, due to fears about how consistently hygiene standards can be enforced in the home-share market. “People might be less inclined to book Airbnb after the recovery due to perceived cleanliness issues” says Michael O’Regan, senior lecturer in marketing at the U.K.’s Bournemouth University. “They simply can’t guarantee a deep clean on a host-to-host basis after every guest.”

    Following a period where social mixing has been discouraged, travelers might nonetheless remain wary of sharing hotel spaces that have a large turnover of guests mixing in public. Hickey thus predicts a possible swing toward a previously niche sector: apartment buildings that are run by hotels. “We might see serviced apartments, or so-called aparthotels, being the main beneficiaries of the situation,” she says. “They’re similar to Airbnb listings but you have that confidence as a user that they’re being operated just like a hotel, with regular cleaning and health and safety precautions.”

    This sector has already grown in recent years, thanks partly to the concept of staying in apartments while traveling being so widely publicized by the Airbnb boom. It might now stand to be the quickest sector to recover. That wouldn’t be a bad thing for cities in need of cash — hotel-type accommodations generally contribute more in tax, and are on a scale to support full-time employees.

    Ex-Airbnbs return to the long-term rental market

    The downturn is going to force a lot of Airbnb landlords to find alternative ways to pay off their loans — possibly by finding longer-term tenants.

    Indeed, there’s already been much online discussion — some of it gleeful — of Airbnb units filtering back onto the long-term rental market. In Dublin, for example, the number of one- and two-bedroom apartments available for rent in Central Dublin hit a five-year high in March, with several of the listing photos betraying the apartments’ past as tourist accommodation.

    I see the arse has fallen out of Airbnb hosting. Also, completely unrelated, all these flats have suddenly appeared for rent. All pictured with little towels folded up on the beds! Such hospitality in the current Dublin rental market. pic.twitter.com/UwMpE0hBxW— Ellen Coyne (@ellenmcoyne) March 21, 2020

    A similar trend seems to be taking place in in London and Madrid. In Amsterdam, some short-stay landlords are taking the optimistic approach of looking for longer term tenants — but only until the summer.

    Amsterdam’s real estate owners expect the return of mass tourism between 3 to 6 months from now, looking at the former @Airbnb apartments temporarily rented out per month on @Pararius, all mentioning a specific end date. pic.twitter.com/X5oTgL4WG— René Boer (@rene_boer_) March 26, 2020

    Many might welcome the disappearance of at least a proportion of home-shares as a long overdue correction. It’s certainly possible that quality of life for residents might improve in some heavily touristed areas — such as Barcelona’s Old City — if more apartments had full-time tenants, thus reducing noise nuisance and supporting a broader ecosystem of locally focused stores and amenities.

    The long road back to business as usual

    But there’s another possible outcome — that this massive global shock to the lives of millions of people ends up, over the longer term, changing little. “There was a lot of discussion during the SARS and MERS epidemics about how it might change people’s behavior” says O’Regan, “but things ended up going back to business as usual pretty fast. I don’t think Covid-19 is a fatal blow. I think a lot of people will go back to hosting.”

    Neither of those global outbreaks were nearly as far-reaching as the Covid-19 pandemic, of course — and the present crisis has yet to crest — but when cases start trending down, there might be intense pressure from cities and people hungry for income to return to business as it was as quickly as possible. In Amsterdam, for example, the pandemic is costing the city €1.6 billion a month. With much of that lost from hotels, restaurants and catering, many people will not be worrying about overtourism for a good while.

    The crisis may also shed light on one major criticism of Airbnb — the accusation that it exacerbates urban housing shortages by removing apartments from the longer-term market. In cities that have been the most vocal about the effects of short-term rentals on housing prices and quality of life, such as Paris and Barcelona, it’s possible that the tourism hiatus could expand the rental market and ease affordability for locals.

    But the coronavirus crash could also reveal something else entirely: that the impact of the platform may have been overstated, and that changes detectable in particular neighbourhoods affected by Airbnb may still not be enough to affect rent levels across an entire metropolis. In cities with housing demand as high as London, which has roughly 900,000 rental households, you might need many thousands of former Airbnbs to seek permanent tenants for there to be any perceptible effect on citywide rent levels.

    For some time, Airbnbs critics have highlighted the significance of its role in skewing rental markets and pushed for stricter regulation, while the company insisted it was channeling income that boosts local communities. Now we may get an opportunity to see who was right.

    citylab.com

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    From: Glenn Petersen5/4/2020 11:48:14 AM
       of 853
     
    The Coronavirus Puts Restaurants at the Mercy of the Tech Industry (DoorDash, Uber Eats, GrubHub)

    Social distancing is pushing restaurants toward delivery-only models powered by tech platforms

    Sarah Emerson
    OneZero via Medium
    May 4 · 7 min read

    Bua Vanitsthian says she’s always been passionate about food. In 2019, Vanitsthian, a forensic economist and professional bikini athlete, opened Chicken as Cluck, a fried chicken restaurant on the edge of San Francisco’s Potrero Hill neighborhood.

    It’s not a restaurant in any conventional sense, however. As a “ghost kitchen,” the Nashville-style eatery lacks a physical dining location. Instead, cooks prepare dishes from a commissary space on Cesar Chavez Street alongside other virtual restaurants such as MAC’D, a popular mac and cheese spot, and Holy Cluck, a West Coast wings chain. Search for an image of Chicken as Cluck on Google Maps, and all you’ll find is an industrial-looking warehouse.

    After California issued a statewide social distancing order because of the coronavirus, industry lobbyists warned that nearly a third of California’s restaurants could go out of business without certain policy changes.

    But for Chicken as Cluck, things “started picking up a lot,” Vanitsthian told OneZero. “Since a lot of our competitors have closed, we’re fortunate to stay busy.” The restaurant now supports a team of five employees, including someone whose only job is running orders to delivery drivers waiting outside.

    The restaurant industry can be a brutal place, characterized by low wages and impossible hours with no guarantee of success. Even before the coronavirus landed, independent restaurants were seeking new ways to survive; in North America, thousands of ghost kitchens (also known as “dark kitchens”) and delivery apps promised new revenue streams. Uber founder Travis Kalanick last year launched the most visible of these, called CloudKitchens, a well-funded startup that flips undesirable real estate into commissary kitchens, or commercial cooking spaces shared by restaurants, caterers, and food and beverage businesses.

    Had Vanitsthian opted for a traditional restaurant, she says, “I’d never break even in my life.” Punching numbers into a calculator, she estimates that 10% of their monthly income goes toward rent, on par with restaurant industry standards that recommend rent account for no more than that. The ghost kitchen model made opening Chicken as Cluck not a dream, but a reality.

    In a post-lockdown world, that model, while imperfect, could be the future for countless restaurants across the nation struggling to pay rent on empty dining rooms. Dozens of states are dealing with government shutdown rules that now prohibit them from serving customers in-person. While owners can negotiate payments with their landlords, for the time being, social distancing may force restaurants into a world where on-demand is everything.

    In light of the coronavirus, C3, another commissary kitchen, plans to hire 1,000 new employees to accommodate skyrocketing delivery demands, and is even leasing restaurants that have recently been shuttered. Sam Nazarian, CEO of C3’s parent company SBE Entertainment Group, told CNBC that “restaurants will be going dark” throughout the crisis, and that commissary kitchens may provide an “interesting solution” to the suspension of dining-in.

    But pivoting to a delivery-only model might not be easy for many small restaurants. Some commissaries, like CloudKitchens, are still too expensive for small restaurant owners. In a piece by The Information, it was revealed that CloudKitchens tenants pay $5,000 to $6,000 per month in rent, plus processing fees on each order; costs that reportedly caused them to leave CloudKitchens for rival spaces. Restaurants that rely on delivery must also reckon with the fact that technology companies like Doordash, Postmates, and Grubhub have consolidated these services. According to an estimate by commercial real estate firm CBRE Group, 70% of restaurant delivery orders will be coming from third-party apps by 2022.

    Last year, food delivery startups received a not-insignificant $3.8 billion in funding, according to analysis firm Crunchbase. And third-party delivery platforms are seeing record downloads as much of the country stays indoors. Whether this translates into profit for restaurant owners remains to be seen. Apps like DoorDash and GrubHub have a history of undercutting restaurants with large commission fees, which can swing as high as 30% per order, causing some restaurants to inflate prices on in-app items to account for the surcharge.

    In March, DoorDash announced limited terms for reducing its commission for independent restaurants across the country, and in San Francisco, Mayor London Breed has ordered a temporary 15% cap on all delivery app fees. It’s unclear how long these measures will last.

    Steve Smith, the spokesperson for the California Labor Federation, a grassroots worker advocacy group, says delivery apps do more to hurt small restaurants than help them.

    “Delivery services were already eating away at their earnings,” said Smith. “Technology platforms really created a downward spiral, not just for businesses but for workers as well.”

    For restaurants, partnering with these platforms can seem mandatory. Not only do they control a huge chunk of customer ordering, but in the past, some have onboarded restaurants without permission, while others have upcharged customers on menu items. More recently, Yelp created GoFundMe coronavirus campaigns for restaurant owners without informing them.

    The razor-thin margins associated with delivery apps don’t make sense for many independent restaurants. “We know for a fact that as delivery increases, our profitability decreases,” the owner of Manhattan eatery Mulberry & Vine told the New Yorker in 2018. According to industry standards, 30% of a restaurant’s revenue — roughly the same percentage as a delivery app’s commission fee — should go toward labor and ingredients, respectively. Even entrepreneurs with access to capital, such as Momofuku’s David Chang, found these numbers problematic. In 2016, Chang developed a delivery app for his new restaurant Ando, which was intended to be a self-contained delivery-only joint. Ando closed two years later, and was summarily acquired by Uber Eats.

    “Physical restaurants that use delivery apps hardly make any money,” Vanitsthian said. “It’s just a way to market items online.”

    To make it in a delivery-only world, many restaurants will bet on spaces and apps they don’t control. One means of survival is becoming more like a tech company, with venture-backed funds and minimal viable products.

    Chicken as Cluck’s commissary neighbor, MAC’D, is perhaps Silicon Valley’s ideal version of a ghost kitchen: one that feels a lot like a technology startup. In 2018, MAC’D secured $120,000 in funding from startup incubator Y Combinator, which invests in early stage technology companies. The restaurant concept, co-owned by Chen-Chen Huo and former Amazon Web Services engineer Antony Bello, began as a series of pop-ups in 2017 before expanding to two physical locations, (they’ve since closed one, citing rental costs), and now boasts locations in Portland and Los Angeles. Huo and Bello went on to found à la couch, a delivery-focused restaurant group that includes Holy Cluck and other virtual restaurants housed within the same ghost kitchen, which raised $1.3 million in funding as of last year.

    “There is a growing movement for conversions to employee ownership, and I think this is the moment to scale it up.”

    Bello wrote on Hacker News that ghost kitchens allowed them to create “a validated concept in a city with among the highest costs in the U.S.,” adding that commissaries are “a way of getting into new markets quickly and intelligently, with the goal of proving a market and getting our name out before investing in brick [and] mortar spaces.”

    But the cost of techno-optimized restaurants could be the disappearance of beloved neighborhood eateries — by empowering delivery apps that demand near-impossible fees, and weakening the need for brick-and-mortar establishments that, while challenging to run even in a healthy economy, are embedded in the fabric of so many local communities.

    Yet there is another path. Instead of VC-backed ghost kitchens, labor advocates hope that the current lockdown sparks a rise in worker-owned cooperatives. Co-ops are not only an equitable way for employees to share in a restaurant’s profits, but some are also delivering food themselves.

    In northern Utah, workers with the Cache Valley Local Restaurant Cooperative are running a free delivery program (though tips are welcome) to avoid using GrubHub, Uber Eats, and other online platforms. Nathan Schneider, a professor at the University of Colorado Boulder and author of Everything for Everyone: The Radical Tradition That Is Shaping the Next Economy, believes that small businesses will face economic conditions similar to those following the 2008 market crash. Co-ops, he adds, are inherently more resilient due to values such as work-sharing, which can help to mitigate layoffs that much of the restaurant industry will face in the coming months.

    “This is a critical moment for ensuring that we have strategies to enable those businesses to remain locally owned,” said Schneider. “There is a growing movement for conversions to employee ownership, and I think this is the moment to scale it up.”

    Restaurant co-ops are still a small minority in the United States, but there are promising examples, like the Arizmendi Association of Cooperatives, which organizes six bakery co-ops in San Francisco and the East Bay, no small feat for a group of restaurants in the costly Bay Area. The businesses are reportedly profitable, and support more than 100 jobs. Groups like this could be an alternative model to the technology-driven delivery apps and ghost kitchens.

    For Vanitsthian, the rising cost of ingredients is now her biggest concern. Chicken thighs recently jumped from $49 for 40 pounds to $75. Fried avocados, once a mainstay for Chicken as Cluck, tripled in price — from $40 per case to $125. As a result, Vanitsthian was forced to remove them from the menu. A GoFundMe campaign for the restaurant now seeks $2,000 in donations to cover rent, wages, and food costs.

    Despite these hardships, Vanitsthian has found a silver lining. “Because our competitors all closed,” she said, “this gave us the opportunity for people to try our food, which we are blessed with.”

    onezero.medium.com

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    From: Glenn Petersen5/5/2020 4:06:41 PM
       of 853
     
    Cancel the IPO:

    The layoffs at Airbnb cast a dark shadow over Silicon Valley


    Airbnb is laying off a quarter of its staff.

    By Theodore Schleifer @teddyschleifer
    Recode via Vox
    May 5, 2020, 3:17pm EDT

    Airbnb, seen until recently as one of Silicon Valley’s most financially secure unicorns, is laying off a quarter of its staff. It’s an ominous sign for the tech economy.

    Brian Chesky, the company’s founder and CEO, told staff on Tuesday that the company’s revenue would be halved and that it would terminate about 1,900 of its 7,500 staff members — one of the largest layoffs in total that Silicon Valley has seen since the Covid-19 pandemic struck. Airbnb’s decision serves as a stark reminder of the coronavirus’s toll, which has hamstrung the global economy, forcing almost all startups to consider cuts and particularly wrecking the travel industry.

    Calling the virus the “most harrowing crisis of our lifetime,” Chesky said in an email to employees that Airbnb’s revenue in 2020 was projected to be just half of what it collected in 2019, which was reportedly $4.8 billion.
    As a result, he said Airbnb would streamline its business, scaling back its spending in growth areas such as its pushes into luxury homes and traditional hotels. Cuts are expected to hit those teams harder.

    “To those leaving Airbnb, I am truly sorry,” Chesky wrote to employees. “Please know this is not your fault.”

    The announcement is a wild reversal of fortune for a company that was expected to be 2020’s leading candidate for an initial public offering. Over the last few weeks, the company secured $2 billion in debt to try to survive the coronavirus pandemic, which has drastically cut back on people’s ability and willingness to travel. Airbnb declined to comment on how this would affect its expected 2020 IPO.

    Airbnb has been under pressure from its current and former employees to go public given that some have waited as long as a decade to cash in on their stock options. Chesky said all laid-off employees, even those there for less than a year who wouldn’t ordinarily qualify for vested shares, would receive their equity.

    The other marquee company of the sharing economy, Uber, is also reportedly in the process of mulling layoffs that could account for about 20 percent of its staff. Lyft has already laid off about 17 percent of its workforce.

    vox.com

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    To: Glenn Petersen who wrote (783)5/6/2020 12:55:32 PM
    From: Glenn Petersen
       of 853
     
    True P2P:

    Airbnb hosts are building their own direct booking websites in revolt

    Published Wed, May 6 202011:45 AM EDT
    Updated Moments Ago
    Salvador Rodriguez @sal19
    CNBC.com

    Key Points

    -- Short-term rental hosts are launching their own direct-booking websites in an effort to diversify their business after years of mounting frustrations with companies like Airbnb.

    -- These hosts are building their own booking services and banding together to form new, host-friendly booking services in an effort to wrestle power away from Airbnb, Vrbo, HomeAway and Booking.com in the short-term rental market.



    Airbnb CEO Brian Chesky.
    John van Hasselt | Corbis | Getty Images
    -------------------------

    Short-term rental hosts are banding together and launching their own direct-booking websites in an effort to diversify their business after years of mounting frustration with Airbnb and other short-term rental providers.

    Some of these websites were already in the works. But many hosts have recently prioritized their own direct-booking websites after a turbulent past two months, as the coronavirus pandemic spurred widespread cancellations and many grew unhappy with Airbnb’s reimbursement policies.

    Although these independent websites lack the consumer base that comes with a large service like Airbnb, they give hosts more power when it comes to how they brand and market their properties. Direct-booking websites also offer hosts an avenue where they can rent their properties to guests at a cheaper price while generating a higher profit than they can when a middleman like Airbnb is involved. Additionally, they offer hosts more control over situations where guests request refunds, cause damage or complain about a property, according to numerous short-term rental hosts who spoke with CNBC.

    Competition from these new direct-booking websites represent the latest challenge for Airbnb, which has endured a tough 2020
    . The company had lined up bankers to lead a public offering, which would test whether Airbnb could live up to its $31 billion private market valuation from 2017. But as the coronavirus decimated travel around the world, the company instead raised $2 billion in new debt funding at a valuation of $18 billion and announced major cost-cutting initiatives, including plans to lay off 25% of its staff, or nearly 1,900 employees.

    “The hold that Airbnb had a few years ago is no longer quite as strong,” said Henry Harteveldt, travel industry analyst at Atmosphere Research Group. “Hosts that are really unhappy with Airbnb have options -- not just listing on competitors like HomeAway but having their own independent, free-standing websites. This is a wake up call.”

    A spokesperson for Airbnb noted that using the platform offers many benefits that hosts cannot get on their own. “Airbnb is a community fueled by trust and that trust starts with the industry-leading tools we provide every host on our platform: 24/7 customer support, insurance and property damage protection, and user identity verification tools.”

    Seizing control



    Gianrené Padilla is among several Airbnb hosts who recently launched their own direct-booking websites as a way to diversify their business.
    Courtesy of Gianrené Padilla
    ------------------------------

    As the coronavirus pandemic spurred lockdowns on travel, Airbnb instituted a policy in March that allowed guests to cancel reservations in April and May for full refunds, costing some hosts thousands of dollars.

    Airbnb then reimbursed hosts a portion of the payments based on their cancellation policies. But many hosts had lenient policies in place before the pandemic, and therefore received little or no compensation from the company.

    That inspired many to take matters into their own hands.

    Gianrené Padilla started his short-term rental business in San Juan, Puerto Rico, in January, and he lists his properties on Airbnb, Booking.com and HomeAway. He always had plans to launch his own website, but after seeing Airbnb enact its extenuating circumstances policy in response to the coronavirus pandemic, he made it a priority.

    Padilla and his team used Squarespace and their property management software service Lavanda PMS to build out their website, which launched on April 23.

    “We felt like Airbnb is doing what any rational business owner would do, which is ensure the survival of their company,” Padilla said. “That’s totally respectable, but we should do the same for us.”



    Alexandra Greenawalt is among several Airbnb hosts who recently launched their own direct-booking websites as a way to diversify their business.
    Courtesy of Alexandra Greenawalt
    ----------------------------------

    In North Palm Beach, Florida, Alexandra Greenawalt found herself having to do a lot of her own marketing to keep her property booked after the coronavirus wiped out the vacation market. As she was already doing so much hustling to keep her property busy, Greenawalt decided this was the right time to contract a webmaster and build her own website, which launched on April 27.

    Greenawalt has been a long-time user of Airbnb, and she became an Airbnb host last year. But after hosting for a year, Greenawalt knew she wanted a way to book her frequent guests at lower rates and without giving Airbnb a cut each time. The company typically keeps between 14% and 20% of each booking, plus other fees.

    “I do think Airbnb has a place in my business to bring me clients, and I’m happy to pay them a percentage,” Greenawalt said. “But if people find me organically, I can make a little bit more money on my direct booking.”

    Additionally, Greenawalt’s website includes a video tour of her property, a feature that Airbnb does not have.

    “You can’t have video on there, which is frustrating because a lot of times people want to visualize what the space is like truly,” she said.



    Carlos Roman is among several Airbnb hosts who recently launched their own direct-booking websites as a way to diversify their business.
    Courtesy of Carlos Roman
    ------------------------------------

    Carlos Roman, a San Diego host with about 30 properties, decided to launch his own website last year after years of haggling with Airbnb over guest complaints that he says cost him thousands of dollars.

    Having that website protected Roman’s business after Airbnb enforced the extenuating circumstances policy. Although he lost numerous Airbnb-booked reservations, he was able to handle all of his guests who had booked directly through his website. With many of them, Roman was able to provide travel credits or rebook their trips for later dates at no cost. For any guests who demanded full refunds, Roman was able to refer them to their contract and keep the amount they had agreed to.

    “At least having the control, we were able to be more confident in our position,” Roman said. “The biggest benefit was just not losing out 100%.”



    Jim Borthwick is among several Airbnb hosts who recently launched their own direct-booking websites as a way to diversify their business.
    Courtesy of Jim Borthwick
    ---------------------------------

    Building alternatives

    While some hosts are building their own websites, other hosts are banding together to build alternatives to Airbnb.

    Jim Borthwick, a short-term rental host with properties in Indianapolis, Indiana, launched his booking website LetsConvention.com in late 2018. The website is geared toward connecting hosts with properties near convention centers with guests who travel frequently for business.

    LetsConvention.com charges guests a 10% service fee and charges hosts a nominal fee, Borthwick said. The website has 50 properties from about a dozen hosts in locations like Indianapolis and Columbus, Ohio. Borthwick said he is looking to add more hosts to the booking marketplace.

    “Our main mantra is to have this thing be a website that’s built by hosts for hosts,” Borthwick said.



    Na’ím Paymán is among several Airbnb hosts who recently launched their own direct-booking websites as a way to diversify their business.
    Courtesy of Na’ím Paymán
    --------------------------------------

    In March, short-term rental host Na’ím Paymán and his team launched Zeevou.direct, a booking website that aggregates properties and allows guests to book rentals without taking a commission from the traveler or the host.

    Paymán is a host himself with 250 properties spread across the United Kingdom. Hosts who use Zeevou.direct can list for free or they can also purchase Zeevou’s channel management software, which helps short-term rental hosts list their properties on multiple services, including Airbnb, Zeevou.direct or their own website. That software costs approximately $50 per month per unit, but the pricing varies depending on how many properties you list.

    “If you’ve been a host the last two months, you realize that you’re not in control of your own business,” Paymán said. “This is about giving control back to hosts. That doesn’t mean taking control from guests. It’s just about rebalancing the power dynamic.”

    These aggregate booking websites built by hosts pose a bigger threat to Airbnb than individual websites built by hosts, Harteveldt said.

    “If a bunch of hosts get together and put their inventory into their own website, one that acts more like a collective -- the more cities, more properties, more variety in price, the greater the appeal of that website,” Harteveldt said.

    Not all easy

    Hosts who choose to build their own websites gain more control over their business, but also a lot of new work, say hosts.

    They have to set up their own payment systems, draw up their own rental contracts, and maintain their website or find someone to do it for them.

    “It’s a snowball of work,” Roman said. “If it’s just one person running a business, starting a website will make it so that you’re no longer a one-person shop.”

    Having their own website also forces hosts to do their own marketing. This means hosts often end up buying ads on Google, Facebook, Instagram and Yelp; spending money on email marketing; or even printing business cards. With websites like Airbnb, being listed on the service is its own form of free marketing, hosts said.



    Polina Raygorodskaya is among several Airbnb hosts who recently launched their own direct-booking websites as a way to diversify their business.
    Courtesy of Polina Raygorodskaya
    --------------------------------

    Polina Raygorodskaya has direct-booking websites for her properties in North Conway, New Hampshire, and in St. John, U.S. Virgin Islands. As part of her marketing, she’s actively involved in Facebook groups that cater to people who are likely to travel to the regions her properties are in, including groups for nature-lovers and skiiers.

    “Sure, you spend your own time marketing, but you’re marketing for yourself,” Raygorodskaya said.

    Despite the drawbacks, hosts say having their own website is just another tactic to diversify their business and reduce their reliance on Airbnb and other booking sites.

    “Airbnb, and any other channel, doesn’t provide any sense of identity,” Padilla said. “You limit your uniqueness and your identity in exchange for extra exposure and free marketing. With our website, we sacrifice free exposure and free marketing for more freedom.”

    cnbc.com

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    From: Glenn Petersen5/7/2020 7:45:24 PM
       of 853
     
    The Results Are In for the Sharing Economy. They Are Ugly.

    Lyft, Uber and Airbnb depend on travel, vacations and gatherings. That’s a problem when much of the world is staying home.

    By Kate Conger and Erin Griffith
    New York Times
    May 7, 2020Updated 5:45 p.m. ET



    An Uber ride in Brooklyn last month. The ride-hailing company’s business collapsed in March as shelter-in-place orders spread through Europe and the United States.Credit...Andrew Seng for The New York Times

    --------------------

    OAKLAND, Calif. — The coronavirus pandemic has gutted the so-called sharing economy. Its most valuable companies, which started the year by promising that they would soon become profitable, now say consumer demand has all but vanished.

    It is not likely to return anytime soon.

    In earnings reports this week, Uber and Lyft disclosed the depth of the financial damage. The companies said their ride-hailing businesses all but collapsed in March, the last month of the first quarter, as shelter-in-place orders spread through Europe and the United States.

    The red ink extends beyond ride hailing. The home-sharing company Airbnb, which investors valued at $31 billion, had planned to go public this year. Instead, the company has slashed costs and raised emergency funding, and on Tuesday it laid off 1,900 employees, about 25 percent of its staff. It also reduced its revenue forecast for this year to half of what it brought in last year.

    “While we know Airbnb’s business will fully recover, the changes it will undergo are not temporary or short-lived,” Brian Chesky, Airbnb’s chief executive, wrote in a memo to employees.\

    The companies, founded on the notion that they should become as big as possible as quickly as possible and worry about making a profit somewhere down the line, now face an uncertain future. And their timelines for turning a profit appear — for now — to have been tossed aside.

    Even when people return to the office and start traveling, the pandemic could change how they behave for years to come. Thirty percent of gig-economy revenue could disappear over the next one to two years, with a portion of it unlikely to return, said Daniel Ives, managing director of equity research at Wedbush Securities.

    “Based on our analysis of the gig economy and the overall pie of consumers, unfortunately, there’s a slice that — until there’s a vaccine — will not get in a ride-sharing vehicle or use an Airbnb,” Mr. Ives said.

    On Tuesday, there was another threat to Uber and Lyft: California’s attorney general sued the companies, claiming that they misclassified their drivers as independent contractors. If the lawsuit is successful, the companies could have to pay hundreds of millions of dollars in civil penalties and back wages for drivers.

    Airbnb faces a different challenge. How will hosts — most of them offering rentals as a side business — deal with virus safety? In an effort to bolster confidence in its listings, the company announced a set of new cleaning standards for its rentals in April. Guests can also opt for a 72- or 24-hour vacancy period before they enter.

    There is not much to look forward to in the current quarter for the companies, according to financial analysts. Mr. Ives said he expected Uber’s revenue to contract 69 percent and Lyft’s 66 percent during the period, which covers April through June.

    Lyft said rides on its service fell nearly 80 percent in late March and remained down 75 percent in mid-April. In May, passengers began to return cautiously to Lyft, but rides were still down 70 percent, Lyft executives said on a Wednesday earnings call with financial analysts.

    If passengers continued to stay away from the service at similar rates, Lyft predicted it would lose nearly $360 million on an adjusted basis, which excludes stock-based compensation and other expenses, during the current quarter. Its adjusted loss in the first quarter was $97.4 million.

    “These are the hard truths we’re facing,” Logan Green, Lyft’s chief executive, said on Wednesday. In late April, Lyft laid off 17 percent of its employees. Executives took a 30 percent pay cut and employee pay was trimmed 10 percent.

    On Thursday, Uber said revenue in the first quarter grew 14 percent from the same quarter last year, but the company’s losses ballooned 190 percent to $2.9 billion. That deficit was largely driven by a $2.1 billion loss caused by its investments in international ride-hailing businesses, like Grab and Didi, that are also experiencing low demand because of the virus.

    “I won’t sugarcoat it. Covid-19 has had a dramatic impact on rides,” Dara Khosrowshahi, Uber’s chief executive, said on Thursday in a call with investors. Use of Uber’s ride service was down 80 percent in April, he said. But Uber saw a bright spot in its food delivery, which grew 89 percent since the previous year, excluding India.

    Although Uber has not yet given a new date by which it expects to become profitable, Mr. Khosrowshahi said the pandemic “will impact our timeline by quarters, not years.” Before the outbreak, Uber said it would be profitable, excluding some costs, by the end of this year.

    Uber laid off 14 percent of its employees on Wednesday as it cut 3,700 people from its recruiting and customer service organizations.

    Mr. Khosrowshahi will not take a salary for the rest of the year. He said in an email to remaining employees, seen by The New York Times, that the company continued to look for ways to cut costs and may eliminate more jobs over the next two weeks.



    An Uber Eats deliverer cycled through the Kabukicho area of Tokyo last month.Credit...Tomohiro Ohsumi/Getty Images

    -------------------------

    While Uber Eats, the food delivery service, has experienced increased demand and restaurant sign-ups in some markets, the company also shut down Uber Eats in several international markets where it had been burning cash and laid off 50 employees from that division.

    Its bike and scooter business is another weak point, and Uber invested $85 million in a competing service, Lime, that would allow it to offload its bikes and scooters while still offering Lime’s fleet in its app.

    About 500 employees who work on Uber’s bike and scooter offerings could lose their jobs.

    “Lime has indicated that they plan to offer interview opportunities to a few members of our team, while others will receive severance packages,” Dennis Cinelli, the head of Uber’s micromobility team, said in an email to employees that was seen by The Times.

    Financial analysts expect the companies to begin to recover as consumers return to work. They are still sitting on a lot of money. Uber has $9 billion, and Lyft has more than $2 billion. Before the virus, Airbnb had $3 billion in cash on its balance sheet; since then, it has raised $1 billion in funding and secured a $1 billion term loan.

    Despite the downturn in business, Lyft’s stock was up more than 20 percent on Thursday as it exceeded investors’ expectations for revenue in the first quarter and reassured them with its layoffs last month that it would cut costs. Uber’s stock was up more than 8 percent in after-hours trading on Thursday.

    But investors still question the companies’ claims that they will become profitable as they tap the $1.2 trillion that Americans spend each year on transportation costs like car ownership and maintenance.

    Although Uber and Lyft said they provided a preferable transportation option over public transit, some analysts worried that consumers would choose to drive themselves rather than share a car with a ride-hail driver and risk spreading the virus.

    “All investors are trying to figure out industries that the pandemic will permanently transform for the better or permanently transform for the worse,” said Tom White, a senior research analyst with the financial firm D.A. Davidson.

    Kate Conger reported from Oakland, and Erin Griffith from San Francisco.

    nytimes.com

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    To: Glenn Petersen who wrote (785)5/8/2020 2:41:19 PM
    From: Glenn Petersen
       of 853
     
    The suggestion comes as Uber and other gig economy businesses face mounting pressure to provide health-care and other protections for their workers, including in the form of a lawsuit from the California Attorney General and three city attorneys in the state.

    Uber CEO says drivers should get health-care benefits based on how much they work, and Uber would pay for it

    Published Fri, May 8 20209:18 AM EDTUpdated 3 hours ago
    L auren Feiner @lauren_feiner
    CNBC.com

    Key Points

    -- Uber CEO Dara Khosrowshahi said drivers should earn health-care benefits commensurate with the hours they work.

    -- He said Uber is prepared to create a system to pay for those benefits, too.

    -- The suggestion comes as Uber and other gig economy businesses face mounting pressure to provide health-care and other protections for their workers, including in the form of a lawsuit from the California Attorney General and three city attorneys in the state.

    After years of debate over classifying gig workers as contractors rather than employees, Uber CEO Dara Khosrowshahi outlined his vision for a new way to provide health-care benefits for contract workers logging full-time hours.

    Drivers should earn health-care benefits commensurate with the hours they work, he said Friday in an interview on CNBC’s “Squawk Box.” Uber is prepared to create a system to pay for those benefits, too, he said.

    The suggestion comes as Uber and other gig economy businesses face mounting pressure to provide health-care and other protections for their workers, including in the form of a lawsuit from the California Attorney General. The coronavirus pandemic has magnified the burden and risk gig workers take on by interacting with customers without the financial protections that come with the status of a full employee.

    Khosrowshahi said the new model would allow Uber to be an “entry point” into earnings for workers where they could choose to secure health-care benefits by working more hours or forgo some of those benefits by working fewer hours. But rather than have a cut-off at 20 hours, for example, Uber would pay for benefits on a sliding scale of hours worked.

    “I think this system of if you don’t work 40 hours, you’re not full-time, if you work 40 hours, you’re full-time, and then there’s this hard break between the two, that’s the old world,” Khosrowshahi said. “If you’re putting in the hours, you should get minimum earnings based on the hours that you’re working and you should get health-care based on the hours that you’re working. And if you have haves and have-nots based on a particular number of hours worked, that doesn’t make sense... in a technical, forward world.”

    Khosrowshahi said Uber would put money into a fund based on the hours workers put in. That fund would pay into workers’ health-care benefits and minimum earnings. He said Uber is aiming for “generally comparable” health-care to what workers would receive as full-time employees.

    “What we’re looking for essentially is that flexible on-ramp or off ramp,” he said. “You want to work, you get the benefits, you don’t want to work, you don’t.”

    Uber is now facing a lawsuit from the California Attorney General and three city attorneys in the state. Lyft is also a defendant in the case that alleges the companies denied workers key privileges by misclassifying them as contractors rather than employees. The lawsuit was filed under California’s new law, Assembly Bill 5 (AB5) that aimed to provide stronger protections for workers, especially in the gig economy.

    But Uber has consistently fought back against the bill and has argued for a new way of thinking about worker classification altogether. In a letter to President Donald Trump in March, Khosrowshahi advocated for a “third way” of classifying workers other than contractors or employees, in order to maintain the flexibility he said gig workers enjoy while providing them with additional benefits.

    The letter also asked for gig workers to gain access to unemployment benefits allocated in response to the coronavirus pandemic. While those funds were ultimately included in the bill, some gig workers have still had trouble accessing those benefits or proving eligibility.

    Uber has had to push its goal of reaching EBITDA profitability by the end of the year due to the pandemic’s toll on ridership. The company reported a net loss in the first quarter of 2020 of $2.9 billion after seeing gross bookings on its core business segment, Rides, fall 5% year-over-year. But Uber’s stock shot up as much as 10% after hours Thursday as Khosrowshahi told analysts on the company’s earnings call that Uber has begun to see some signs of recovery. Ride volume has been up each of the last three weeks and its food delivery service has been booming, he said.

    cnbc.com

    Share RecommendKeepReplyMark as Last Read


    From: Glenn Petersen5/31/2020 10:35:41 AM
    1 Recommendation   of 853
     
    During the Pandemic, Grubhub Should Be Thriving. It’s Not

    The crisis is a stark reminder that food delivery tech companies may have an unworkable business model

    By Adrianne Jeffries
    The Markup
    May 27, 2020 10:00 ET
    Updated May 27, 2020 12:32 ET


    Noam Galai / Getty Images
    -----------------------------------

    At first, the COVID-19 pandemic seemed like a perfect fit for food delivery apps. Restaurants in states with lockdown orders now depend completely on delivery and takeout, while public health authorities are telling consumers to stay indoors. The big four consumer-facing delivery apps—Grubhub, Uber Eats, Postmates, and DoorDash—offer a convenient solution for both parties, accelerating the move to the tech-centric, gig-economy-powered Delivery World of tomorrow.

    It hasn’t quite worked out that way.

    Instead, some consumers are walking away from delivery apps, restaurants are struggling to make delivery sustainable, and there’s potentially a bigger problem even a captive consumer base hasn’t solved.

    “Their current models don’t really work,” said Dan Fleischmann, a vice president at Kitchen Fund, a venture capital firm that invests in food startups. “It just doesn’t really work for anyone. It doesn’t work for the restaurant. It doesn’t work for the third-party delivery provider.”

    Even Before the Pandemic, Things Weren’t Looking Great

    In August 2019, analysts from the investment firm Cowen estimated that Uber Eats was losing $3.36 on every order and would continue to lose money on every order for the next five years. Uber CEO Dara Khosrowshahi acknowledged that Uber Eats is not yet profitable in an email to employees in March after its parent company laid off more than 3,700 employees. “While Eats growth is accelerating, the business today doesn’t come close to covering our expenses,” he wrote. When asked about the profitability of Uber Eats, Uber spokesperson Sarah Abboud referred The Markup to the company’s 2020 first quarter earnings report.

    In early March, DoorDash filed to go public despite losing an estimated $450 million in 2019, according to The New York Times. DoorDash declined to comment on that estimate or its path to profitability, but regarding the latter CEO Tony Xu told Fortune in February that “we’re working our way there.”

    Postmates, the smallest of the four companies by market share, was privately valued at up to $2.4 billion in 2019 but delayed its IPO filing after investors started drawing comparisons to grossly overvalued WeWork. Postmates did not respond to a request for comment. Meanwhile, other companies have been ditching the food delivery business: Yelp sold Eat24 to Grubhub, Square sold Caviar to DoorDash, and Amazon shut down its Amazon Restaurants delivery service.

    Grubhub letter to shareholders Grubhub, which also owns Seamless, is publicly traded and the only one of the big four that has achieved profitability. Still, it lost more than a third of its value after revenue fell below investors’ expectations in the third quarter of 2019. In a letter to shareholders, the company revealed two things: Customers were “promiscuous,” or not loyal to the Grubhub platform, and the delivery part of the business was fundamentally not profitable. Instead, delivery was just a “means to an end”—getting restaurants to sign up on the Grubhub platform and then upselling them on “marketing” benefits, like greater visibility in Grubhub’s search results. In other words, like many tech companies, GrubHub is primarily an advertising company.

    “Bottom line is that you need to pay someone enough money to drive to the restaurant, pick up food and drive it to a diner. . . ,” the company wrote. “At some point, delivery drones and robots may reduce the cost of fulfillment, but it will be a long time before the capital costs and ongoing operating expenses are less than the cost of paying someone for 30-45 minutes of their time.”

    And while Grubhub’s “active diners” increased by 24 percent during the first quarter of 2020, the company still reported a $33 million loss.

    When asked about profitability, Grubhub spokesperson John Collins pointed to its first quarter 2020 earnings call, during which CEO Matt Maloney said that the pandemic has been a “net tailwind” but that the company is not focused on profitability during the pandemic. “The company has made a decision to reinvest as much as possible into supporting restaurant owners right now. We only do well when they do well. Supporting them is our priority right now,” Collins said in an email.

    Now Small Restaurants Are Hurting—and That’s Where Apps Get Their Dollars

    The big issue with the business model, which the pandemic has only exacerbated, is how apps generate the bulk of their revenue: charging high fees to small restaurants.

    The big four depend on charging between 10 and 30 percent to independent restaurants and small chains, said Matt Newberg, a food industry consultant and founder of the trade publication Hngry.tv. Big chains get a better deal because their name recognition brings new customers to the platforms, he said. It may also be that the big chains successfully engaged in “arm-twisting” to lower fees, as The Wall Street Journal reported.

    Grubhub has acknowledged that it makes more money from independent restaurants and small chains. A February 2020 shareholder letter explained that a typical order from an independent restaurant that uses Grubhub for marketing and delivery generates $4 of profit for Grubhub, while an order from a national chain generates $0.

    The independent restaurant “values our demand generation capabilities and utilizes our delivery services; we have a higher take-rate and collect the diner delivery fee,” Grubhub wrote, while the profit from the national brand “is significantly lower because the commission rate is lower AND the order size is smaller.”

    For the independents, though, the delivery fees were too high “even in a strong market,” said Andrew Rigie, the executive director of the New York Hospitality Alliance. In a pandemic, they could put restaurants out of business—which would in turn put delivery apps out of business.

    The lockdown is certainly devastating for restaurants. Sales were down 50 percent from just two months before, according to an April survey by the National Restaurant Association, and 3 percent of restaurants have permanently closed due to the pandemic.

    Delivery apps do seem to be helping keep some restaurants from shuttering in the short term, but the future is murky.

    Evan Franca, owner of Brooklyn Crepe & Juice, testified at a remote New York City Council hearing in April that 20 percent of his business now comes in through his pickup window, and the other 80 percent comes from online orders. He estimates he loses money on online orders but has chosen to keep accepting them in order to keep his staff and stay connected to customers.

    “Right now I’m just trying to keep my staff employed and keep the lights on until the situation improves,” he said.

    The tech companies seem to recognize that their revenue base is vulnerable to collapse. Uber Eats waived signup fees to some restaurants and waived delivery fees to customers at 100,000 restaurants indefinitely. Postmates waived fees for businesses in the Bay Area, L.A., Sacramento, and Detroit, and DoorDash cut fees in half for more than 150,000 restaurants through the end of May. DoorDash told The Markup it will not be collecting waived fees, and Uber Eats said the signup fee waivers are still in place for now.

    Grubhub is deferring fees for some independent restaurants but not waiving them. “We have not collected any fees as of today and the timeline/process remains flexible,” Collins said.

    “In a normal situation, this was barely profitable for the restaurant. In a situation where we’re 100 percent off-premises, it just flat out doesn’t make sense,” Newberg said. “The reason people are going to continue to do it now is you look at your numbers, all the commissions are zero. But it’s unclear if you’re going to have these guys come after you in the future and try to collect on the fees that they would be getting right now.”

    The Public Is Getting Savvy About the Skewed Economics

    Cities including Seattle, San Francisco, New York, Jersey City, and Washington, D.C., have temporarily capped the fees delivery app companies can charge restaurants. Customers are learning that those fees mean that ordering directly is the best way to support their favorite restaurants.

    Andrew Martino is the owner of Ghost Truck Kitchen in Jersey City, which offers different cuisines out of the same kitchen for pickup, delivery, and catering. He had already been lobbying his customers to order directly from his restaurant instead of by delivery apps, but he’s found the message is suddenly connecting.

    “The data shows that there’s been an uptick with people ordering directly through our website as opposed to the third-party carriers,” he said. “And then furthermore, we have far more customer advocates explaining what’s happening out there.”

    Apps Are Trying to Save Themselves

    The bad numbers are likely the reason Uber is now in talks to buy Grubhub, in the hope that more market power will translate to more profits. The scale created by the merger could potentially add up to a viable business, Kitchen Fund’s Fleischmann said, but it still might not survive outside the top five markets for delivery—New York City, San Francisco, Miami, Boston, and L.A.—especially in a post-pandemic recession.

    Meanwhile, the delivery apps have been trying to market themselves as an aid to struggling restaurants. “I still get barrage after barrage of emails, you know, telling me about how great this promotion is they’re running,” says Andrew Martino, owner of Ghost Truck Kitchen. “But you know, all the fine print isn’t beneficial to restaurants. It’s all beneficial to the apps.”

    The truth is, the apps will probably continue to struggle themselves. “They’re hurting,” Fleischmann said. “They were already losing money on every order. I really don’t know what the answer is there.” With no quick end to the pandemic in sight and a likely struggling economy to follow, there may not be one.

    themarkup.org

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