This is global and strategic: What Amazon's mega investment in Deliveroo means for Uber and everyone else

Jim Edwards

May 17, 2019, 14:51 IST

This is global and strategic: What Amazon's mega investment in Deliveroo means for Uber and everyone else

Reuters / Drew Angerer of Getty Images

Amazon CEO Jeff Bezos and Deliveroo founder Will Shu.

Here's everything you need to know about why the Amazon-Deliveroo investment is such a big deal.
Uber should be afraid. Shares in other delivery companies like Just Eat are already tanking on the news.
Deliveroo no longer needs IPO money.
Amazon has locked in another piece of the last-mile home delivery network it is obsessed with building.
The US fast-food business doesn't know what's about to hit it.
See more stories on Business Insider's homepage.

Amazon's investment in British food delivery unicorn Deliveroo as part of a $575 million raise will probably change the landscape for last-mile solutions globally.

Here's why:

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The deal allows Will Shu to avoid staging an IPO - for now

For years, founder and CEO Will Shu has considered taking his company public. It was worth $2 billion privately before the Amazon deal. It is probably worth north of $4 billion now.

The new funding means Shu does not need IPO cash to fund the next phase of expansion. Shu now has extra money to play with and a more relaxed timeframe for building his company globally.

He will come under pressure to show investors returns, of course - at some point a company can take in so much investment money that it becomes mathematically difficult to return a multiple via the public markets. But now he has options.

Shu is also personally publicity shy - so not having to go public saves him from that scrutiny, too.

No IPO is probably good given Uber and Lyft's rocking offerings

The two ride-sharing platforms' stocks have both collapsed since they floated. It's not a good look. Deliveroo, as a somewhat similar platform with a business model that also relies on a gig economy contractual workforce, probably didn't want to join them right now.

It builds a war chest for Deliveroo's US launch

Although Shu is American, Deliveroo has yet to launch in the US. Densely populated food markets like New York and Los Angeles will be easy pickings for Deliveroo.

Although the US has plenty of app-based food delivery options, the arrival of Deliveroo will be a wakeup call for the fast-food and delivery industry there. Competition in the US is about to get more intense.

Reuters

Deliveroo rider.

It's half a billion dollars - this is strategic and global

Although we don't know the size of Amazon's stake, it's probably not a passive "nice to have" investment for Jeff Bezos. In the UK, the stock of Just Eat, declined on news of the deal - a harbinger of the way people feel about the Amazon-Deliveroo deal. Uber and its Uber Eats brand will be threatened by this, especially when Deliveroo arrives in the US.

Amazon is obsessed with grocery home delivery platforms

Amazon held talks to acquire Ocado, the most technologically advanced grocery delivery platform on the planet, years ago. Investors have been betting on some kind of Amazon-Ocado deal for a while. Eventually, Amazon and Ocado got into a three-way arrangement with supermarket Morrisons, in which Ocado provides the delivery, and Morrison's provides the food to both Ocado and Amazon.

Amazon is probably not interested in delivering pizzas

It's more interested in building a "last-mile" delivery network. Amazon is obsessed with delivery generally. The fact that Amazon is planning to launch a drone delivery service (it's not quite off the ground yet) and is building its own airport tells you how intense Bezos' interest is in getting products to your front door.

Deliveroo is the gold-standard of fast-food delivery in the UK. It's also the most innovative - the company is starting to build its own on-location kitchens that only provide food delivery, with no on-site eating.

Amazon has largely failed to build its Amazon Fresh delivery service in the UK

Although Amazon has a delivery presence through Prime (it has yet to launch outside London and the south east), its food offering is often an also-ran internationally. Deliveroo fixes this. "We're impressed with Deliveroo's approach," as Doug Gurr, Amazon's country manager in the UK, put it.

The deal sets up battle with Uber Eats

Uber's food delivery brand is probably the best-capitalized delivery network on the planet, given the cash influx from the IPO. Now it has competition.