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VC-20 Virus Hits

from The Verge

A pizzeria owner made money buying his own $24 pizzas from DoorDash for $16

This is your brain on venture capital

By Bijan Stephen

Photo: DoorDash

There are many things that don’t make sense about global capitalism that I enjoy anyway — the clearly inadvisable, venture-backed monstrosities like dockless scooters and ride-sharing that, in the before times, changed how I interacted with the places I went. The thing that doesn’t compute for me is how these companies continue to burn through a reality-warping amount of other people’s cash in a way that upends the basic economics of things like taxi service and food delivery and fail, intentionally, to turn a profit. 

Yesterday, Ranjan Roy, a content strategist and writer, wrote about the latter in his newsletter The Margins; one of his friends who owns a few pizza restaurants suddenly got an influx of customers complaining about delivery when the restaurants didn’t offer delivery. “He realized that a delivery option had mysteriously appeared on their company’s Google Listing. The delivery option was created by Doordash,” Roy wrote.

Apparently, this is one way that DoorDash does customer acquisition — by bullying restaurants. But what’s funnier about Roy’s friend’s problem (and it was a real problem because of Yelp reviews and angry customers) is that DoorDash priced the pizzas incorrectly. “A pizza that he charged $24 for was listed as $16 by Doordash,” emphasis Roy’s. And then: “My third thought: Cue the Wall Street trader in me…..ARBITRAGE!!!!” 

And so the story unfolds. “If someone could pay Doordash $16 a pizza, and Doordash would pay his restaurant $24 a pizza, then he should clearly just order pizzas himself via Doordash, all day long. You’d net a clean $8 profit per pizza [insert nerdy economics joke about there is such a thing as a free lunch],” wrote Roy. They order 10 pizzas this way, and it worked! The money was free, a seamless transfer from SoftBank’s deep venture capital-lined pockets to Roy’s friend’s business bank account. Eventually, in another series of what Roy hilariously calls “trades,” they just ordered pizza dough through DoorDash for $75 in pure profit.

[ click to continue reading at The Verge ]

Posted on May 20, 2020 by Editor

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