Would Regulators Allow An Uber / Doordash Merger?

Last week, the Financial Times reported that Uber and Doordash held talks to discuss a possible merger, at the urging of their common investor SoftBank. Its money has been fueling both sides in a multi-billion dollar war to dominate the rapidly-growing food delivery market. It’s an existential issue for both companies: food delivery is DoorDash’s only business, and UberEats is Uber’s most promising source of future growth as its stock takes a beating in the public markets.

Overall, this has been a great deal for consumers, who have enjoyed subsidized meal-delivery courtesy of Vision Fund’s backers, most notably the government of Saudi Arabia. These backers, however, are in a less enviable position. Funding two leading players (combined marketshare: 58%) in an expensive, zero-sum game means that most of the money invested in one side goes to counteracting the subsidies fueled by the money invested in the other side.

Funnily enough, the exact same scenario is currently playing out in the Latin American food delivery market. Uber, Didi Chuxing (Chinese Uber), and Rappi (Latin American DoorDash), are all trying to outcompete each other with subsidies courtesy of SoftBank, who has invested a total of $20 billion into all three. The Wall Street Journal described this arrangement as “a circular firing squad”.

On a fundamental level, Uber and DoorDash share the same strategy that has defined 2010s VC-backed companies, “blitzscaling”. The strategy now has its own book, but it boils down to a simple, 3-step process: (1) quickly raise massive amounts of capital, (2) spend it to cement your place as the dominant player in the industry, and (3) eventually enjoy monopoly profits. Suffice it to say, no food delivery company has yet to enter step 3. In the absence of a unique strategy to out-compete your opponent, declaring a peace treaty via a merger or acquisition looks very attractive.

Interestingly enough, declaring ceasefires via mergers and acquisitions has worked out pretty well for Uber in international markets. Although Travis Kalanick was originally obsessed with being the first American tech CEO to conquer the Chinese market, he ultimately sold Uber’s Chinese subsidiary to its primary rival Didi Chuxing, after a protracted money-losing war (sound familiar?). His successor Dara Khosrowshahi repeated this strategy in Russia, Southeast Asia, and India, effectively turning Uber into partly a holding company of international ridesharing firms, each of which has a local quasi-monopoly that can (in theory) make a profit.

This style of merger has yet to be tried in the United States, where concerns over tech monopolies have reentered the political sphere. Even figures inside the tech industry are growing skeptical: Stratechery’s Ben Thompson called Facebook’s acquisition of Instagram the biggest regulatory failure of the 2010s. Just yesterday, the FTC unveiled plans to block the planned sale of razor startup Harry’s to industry leader Edgewell (parent company of Schtick) over concerns that the acquisition would limit competition in the razor industry.

To me, a merger between Uber and DoorDash seems less likely to be blocked due to market definitions. Harry’s razors competition is only really other razor companies (or growing a beard). DoorDash, on the other hand, competes with essentially every other way of eating, from Blue Apron to Soylent to the local grocery store. This is the same strategy that allowed for the FCC to approve the 2008 merger between Sirius and XM, the only two providers of satellite radio in the United States. Their competition wasn’t just each other, but FM radio, MP3 players, and the then-new iPhone. It seems reasonable that Uber and DoorDash could make the same argument.

The influence of SoftBank does give some credibility to people worried about index funds, who contend that the concentrated ownership of competitors in an industry will lead to anticompetitive behavior, such as price fixing and ending unprofitable subsidy wars. Given the difficulties of purchasing stakes in private tech companies, the $100 billion SoftBank vision fund is probably the best approximation of an index fund of large startups. It’s worth noting, however, that if Softbank’s master plan is to discourage competition, they’ve done a phenomenally bad job of it, given the ongoing war in Latin America and the failure of Uber and DoorDash to negotiate a merger.

Maybe food delivery robots will eventually work well enough to provide a profitable method of food delivery. Until then, we’ll still have to rely on having our Big Mac deliveries subsidized by a Saudi Prince.

Interesting Links of the Week

  • The Future of Transportation is … the Car. Medium post by a self-driving car company CEO extolling the benefits of private car ownership, a different take than the usual “the future of transportation is shared scooters / self driving taxis / etc.”

  • Slides from Benedict Evans’ Annual Presentation: Concise overview of the entire tech industry. It includes tons of interesting charts focusing on areas of growth for tech companies now that most people in the world have smartphones, and the regulation of tech.

  • New Satellite Startup Skylo Comes Out of Stealth: Yet Another Internet Satellite Startup, but this one has a big war chest ($116 million) courtesy of SoftBank, and an interesting approach that involves deploying its network across existing geostationary satellites, instead of launching constellations of SmallSats. Its pricing claims are impressive: pay only $100 for a “Skylo Terminal” (8”x8” box) and $1/month for its cheapest data plan.

As always, feel free to contact me via email (lmetro316@gmail.com) or Twitter DM (@luke_metro).