Food delivery is a 'winner takes most' market, but this startup CEO isn't afraid of Amazon

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If you live in San Francisco, there are at least seven food delivery apps you can order from. Most of them, though, feature the same restaurants and the same dishes for close to the same prices. 

Most of those companies won't last, argues DoorDash CEO Tony Xu.

"I think it’s a winner takes most market. I think customers outside of Silicon Valley are not comfortable with downloading so many apps to perform a similar function," Xu told Business Insider. 

Doordash is in a tough spot. The oldest companies in the space, like GrubHub and Seamless (owned by GrubHub), have the largest chunk of the delivery market. DoorDash also has to compete against other startups like Postmates and a couple of giants entering the field: Amazon and Uber. 

In a June market research note by Morgan Stanley, analysts said both Amazon and Uber were potential threats to win the space because they already have that brand loyalty. If a consumer is faced with the option of seven different apps, they're going to download the ones whose names they recognize. 

Xu certainly understands the appeal of sticking with loyalty, but he doesn't agree that it gives those companies a winning market share unless they are truly the best at what they do. He doesn't fault them, though, for salivating at the opportunity to enter a market that analysts predict could be worth $210 billion one day.  

"Certainly there’s big competitors that come into a large market to address the opportunity but I think that’s been the story of Silicon Valley," Xu said. "If we study history, I think we frankly could’ve said that about any service, any industry, consumer or enterprise. I just don’t think that a company can be good at all things."

For delivery, Xu believes a company — whether it's DoorDash, GrubHub, Uber, or Amazon — has to offer the highest quality, the greatest selection, and the most affordable price. It's hard to do any of these things, let alone master all three to be the market winner.

Amazon and Uber might have the big brand names but ultimately, it's not their primary business, he argues. That leaves plenty of room for new businesses to end up the winner.

"I think fundamentally a customer hires you for the one thing that you’re best at," Xu said. "And unless you believe that the big companies can be the best at every single thing, I think that the startup ecosystem will continue to thrive." 

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