At GrubHub, a Delicate Balance Between Search and Commerce

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grubhub-300x300A year after merging with Seamless, and GrubHub is humming along. The company exceeded both top and bottom line expectations in its second quarter as a public company, and its core metrics all seem to be growing in lock step.

Meanwhile, competition from startups has exploded. A deluge of online order firms have popped up in the past year, focusing largely on helping businesses enable ordering through an owned site — arguably a larger threat to GrubHub’s business than a direct competitor.

Next Tuesday, Jon Fine, executive editor at Inc., will sit down with GrubHub’s president Jonathan Zabusky for a fireside chat at Street Fight Summit in New York. In the meantime, we caught up with Zabusky, who served as chief executive at Seamless prior to the merger, to talk about the state of the company and the evolving local commerce opportunity.

One of the novelties of GrubHub is that it functions both as an e-commerce and a search company. How do you think about the role of the company with respect to those two markets?
We sit right in between those worlds in some sense by being involved in both sides. At the end of the day, it’s a transaction-based model. What the transaction model allows us to do, of course, is have a very aligned business model and also allows us to capture a significant amount of data around consumer preferences which we can then use to the advantage of consumers when they come on that platform on the search and discovery side.

We don’t call ourselves just an e-commerce company and we don’t call ourselves just a search and discovery company that’s ad-driven per se. The transaction in some sense allows us to continue to refine and innovate on a best in class search and discovery platform as it relates to takeout ordering. Business model aside, we see those two as very inextricably linked.

Over the past few month, GrubHub has rolled out its auction-based commission model to Seamless’ restaurants. Why hadn’t Seamless adopted the model before the merger?
Frankly, it’s been one of the real synergies of the deal, and it’s not as though we decided against it at Seamless before the merger. We were just frankly focused on other aspects of the value proposition. When we started to have a cohesive strategic discussion with GrubHub, they couldn’t believe Seamless wasn’t implementing this system. The auction-based model squarely aligns with our value proposition to restaurants, which really allows the restaurants to decide exactly where they want to come up in that auction sort.

GrubHub CEO Jonathan Zabusky
GrubHub President Jonathan Zabusky

In the travel industry, there’s always a tension between aggregators such as Kayak and the airlines themselves. Do you see the ability for small business to integrate online ordering into their own sites as a threat to GrubHub’s competitive position?
I don’t see it that way. We’re at such an early stage in the adoption curve right now — in the movement from offline to online — that we fully expect and encourage restaurants to develop relationships with multiple channels. They’re still going to continue to answering the phone; they’re going to continue to develop their own websites; and in some ways.  we have many restaurants who on their own websites actually we provide an online ordering link where they can link back to our ordering capability because they see a lot of benefit in terms of cost control, innovation.

At the core of our value proposition to mom-and-pop restaurants, we offer scalability at a level they couldn’t achieve on their own. I don’t think a world where a restaurant wants to a direct relationship with a consumer undermines our business model or long-term growth — I think it complements it.

Over the past few years, there’s been a rush of business development activity in local. Do you see partnerships as an important part of GrubHub’s growth?
Not right now. Of course, we’re getting lots of calls these days. But it’s got to be structured as something that’s really has a lot of value for our business, and something that we otherwise couldn’t either build or extend our business into. Again that’s not to say that we don’t take the calls, but we feel really good about the set of assets we have and our ability to develop on it.

Not to be coy about it, but I’d say that the short answer is no, but we remain open and opportunistic if something really interesting. Each company had done opportunistic acquisitions over time and we’ll continue to remain open to and partnerships as well. But it’s not something we’ll rely upon to sustain our growth and innovation that we’re looking to do.

Looking back on the seven years since you joined Seamless, what did you get right and what did you get wrong?
We always knew the size of this market and we always sort of had a premonition that more and more of consumer spend would find its way online, and we always felt that local merchants, mom-and-pops, would continue to see benefit in increasing fashion from in many ways partnering with a company like ours to help them achieve scale in marketing new customer acquisition reach and technology as well.  The only thing that we’ve really seen change is on the adoption side relative to consumers and relative to small restaurants.

Steven Jacobs is Street Fight’s deputy editor.

See Jonathan Zabusky in a live fireside chat at Street Fight Summit next week in New York.  Register now!