Is America ready for Lalamove?
The delivery decacorn and pride of Hong Kong startups raises $1.5 billion and quietly moves into the US. Can they compete?
Let’s face it: in recent years, a good chunk of technological innovation has been about getting other people to do things for us while we sit at home on the couch. DoorDash makes food appear on our front porch, Amazon handles the toilet paper, and Zoom engineers make sure we never have to see our co-workers in person again.
For those as excited about this trend as I am, I have more good news for you: Lalamove is here.
The startup, which Americans have almost certainly never heard of, is the Uber of local couriers. The platform connects freelance drivers to individuals and small businesses that need to send or pick up something without getting into a car and driving there themselves. If you’ve ever driven to a friend’s house to pick up a piece of furniture or drop off some baked goods, or taken the metro to pick up the credit card you left at the bar the previous night, then you know the feeling of: Why can’t someone else do this for me while I sit on the couch?
If you’re in Dallas, Houston, or Chicago, there’s now a better way. You can just “Lalamove it” for about $10 and save yourself an hour (plus another 30 minutes making yourself look presentable), some expense, and some human interaction. The service, already ubiquitous in Asia, just raised a $1.5 billion Series F led by Hillhouse Capital and Sequoia Capital China and has its sights on the US, where so far no one has claimed a dominant position in the market.
Of course, the main use case for Lalamove is small businesses like florists and caterers, who no longer have to maintain an expensive fleet of vans and drivers for delivery demand which could fluctuate greatly, leading to wasted resources during dead hours and angry customers during peak hours. Local e-commerce and restaurant deliveries are also in the cards.
It’s not exactly a new idea, so why does this opportunity even exist in the US market, and can Lalamove strike gold where local players haven’t?
How do individuals and businesses with no delivery fleet move things on-demand now? I explored some different options for a delivery in Chicago from The Loop to Lincoln Park (5 miles). On Lalamove, it was $11.29 for on-demand delivery directly to Lincoln Park (a 15 minute delivery plus waiting for the car). Here are the other players and how they did:
1. Traditional national couriers. The old guard has adapted somewhat in recent years with varying success. FedEx SameDay City will deliver your package 5 miles within 2 hours of picking it up for $20 (add $40 if it’s a weekend or night). UPS Express Critical will set you back $178 (not a typo), picking up your package in an hour and getting it delivered within two. Both are somewhat of a nightmare to sign up for. With their fixed and limited number of vans on the road, service levels will be tough to maintain. It’s clear their focus is on their core business.
2. Local couriers. Every city has their own local couriers. Getting a quote and scheduling a delivery requires either calling someone or filling out a form and waiting for someone to contact you. It’s generally a smaller scale, unsophisticated operation from the last century, will cost you at least $30, and will take a lot longer than two hours. These companies should be most afraid of Lalamove and could be put out of business very quickly as they struggle to meet fluctuating demand and lack the scale to compete with Lalamove’s use of technology in both their slick user experience and operations.
3. TaskRabbit. You can find delivery “Taskers” in this all-in-one freelance marketplace, but it’s a bit cumbersome as you have to select a Tasker and communicate with them about what exactly you’re looking for. Most delivery Taskers don’t exclusively do deliveries, so you’ll deal with a less streamlined experience. There’s less delivery driver supply as well, as it’s a marketplace for everything. I found a Tasker who would do the delivery for $22.35 (their hourly rate).
4. Roadie. This is a Series C startup that has raised $62 million and has a similar model as Lalamove, but the idea is to make pickups and deliveries that are along your original route of travel (so they pay less). Its investors include The Home Depot and UPS, and it has mostly focused on making deliveries for large retailers and airlines (delivering lost bags — unlikely to have a return trip) until last year, when it started to look at the small business segment. They quoted $16.94 for the job. Roadie has struggled to scale up their network — there are just not many businesses using it right now outside of their core use cases, but some drivers keep the app on in the background anyway. There are a few startups with a variation of this model, but they have all struggled with scaling up their network, which often requires massive subsidies and marketing spend.
5. UberRush, Uber Connect, and Uber Direct. In 2015 Uber launched UberRush, which provided same-day courier service for small businesses and e-commerce. It never got much traction and was later shut down. During the pandemic Uber launched two similar products to soften the slowdown in Rides demand: Uber Connect was for individuals sending items, and Uber Direct was for business deliveries. I believe these will shut down also when the Rides business recovers (more on this later), but the quote was $15.34.
It’s clear that the only courier service that has the network scale and liquidity needed to create this market is Uber Connect/Direct, owing to its existing network of Rides and Eats drivers. Their numerous drivers, who are able to receive orders from all of the Uber products, can be available for Direct jobs but if there’s no demand they can seamlessly switch into Rides and Eats. Customers looking for a courier have access to not just Direct drivers, but in effect all Uber drivers who opt in.
It looks like it could be another revenue stream for Uber, so why haven’t we seen Uber market this service or otherwise see them treat this like a future core pillar of Uber? And why did they give up on UberRush, killing the service after a couple of years?
I believe if Uber wanted to take this market, they could, and easily deter Lalamove from entering. They could spend aggressively on subsidies for small businesses, slowly conditioning them to use Uber for their catering orders and flower deliveries. But leaving aside the fact that Uber is focusing more on its core businesses during COVID-19 and that as a loss-making public company it cannot afford to be as aggressive as it once was, I think there is a bigger reason for Uber actively avoiding this space during non-pandemic times.
Uber’s core Rides product has always been in a dogfight with Lyft and other competitors; with customers and drivers alike freely switching between both apps to get the best offer, they’ve never been able to rest easy about their driver supply. This is especially true in the US, where many drivers just aren’t paid very much and aren’t driving by choice.
When they introduced Eats, it was more than just another revenue stream; it was a way to supplement Rides drivers’ earnings with Eats income which happened to peak during non-peak Rides hours. Eats also brought new drivers onto the platform, including those without “Rides-qualified” vehicles. To the extent that drivers prefer staying on the same platform (due to habit, preference or driver rewards programs), Uber had gained a weapon against Lyft on the driver supply front.
“We have experienced and expect to continue to experience Driver supply constraints in most geographic markets in which we operate.” (Uber’s 2019 annual report)
There were synergies on the demand front as well — in Q4 2019, 45% of first-time Eats customers were new to Uber. You can be sure these customers are now more likely to use Rides now that they’ve had a taste of Eats. Customers who used both Rides and Eats had 15.9 trips per month vs. 5.7 trips per month for those who only used one of the two (in cities where both are available). The boost in demand from adding Eats also created more demand for Rides, strengthening the overall Rides network against Lyft.
I don’t believe Uber would do the same thing with Uber Direct; treating Direct as more than just a COVID-19 side project would do more harm than good. It would take driver supply away from Rides and Eats (Direct demand is throughout the day) and it wouldn’t bring many new drivers onto the platform — most of those who didn’t like driving people around or didn’t have a Rides-qualified car were already brought in by Eats.
There would be no meaningful demand synergies either. And even if a flower shop owner who never used Uber previously started using Rides/Eats because they had a good experience with Direct, it wouldn’t add much demand compared to the net driver supply that shop owner would consume.
Taking away precious driver supply from core businesses Rides and Eats without strengthening the overall network as they are still duking it out with Lyft, DoorDash, and GrubHub would be a mistake for Uber. Network liquidity, the ability for both drivers and riders to find a match quickly, would suffer, which would hurt network scale as users slowly opt for more liquid competitors. In fact, network liquidity is more important to service quality than only network scale, where returns diminish after reaching a certain point.
“Maintaining a balance between supply and demand for rides in any given area at any given time and our ability to execute operationally may be more important to service quality than the absolute size of the network. If our service quality diminishes or our competitors’ products achieve greater market adoption, our competitors may be able to grow at a quicker rate than we do and may diminish our network effect.” (Uber’s 2019 annual report)
Thus, Uber cannot afford to stay in the on-demand courier market after the Rides business recovers. In fact, none of the big, well-funded driver platforms with core businesses in competitive markets can. Only a native courier platform can, and the platform must be well-capitalized in order to build up local networks across the US with driver and customer subsidies. Only Lalamove, a $10 billion startup with a mandate for growth and a billion dollar war chest can do the job. The other fledgling courier startups simply will not have the resources necessary to compete.
Implications on the gig economy
If we assume that the current supply of gig economy drivers at the current earnings rate is insufficient now, then surely the supply strain will be exacerbated by Lalamove entering the market. Platforms could pay drivers more and pass the increase on to customers, especially if it means maintaining better network liquidity than rival platforms, but there is a limit to how much retail customers are willing to pay, especially when alternatives like carry-out and public transportation exist. Customers may have to deal with longer wait times and platform margins could suffer until autonomous vehicles arrive(?). The consolidation of these platforms could accelerate.
Lalamove’s B2B customers could be more receptive to price increases. By providing flexible, affordable, quality delivery solutions Lalamove is providing real value to the business in the form of better delivery capabilities which could help expand their customers’ top line without crushing their margins.
Another potential outcome is that Lalamove might take some food delivery business, especially for large chains that have good brand recognition and their own ordering apps who are tired of sending Uber Eats an exorbitant percentage of their order value to take care of order acquisition and delivery. Lalamove, charging a rate based on mileage only (not commission) by steering clear of being an ordering portal and acquisition channel, could save restaurants a lot of money if they don’t need to rely heavily on food delivery platforms to acquire customers. This potential decoupling of strong restaurant brands (especially our beloved local ones) and platforms can’t come soon enough, and could breathe new life into a segment that is struggling under the weight of delivery platforms’ power, especially as indoor dining restrictions have persisted in the US.
Whatever happens, if Lalamove is successful I think American small businesses and individuals will find great value in it. Perhaps gig economy drivers will see increased earnings as a result and in response some people opt more for public transportation, especially in dense urban areas. Maybe increased driver costs would also lead to more people picking up their order instead (or even better, dining in once we get back to normal), before local restaurants close up shop one by one and get replaced by delivery-focused hyper-efficient ghost kitchens.
I believe Lalamove is making the right choice in entering the US market and they are uniquely positioned as a well-funded native courier platform to capture the market. It may take some time (and a lot more money) to build up local networks and change small businesses’ behavior, but if they can successfully localize the product in Chicago, Dallas, and Houston, it should be a smooth ride ahead.
AppWorks invested in Lalamove’s Series A+ and Uber’s Series F and retains shares in both. I would love to hear your thoughts on anything I missed so I can tune my thinking on this topic.