During my studies for the upcoming exams, I decided to write another blog on a concept that is important for the exam but somewhat difficult to grasp. This blog will focus on network effects and how Foodora had to pull the plug on their operations in the Netherlands.
On the 16th of October 2018, Foodora delivered their last order. Foodora was active, in the Netherlands, since July 2015. Their focus was on delivering food for restaurants that did not have a delivery service before. They also tried to connect restaurants to customers that offered something else than fast food. In 2015, there were little options for ‘healthy’ delivery alternatives. So that meant they focussed on a different segment of customers, that weren’t served by other delivery platforms, like thuisbezorgd.nl.
How did the platform of Foodora work? I would argue that it is a cross-sided positive network effect. When there are customers joining the platform, more restaurants want to join the platform since the market is becoming bigger. If there are more restaurants in the platform, more customers can be satisfied, so because of the bigger supply, more customers can be satisfied in their demand (Eisenmann, 2006).
Foodora were providing a different platform service compared to, for example, Uber. Uber connects drivers with customers in need of transportation through their platform. However, Foodora developed a platform and employed deliverers to connect the restaurants with the customers on the platform.
Foodora had to quit their delivery business in the Netherlands because of the fierce competition among the market of delivery platforms in the Netherlands. Other delivery platform firms recognized the market for healthier delivery alternatives and thus began competing with Foodora. Foodora tried to sell their business platform, however did not find a willing buyer. Therefore, the decision was made to stop all activities in the Netherlands (Boogert, 2018; Misset Horeca, 2018).
Boogert, E. (2018). Licht uit bij Foodora in Nederland. [Online] Accessed through [https://www.emerce.nl/nieuws/licht-uit-foodora-nederland] on 20 October 2018.
Eisenmann, T., Parker, G., and Van Alstyne, M.W. (2006). Strategies for two-sided markets. Harvard Business Review, 84(10), 92-101.
Misset Horeca (2018). Foodora Stopt met maaltijdbezorging in Nederland. [Online] Accessed through [https://www.missethoreca.nl/restaurant/nieuws/2018/08/foodora-stopt-in-nederland-101308245?vakmedianet-approve-cookies=1&_ga=2.96017880.539420528.1540035017-16774532.1540035017] on 20 October 2018.
Thank you for keeping us up-to-date! I personally do not order food that often but I happen to know about thuisbezorgd.nl, Foodora, and UberEats. As I often saw Foodora deliveries on our campu, I always thought that they belong the the stronger players on the market. Thus, I have to admit that I was indeed surprised when I saw your the title of your blog post.
You mentioned that “Other delivery platform firms recognized the market for healthier delivery alternatives and thus began competing with Foodora”. I was wondering whether you could elaborate on the main or particular competitor(s) that pushed Foodora out of the market? Was it thuisbezorgd.nl or perhaps a new player?
Thanks for sharing!
Thank you for this post. Since I am a true foodie (who loves to order food), I was quite shocked to hear that Foodora will stop delivering food because of the fierce competition. The question then arises, how could they have prevented this takeover? First of all, Sephora has (had) a platform. They’ve digitized their capabilities, found new revenue opportunities, but somehow they did not find areas that could have been defended by their offerings. Their main USP is selling healthy alternatives through sustainble means (biking). Still, I am wondering how they could have overruled the competition. From my point of view, Foodora made the mistake to target the competitor’s (e.g. Thuisbezorgd) customers with almost the same offering. Also, they provided some incremental advances in their services but nothing new. I guess Foodora was in the end not disruptive enough. What do you think? How could have they sustained their business?
Indeed it was a surprise for me as well to read these news. However, not really a surprise. I anticipated something like that to happen, but for another competitor – Deliveroo. I actually worked for the company until March 2018 when they changed the employee working policy from hourly paid contracts to freelance contracts. This was the general trend for Uber eats and probably Foodora at the time. However, I saw that such a change was not perceived positively by the employees (like me) internally at Deliveroo. After the shift, many employees left as they were not willing to bear the legal responsibilities under the freelance contract – under such employment YOU are responsible of your activities, product delivery and tax reporting, which is much more burden to handle than when you are a representative of a COMPANY who is responsible of your actions.
In my personal view, this trend in the sector happened due to more fierce competition taking a share of customers away(mostly due to Uber eats entering the market later on in 2016), which forced Deliveroo or Foodora later on to rewrite the employee contracts, because paying employees on the hourly basis was deemed unsustainable (too many employees idle/not receiving orders while being paid). This in turn, discouraged employees, as majority was not willing to switch to freelance. Finally, Foodora (and probably Deliveroo soon too) was forced to cease their operations due to the fact that there is almost no one on both Supply side(employees – freelancers) and Demand side(customers who switched to other delivery services). This is indeed a good example of a two-sided market that cannot function without the sustainable demand and supply.