Marketplaces, Instacart and Share Shift

Is Instacart more like Expedia or Avvo?

This is an experiment in giving the first few paragraphs of a premium post to “free subscribers”. I don’t think I will do this very often, but a lot of other writers do this regularly, so I thought I would give it a try. Subscribers get a post like this once a week (on top of the free Tuesday post).

The first of THREE pages of sponsored listings on my Instacart search for diapers at CVS. You have to look hard if you want an organic result

Instacart went public on Tuesday. It was once valued at $39B back in 2021, but that valuation came down as the COVID exuberance and higher interest rates tempered expectations. Byron Hobart has a good write-up on the S1 (free) and Ben Thompson a good write up on the IPO (paywalled).

Instacart, like airlines, is actually two businesses. Their core business is delivering groceries and acting as a three-sided marketplace between grocers, consumers, and CPG firms. Their more lucrative business is selling advertising to CPG firms to shift share of consumer purchases. Airlines are a very different business from Instacart, but there is a powerful similarity. Airlines lose money on their core business of flying travelers to their destinations, but make it back, and more, in selling credit cards to those same travelers, and loyalty points to third party merchants who want access to those travelers.

In both cases the lucrative business comes bundled with the core business. Air Canada tried to spin off their loyalty business but it did not work, and eventually the airline re-absorbed the loyalty program back into core. Instacart is in the same boat. They need to keep running the difficult businesses of managing a massive low-paid workforce and overseeing contentious supplier agreements, all in order to have access to the attention of grocery shoppers. But it is that attention which is the valuable part.

There are two lessons from understanding Instacart’s economics. And just like those economics, one lesson is obvious, the other less so.