a16z Podcast | People Marketplaces Take On One of the Last Great E-Commerce Opportunities: Groceries

• Definition of "People Marketplaces": A16Z General Partner Jeff Jordan defines these as platforms built around independent contractors where mobile technology enables a distributed workforce to perform services that were previously difficult to coordinate logistically or geographically.
• Core Enabling Technologies: The shift to these marketplaces in the last five years is driven by smartphone ubiquity, specifically the combination of mobile processing power, GPS capabilities, and algorithmic optimization that allows for efficient real-time logistics.
• Existing Market Examples: Current operational examples include Lyft (transportation), Homejoy (home cleaning), and Instacart (grocery delivery), all of which rent out labor and assets owned by independent contractors.

Restaurant and Food Delivery Logistics

• Key Players: DoorDash and Caviar are identified as the two fastest-growing restaurant delivery services.
• Operational Model: These platforms function as logistical networks similar to FedEx but without fixed fleet assets, utilizing:
  • Mobile tablets for restaurants to receive orders.
  • GPS tracking and algorithms to match optimal drivers to orders based on proximity and timing.
  • "Capacity utilization" as the primary metric for profitability, aiming to maximize the number of deliveries completed per hour.
• Technology Strategy: The model relies on a "bring your own device" approach, leveraging smartphones and cars owned by drivers rather than requiring the company to purchase this infrastructure.

Instacart and the Grocery Vertical

• Market Context: Grocery retail remains the single largest retail category in the U.S. (per Department of Commerce data) and has historically been resistant to digital disruption.
• Historical Failure (Webvan): Previous attempts like Webvan failed due to extreme capital intensity, requiring the construction of parallel supply chains with dedicated warehouses, materials handling technology, and inventory, resulting in the loss of $1.2 billion in investor capital.
• Instacart's "Virtual" Approach:
  • Asset Light: Instacart avoids building warehouses or buying inventory; instead, it utilizes existing brick-and-mortar supermarket inventory and locations as distributed fulfillment centers.
  • Capital Allocation: The company's primary capital expenditures (CapEx) are limited to server infrastructure rather than physical real estate or logistics fleets.
  • Labor Model: Leverages an "underemployed" mobile workforce to shop for and deliver goods from stores.
• Strategic Advantages Over Competitors:
  • Speed: Instacart offers delivery within an hour, whereas Amazon Fresh often requires scheduling a day in advance or offers broad delivery windows.
  • Merchant Choice: Allows consumers to shop at specific preferred retailers (e.g., Whole Foods, Berkeley Bowl, Rainbow Co-op) rather than being restricted to Amazon's generic brand inventory.
  • Consumer Behavior: Less than 1% of the U.S. grocery market currently utilizes online delivery, representing significant growth potential as internet penetration and online ordering expectations rise.

Strategic Implications and Future Outlook

• Grocer Adoption: Physical supermarket chains partner with Instacart because they lack the internal technology capabilities to build such sophisticated logistics systems and seek incremental orders to gain market share against competitors.
• Vertical vs. Horizontal: Early "horizontal" people marketplaces (e.g., TaskRabbit, Zarlly) struggled with a paradox of choice and lack of optimization; successful current models focus on optimizing specific verticals like groceries or cleaning.
• Future Expansion: While currently focused on groceries, the model is viewed as extendable to other verticals given the sector's size and lack of digital disruption.
• Comparison to Amazon Fresh: A16Z characterizes Amazon's approach as capital-intensive and slower to roll out due to the need for physical infrastructure, whereas the Instacart model is capital-efficient and capable of rapid, hyper-local deployment.