Travis Kalanick's Cloud Kitchens

11.14.2019

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When you hear hoofbeats, look for horses, not zebras

I had just finished journalist Mike Isaac’s book, “Super Pumped: The Battle for Uber” (like… just finished the night before) when the Wall Street Journal broke news that Uber founder Travis Kalanick had raised $400 million from Saudi Arabia's Public Investment Fund for his ghost kitchen startup, Cloud Kitchens. The endeavor had been largely secretive, and still is, though the company is sharing a bit of information via its own website.

According to the piece, the investment, which closed in January of this year, was kept very quiet, known only to a handful of Cloud Kitchens executives. In fact, in a recruitment email sent by a City Storage Systems employee (that’s the parent company of Cloud Kitchens) last spring, a recruiter wrote, “We have no major outside investors so are tasked with building and driving the product/platform the way we see fit.”

Why so secret? Well, for one: “It was the fund’s first known deal in Silicon Valley since the murder of journalist Jamal Khashoggi last year,” according to the Journal’s reporting.

Now though, we’re faced with proof to the tune of over half a billion dollars that the contentious Uber founder is putting a ton of cash — including $300 million of his own dollars — behind his new business. While still shrouded in a good amount of secrecy, my sense is the startup costs for the business, which buys up real estate to convert to commissary, or "ghost" kitchens, are high. So far, these kitchens are home to a few commercial partners and delivery-only brands created and branded specifically to perform well on delivery platforms — F*ck Gluten and Skinny B*tch Pizza among them.

Travis Kalanick is inextricably tied to Uber. Even after selling over half a billion dollars in stock this week (including more reported today), he still holds tens of millions of shares. He remains on the company’s board of directors, as does the managing partner of the Saudi fund that invested in both Uber and, reportedly, Cloud Kitchens.

Speaking of Uber, Uber Eats continues to do well for its parent, and CEO Dara Khosrowshahi is direct about the company’s plan for the product: to enter “...aggressively into markets where we're confident we can establish or defend a number one or number two position over the next 18 months,” he told investors on the company’s third quarter earnings call. “We're going to shoot to get to number one and number two in every market that we're in. If we can't make it to that level, we'll look to dispose or we'll get out of the market.”

In the highly competitive world of third-party delivery, Uber is going big all around the world. While the domestic story continues to be DoorDash’s meteoric rise to prominence, the company doesn’t have a huge presence outside North America. (DoorDash did announce its imminent Australian launch a couple months ago, and yesterday another $100 million in investment at a staggering almost-$13 billion valuation.) As these companies compete, they’re drilling down on anything that can differentiate them from the competition. DoorDash recently announced its own ghost kitchen concept in northern California. But you know what’s better than one ghost kitchen? An entire network of ghost kitchens around the world created especially for growth in delivery. If (ahem, when) a large third-party delivery company wants to take a giant chunk of the market, scooping up valuable delivery operations businesses in key markets might help.

Maybe it’s the intrigue of Isaac’s book, or maybe it’s ten years of living alongside the tech industry in San Francisco, but I can’t help but read this any other way: Kalanick has started a company that essentially competes against Uber Eats’ own model. If you (or, in this case, City Storage Systems) buy up enough swaths of real estate in enough high-profile areas, you can spin up a competing food concept in a matter of days — or even hours. Multiply that by however many markets $700 million in investment buys you, and you have big business.

Here’s the headline that’s been flashing in my head: Spurned ex-Uber Boss Solicits Near Half-Billion Dollar Investment From Current Uber Board Member to Build Company Perfectly Suited to Prop Up Uber's Delivery Biz.

Uber’s Khosrowshahi has made it very clear that Uber Eats isn’t going to market just to play, it’s going to market to win. I suspect executives from competing companies feel the same, and everyone is willing to throw down some serious cash to make it happen.

As I was wrapping this up, I saw a Fortune Term Sheet from last week where author Polina Marinova came to the same inevitable conclusion. She consulted sources close to Cloud Kitchens and wrote, “[Sources] told me Kalanick does want to compete with Uber — but he does not want to sell. He wants to compete with Uber and win.” No true surprise there. The zebras aren't coming.

What else is happening?

Instagram likes are probably going away, at least the public-facing ones.
The company is currently testing the change worldwide. “We will make decisions that hurt the business if they help people’s well-being and health,” Instagram CEO Adam Mosseri said onstage at the recent Wired 25 event.

DoorDash works to prove its business model.
In addition to that extra $100 million investment, the company announced early results of its adjusted courier payment policy. According to a blog post, DoorDash couriers are earning 12.5 percent more. “we know that our new model is not perfect, and we are continuing to make changes in response to Dasher feedback,” the company wrote.

OpenTable Adds Another Delivery Partner
Over the summer, OpenTable added delivery options to its app. Today, Postmates joins Uber Eats, Caviar (which is now owned by DoorDash) and Grubhub in listings. In what is almost certainly the most useful part of the feature, the OpenTable app shows estimated delivery times for each provider, which I can’t imagine is exciting for the providers — unless, of course, you’re the fastest.