Postmates is an online courier service platform that connects businesses with customers nearby. The majority of its sales stem from food delivery, but the company also partners with businesses in the supermarket, retail, or alcohol space.
Postmates makes money by charging various fees (delivery and service fees, for instance) as well as via its premium subscription (called Unlimited).
Founded in 2011 and based in San Francisco, Postmates has become one of America’s most popular delivery services. The company has raised over $903 in funding and recently sold to Uber for $2.65 billion.
What Is Postmates & How Does It Work?
Postmates is an online courier service platform that connects customers with restaurants and shops nearby. Users can order through the company’s website or by using their Android and iOS app, respectively.
Apart from food and beverages, users can also order groceries and other items, including small electronic gadgets or clothing.
Postmates operates under the platform to consumer model and as such does not prepare any of the meals themselves. Instead, the company partners with independent contractors that deliver orders on their behalf. Alternatively, users can pick up orders themselves to save on delivery costs.
Furthermore, Postmates takes care of payment processing as well as the sorting of products and restaurants on its platform.
Postmates offers a monthly subscription service called Unlimited for its most loyal user base. This allows them to save on delivery and other associated costs.
In times of high demand, Postmates applies surge pricing techniques (called Postmates Blitz Pricing). The aim behind it is to entice more drivers to deliver during busy periods, promising higher delivery fees.
As of today, Postmates works together with over 75,000 partners, such as restaurants, grocery stores, and traditional retailers. The platform is available in 4,200 cities, which allows them to serve over 80 percent of all U.S. households.
A Short History Of Postmates
Postmates, headquartered in San Francisco, was founded in 2011 by Bastian Lehman (CEO), Sam Street, and Sean Plaice.
Lehman, a German-native, started his career in the late 1990s as a network consultant after dropping out of college. He soon realized that the employee lifestyle wasn’t his and experimented with a few different business ideas.
Unfortunately, none of them took off, so he went back to employment. He led various tech companies as a country manager for the German and European markets, respectively.
But the itching of entrepreneurship soon came back at full force, which led him to found Curated.by in March 2009. Curated.by was a real-time tweet curation platform, which allowed creators to collect and display tweets on various platforms.
One year later, in September 2010, the team successfully graduated from the AngelPal accelerator, which allowed them to build their company out of Silicon Valley.
While the team was able to garner some early interest, Curated.by never really took off. The problem was that VC’s simply did not find the tool and the underlying market interesting enough to invest money.
As a consequence, the team pivoted away from Curated.by and decided to take advantage of the ever-increasing smartphone market. The rough idea for Postmates came to Lehman already in 2005 when he moved from Munich to London
The original premise for Postmates was to create a local courier service that would allow people with additional car space to make deliveries. A few weeks after mapping out the first components of the business, Postmates was able to raise a seed round of $875,000.
In September 2011, Postmates made themselves known to the public by participating in TechCrunch’s Disrupt event. The company simultaneously launched its beta version in San Francisco. Within three months, the startup was able to make over 1,000 deliveries.
Then, in December 2011, Postmates finally launched to the general public. Postmates became an immediate hit, especially with the wealthier tech-scene that had started to populate San Francisco inner city.
While Postmates initially launched with the goal to deliver anything from washing machines to t-shirts, it soon realized that the majority of its orders were for food. By 2015, Postmates had delivered over 2 million orders and was active in close to 30 markets.
The company employed a few growth hacks that helped it grow at rapid speeds. First and foremost, it understood the intricacies of being an online marketplace. Whenever Postmates launched in a new city, it did so with an extensive supply of couriers and restaurants (and other stores). This allowed them to almost always fulfill orders while offering consumers a rich selection of choices.
Second, it used its technological prowess not only to match couriers with local businesses, but to enable other companies to offer deliveries for their customers (through Postmates’ API). Etsy and Starbucks, for instance, were using that API to offer instant delivery within their apps. Postmates couriers would then execute the shipment on their behalf.
Third, the company was extremely good at closing exclusive deals with national merchants. In 2015, Apple announced that Postmates would executive same-day deliveries of selected goods (such as the iPhone) for a flat fee of $19.
These diverse partnerships helped Postmates to bypass some of the problems other food delivery companies, such as Grubhub or DoorDash, face. Normally, most customers order during peak times (i.e. lunch and dinner) while other time slots remain unused.
This makes planning for demand a lot harder, which often cuts into a company’s profits. Postmates, on the other hand, can oftentimes fill out different time slots (as it not only focuses on food) and therefore have drivers deliver throughout the day.
Lastly, Postmates’ service became extremely popular among celebrities. As a result, they were often seen tweeting about the startup, which in turn resulted in positive word-of-mouth. Postmates was able to amass a market share of 40 percent in one of America’s biggest delivery markets, Los Angeles, as a direct result of these positive feedback loops.
Unfortunately, not everything was going according to plan. Early on, CEO Lehman got under fire for telling a customer that contacted support to ‘fuck off’.
Years later, a plethora of customers shared their dissatisfaction over huge price discrepancies. Merchants on Postmates, such as pharmacies or supermarkets, may change their prices throughout the day without updating them on the platform. This led, in some instances, to spikes of over 50 percent, which understandably left customers angry and frustrated.
And just like any other modern-day delivery startup, most notably Uber, Instacart, and DoorDash, Postmates has faced legal repercussions from its fleet of drivers. They’ve repeatedly accused the company of misclassifying them as contract workers while demanding more rights, such as health insurance.
While the company continued adding more and more markets to its portfolio, it also had to learn some harsh profitability lessons. Just two years after launching its first international market in Mexico City, it had to shut down and lay-off all employees in 2019.
By 2018, rumors of an IPO started swirling around Postmates’ circles. The company even filed an S-1 in late 2019, but never proceeded with becoming a publicly traded entity. Lehman cited unfavorable market conditions as the reason.
It therefore came as somewhat of a surprise when, in July 2020, Uber announced it would acquire Postmates for $2.65 billion in an all-stock deal. Just weeks prior, analysts reported that Uber would consider acquiring rival DoorDash, but regulatory concerns eventually hindered a deal.
The combined entities (that are UberEATS and Postmates) would command over 50 percent of the U.S. food delivery market. The deal is currently awaiting legal approval. DoorDash is a close second with a market share of about 40 percent.
How Does Postmates Make Money?
Postmates makes money by collecting various fees (such as delivery or service fees) as well as from its premium subscription called Unlimited.
Let’s dive deeper into each of these income streams below.
The bulk of Postmates’ revenue stems from the fees it collects for every order facilitated through its platform.
First and foremost, the company collects a percentage of the product’s sale price. The percentage is dependent upon the types of goods sold and the agreement made with the partner.
For instance, a restaurant has to pay a 20 percent commission on the food that it sells. Meanwhile, a supermarket (such as Walmart) would pay somewhere in the low single digits due to the slim margins in the grocery industry.
Second, Postmates makes money via delivery fees that have to be paid to ship the item. Postmates’ delivery fee is $0.99–$3.99 for Partner Merchants and $5.99–$9.99 for all other merchants. The delivery revenue is then shared with the driver, who gets paid based on a variety of metrics such as delivery speed, pickup time, ratings, and so forth.
Third, Postmates applies a so-called service fee. The service fee, which is percentage-based, shall compensate the company and its drivers for additional tasks conducted during the delivery, such as picking up groceries from supermarket shelves.
Fourth, Postmates collects a small cart fee, which applies when an order does not hit the minimum threshold (which varies by location). The small cart fee is $1.99 per order.
Lastly, customers who terminate their orders have to pay a cancellation fee. The fee varies depending on how far the order is along, the merchant, order volume, and more.
When Postmates applies its Blitz Pricing feature, its income from the above fees may therefore be elevated.
Unlimited is a premium subscription that allows customers to save money on deliveries. In exchange for paying $9.99 per month (or $99.99 annually), customers will receive the following benefits:
- Free delivery on every order above $12
- Exclusive access to Postmates events and giveaways
- No blitz pricing at peak hours
- Special offers just for members
Postmates claims that Unlimited subscribers save an average of $185 per year. Just two monthly orders would already cover the cost of membership.
Subscribers will gain access to over 600,000 restaurants and businesses that deliver on Postmates. Just like any other modern-day subscription, Unlimited can be canceled whenever needed.
Postmates Funding, Valuation & Revenue
According to Crunchbase, Postmates has raised a total of $903 million across 12 rounds of venture capital funding. Notable investors into the company include Tiger Global Management, BlackRock, GPI Capital, Manhattan Venture Partners, and many more.
Postmates is currently valued at $2.65 billion – at least according to Uber, which announced it would acquire 100 percent of the company in July 2020. The deal is paid out in stock. This represents a 10 percent increase from Postmates last publicly announced valuation (announced in September 2019) when it was valued at $2.4 billion.
In September 2020, Uber filed a Form S-4 with the U.S. Securities and Exchange Commission in regards to its Postmates acquisition. In the document, it was projected that Postmates’ annual revenue would grow to $997 million in 2021 and would hit $1.5 billion by 2023.