Instacart (YC S12) Scores $220M Investment | Hacker News Reader

Instacart (YC S12) Scores $220M Investment

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59 pointsbrianchu21 comments

This company does the little things right, and people notice. I think faster internet + smartphones are necessary but not sufficient in explaining Instacart's success.

I live in a place with an entrance not visible from the street. The first time I ordered, I directed the shopper over the phone. Every subsequent shopper has found the entrance without a problem. I assume the shoppers share accurate notes. Literally every other delivery I get requires a phone call and directions. These little things make a huge difference, and are where similar companies with the same potential technology fall short.

Congrats to the team. Well deserved.

Congrats to the Instacart team! I love what they are doing. Their app has a great user interface and the service is fast and easy to use.

It's definitely interesting to see that the world is finally ready for something like this, because Webvan (I know it's brought up a lot) didn't do so hot back in the day. We obviously have the technology now that we lacked 10 years ago to make something like this a major success.

Is the difference technological or cultural? In other words, what different technology do we have now that would have enabled Webvan to succeed? To me it seems that the most marked difference is the consumer culture and comfort with online buying.

It's both.

Improvements in mobile tech also allow managing a mobile workforce easier. This can allow Instacart to keep in contact with drivers more easily, which in hand allows them to more easily manage and hire drivers who shop from individual stores, instead of needing the warehouse. Shorter version: Mobile communication and apps allow for distributed workforce and inventory instead of big centralized costs.

A big difference in 2014/2015 is the friction between an impulse to buy something, and actually paying for that something is lower thanks to smart mobile phones

Honestly I feel like this issue is a combination of technology and culture. As our technology has advanced, our perception as a culture has changed because now instant-gratification has become a reality. Not only that but as we move to mobile devices we continue to seek immediate results and companies that previously failed are now succeeding even though they are commodities of one-another. Not to mention your point that consumers are finally becoming more comfortable with doing everything online, compared to previous times.

Let's not forget the most simple and obvious answer: browsing the internet was slow back in the day. When I was living in NYC during the Kozmo/Urbanfetch era it would be 20-30 seconds or so to load a product page, then you'd have to add something to the cart, which took awhile, and so on. Images were crappy and small, pages took forever to load, websites just in general didn't work all that well, core principles of UI/UX we take for granted now hadn't really been settled yet. And I had DSL, most at the time had dial-up.

Ordering things online back then was really annoying, and the grocery type order, with lots of little things that are kind of hard to browse and sort (a problem Instacart still struggles with today to be honest) made it especially annoying for this kind of service. And I was a tech minded person who wanted it to work and wanted to use it.

Online browsing and buying was really tedious, it's easy to forget just how much so.

Faster internet makes building a grocery-sized cart online a lot easier today than it was 15 years ago. Add to this that the majority of cellphones in 2000 were mere phone/SMS devices, making it hard for shoppers to even get the lists they need to buy. Without GPS tracking on shoppers, it'd be much harder to estimate when the delivery would arrive. On top of all the actual technical benefits, everything has gotten easier/smoother/faster overall as aesthetics and UI have improved over the past 15 years.

It wasn't the technology so much as the customers/marketplace.

Back in 1999/2000, the market to buy groceries over the Internet wasn't there. Paying for shipping was still a sore point, and Amazon Prime wasn't around yet. People just didn't associate buying groceries with the Internet, so there was a considerable amount of friction they had to overcome, and not a lot of time considering the burden of all the infrastructure they had. Once the bust hit, it was over for them because they didn't make enough revenues to pay their obligations and no more VC money to give them some breathing room.

These days, buying things like groceries is an afterthought, especially post-smartphone where you have a computer everywhere you go, so you can monitor the progress of deliveries, without having to sit by your desktop.

Unlike Webvan, they rely on contract workers. No need to operate a large fleet of delivery vehicles/drivers, or sink money in warehouse operations. Internet penetration has doubled (~45% then vs almost 90% of US population now). Of course, smartphones everywhere are a big enabler as well.

Funny enough, I have seen several people say that this makes Instacart worse than Webvan, because "at least Webvan had assets." I'm pretty sure that's a nonsensical argument, since those assets were just from them dumping millions of their investment dollars into infrastructure.

> Unlike Webvan, they rely on contract workers. No need to operate a large fleet of delivery vehicles/drivers...

They currently rely on contract workers but there is a legitimate question as to whether many of the on-demand companies have misclassified their workers[1]. Uber and Handy have already been sued over classification, and class action attorneys have publicly named other on-demand startups that they're investigating for similar actions.

As one attorney has observed, the startups that have made 1099 contractors the foundation of their businesses "are potentially exposed to a bet-your-company liability if they have not structured, documented, and implemented their freelance relationships in a manner that enhances their compliance with federal and state independent contractor laws"[2].

[1] http://nymag.com/daily/intelligencer/2014/09/silicon-valleys...

[2] http://independentcontractorcompliance.com/2014/12/02/novemb...

$100m revenue is impressive. But what are the gross margins on that?

Obviously hard to tell, but you can extrapolate a bit.

At $100mm in revenue, and an assumed $60 order price, you've got 1.6mm orders. Assuming 25% of people pay for faster delivery, you've got gross revenue per order of $4.50, or gross revenue of $7.2mm. If Instavart takes a 30% share (similar-ish to Uber and iTunes), you're looking at $2.2mmin revenue after paying contractors.

So that would leave you with 2.2% of sales as your margin after contractors. This obviously changes if they mark up the groceries or if the assertions are different.

Out of interest, a 15 P/E on 2bb would correspond to a 60x grow in their market (ish). They currently represent about 100mm of Whole Foods 15bb take, or about 0.67%. A 60x increase would take them to managing 40% of Whole Foods orders, given no expansion into other grocery chains.

This is a lot of hand-waving, so please take it with a grain of salt.

They do mark up the groceries

They say they don't for "most" stores

https://news.ycombinator.com/item?id=8707904

They must be including the cost of the groceries in as revenue. However, there's a good question as to whether or not they are allowed to include this as revenue or not, similar to Groupon. Revenue recognition is going to be a tricky one for them, since they are clearly distinguishing themselves as the delivery agent for stores like Whole Foods, Safeway, etc.

This, and the question of whether or not their workers are actually contractors or employees are the two biggest issues that I would be curious about. If history has any bearing, I think Instacart, Uber, etc will face the same outcome that Microsoft did with their "contract" workers, ie. they will be deemed employees and will have to pay up.

As someone moving from the Central Valley in Ca to Portland in the next few months...this is exciting to hear, I've been pretty excited to get to use this service.

Instacart is still fairly expensive here in Portland. If you're living in the city proper you should have a grocery store located < 5 blocks from where you live. Just in the pearl I have walking access to Safeway, whole foods and food front.

If you're in the suburbs it might be worth it.

Wow, congrats! I'm a big fan (and customer).

That's great new! Going to grocery store is such a pain. Instacart delivers you to the grocery store and bring you back after you've done shopping.

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