The following post was originally written for Doug’s blog, The Contrarian Mindset. The blog explores contrarian ideas across investing, tech, and beyond.
Earning the attention of other people is a timeless game. Winners of the attention game get a person’s most valuable asset: time. Attention converts to power, status, and, of course, money.
The attention game is won by contrarians — those willing to defy odds and break rules to deliver the unexpected to the masses. The crux of the lesson is that winning the attention game necessarily demands increasing extremity by those who engage in it. Understanding this reality of the attention game is useful for everyone from investors looking to deploy capital into attention businesses to people trying to understand the current state of politics.
Winning the Attention Game
Notice it is the attention game, not an attention game. Attention exists in a single arena where all competitors must engage simultaneously — movies, TV, social media, video games, books, Zoom meetings, or even one-on-one conversations. Attention is immediate. It happens right now, in the present, and to win the game, you must win attention right now, in the present. Past attention fades from memory given the immediacy of the present, and future attention is useless in affecting a present state. This dynamic also means that winning the attention game is temporary. Anyone that plays the attention game must accept it as a persistent challenge, not one that is conquered in permanence.
The immediacy of attention means there are two ways to win the game: absurdity or intelligence. The absurd earns attention through extremity of action; the intelligent earns attention through sharp insight. Absurdity relies on emotional pathways, particularly surprise. Surprise makes us pay attention out of curiosity, and it can quickly morph into other emotions like anger, happiness, or sadness. Intelligence relies on rational pathways that make us pay attention out of a desire to understand. Sometimes absurdity and intelligence combine, a frankenstein in the parlance of the contrarian. Those who successfully combine both often become icons.
Because absurdity relies on emotion rather than reason, it always accesses a larger audience than intelligence. Emotion requires no special knowledge to understand. We all know absurdity when we see it, and given this universal instinct, any player of the attention game can access the absurd by simply doing it. Winning attention with intelligence, on the other hand, requires that the audience has some level of knowledge about the topic at hand. If the audience cannot understand something, it cannot hold their attention. This necessarily limits the audience for intelligent content. In absolute terms, we can think of the audience for the intelligent as a subset of the audience for the absurd. Everyone can relate to the absurd, whether they pay attention or not, but only a subset of people can relate to the intelligent.
Small relative audiences can still be valuable and important; however, anything intended for mass consumption must necessarily veer toward the absurd to gain attention from the broadest audience. Social media is, of course, the definitive mass audience tool, and it thrives on absurdity. Those who try to win the broadest audience without using absurdity put themselves at a distinct disadvantage, and there’s no negotiating for a fair fight. If you don’t use absurdity to your advantage, someone else will use it to theirs. It’s mutually assured absurdity.
Not only is absurdity understood by the widest audience and thus the best tool to grab attention, it’s also naturally contagious. People love to share the absurd because of its emotional demands, but the natural virality of the absurd means that it burns itself out. An absurd thing is no longer so absurd once it’s happened and everyone knows about it. What was absurd is now consensus expected, and the bar for future absurdity moves higher. This can be a good thing for delightful surprises but a bad thing for surprises that prey on anger.
The success of absurd, largely non-intelligent content on social platforms is not worth rehashing here. It’s the impact of required absurdity on other attention game industries — news, entertainment, and politics — that’s worth exploring as observers and investors.
Traditional news media may be permanently lost as a useful force to society. News organizations earn money from attention. They used to do it through intelligence, but now the news media has fully embraced absurdity in the social media era, and the trust of the public is eroding in response. Somewhere, deep down inside, the public expects news organizations to be an objective force for truth and good in society, a role they are plainly failing today. Despite that eroding trust, the masses can’t help but pay attention to the absurd. If a news organization were to completely embrace intelligence, it would risk obscurity, and obscurity is a death sentence in the attention game. Revenues at leading media companies on both sides of the aisle (New York Times and Fox News) continue to grow as the crowd pays attention, and as long as the money remains, so will the news media’s embrace of the absurd.
As an investor, I’ve come to the conclusion there’s no money to be made investing in alternative non-partisan news ideas because few will pay attention to them. But forget about money, the point is that the masses aren’t programmed to pay attention to the rational in the first place. Absurd partisan crowds drown out the intelligent minority. The best hope may be thoughtful individuals who carve out their own intelligent audiences on platforms like Substack and Clubhouse. There’s an opportunity for intelligent icons to emerge and fill the gap left by traditional news media.
Not all absurdity is as unfortunate as what we see in news media. Where social media has corrupted news by demanding the absurd, it’s opened up the entertainment world to millions of new creators willing to take risks that traditional entertainers might never entertain. As a result, the influence of traditional entertainment is in decline and will remain there, whereas non-traditional entertainment will continue to grow in importance.
Mr. Beast, who has one of the top 20 most popular channels on YouTube at age 22, is one of my favorite examples of using absurdity to entertain in a positive way because he understands the importance of absurdity to win the attention game. He’s known for doing crazy things like going through a drive thru 1,000 times in a row, buying out entire stores, and spending 24 hours in prison. He recently tweeted about wanting to walk a marathon in high heels. I’ve never heard of that, and yes, I kind of want to see the aftermath.
As an investor, I think traditional entertainment companies are in a tough place long term because it’s going to become harder for them to stay relevant with younger generations. They, like influencers, need to find unexpected ways to earn attention, but mainstream entertainment doesn’t traffic in the absurd the same way influencers do. I think this was one reason Quibi failed. Maybe traditional content companies will figure this out, but I’d rather bet on influencer platforms continuing to rise.
In my opinion, gaming is the best place to invest in “traditional” entertainment. Great games are complex to build and market. Great game IP exists not just in the form of titles and characters but worlds that gamers explore where they can create their own stories. By building worlds where users can create their own stories, game developers export the requirement for absurdity to the users themselves, like a far more immersive version of social media. Gaming will provide our next Facebook, or Disney, or Netflix.
In the age of social media, politics is certainly not about intelligence, if it ever was. Politics has always been a popularity game, not a policy game. To get sufficiently popular, a politician must garner mass attention, and we’ve seen a recognition from both sides of the aisle of the power of the absurd for that purpose. Extreme elements of both parties dominate conversation because the extreme is often absurd, and all attention is good attention in absurd tribal politics. Either the attention is love from your base or hate from your enemies, which reinforces love from your base.
I don’t know what the solution is as it pertains to politics, other than to hope that someone finds a way to marry absurdity with intelligence in some undeniable fashion. That is a person I’d love to invest in. Until that happens, we should expect the absurd to reign in politics.
Understanding the attention game, and how absurdity rules it, explains much about the current state of the world. To fight the attention game is to fight human nature that thrives on the emotional response from the absurd. Fighting is futile, we can only look for ways to adapt to the game and play it. If you never grab the attention of the masses, you have no hopes of changing the game anyway.
Gene and David discuss the high cost of food delivery and why usage continues to grow. Hint: consumers are buying leisure time.
The pandemic has been great for food delivery platforms. DoorDash is expected to grow revenue around 225% in 2020, an acceleration from already parabolic growth of 205% in 2019. Uber Eats gross bookings were up 108% in 2020 compared to 85% in 2019, and has been the company’s bright spot throughout the pandemic. This acceleration in food delivery prompted us to conduct a simple case study across three delivery platforms to compare pricing and consumer fees. We were left with three takeaways:
- Food delivery is expensive, with premiums ranging from 41% to 58% plus for a ~$30 order. Including a 15% tip the premium is closer to 90%.
- There’s a combination of hidden fees and variable pricing across delivery platforms, ultimately driving up the cost of food delivery.
- Despite its high costs, consumers are willing to pay for the convenience factor.
The basics of a food delivery order
We made ten identical food orders and did a fee average across DoorDash, Uber Eats, and Grubhub. We then compared it to the price a consumer would pay going direct to the restaurant. The table below summarizes our findings related to the total meal price (TMP) premium. Note, this exercise excludes tips which typically add 15% to the overall order price.
The same Minneapolis delivery address was used for all orders. While delivery, service, and tax fees certainly vary across the country, we believe the basic insights are applicable more broadly. Here’s a Google Sheet with the individual restaurant orders and respective fees.
Food delivery is more expensive than you think
The first thing that stands out is the initial markup premium, which is 14%-18% across the platforms. The initial markup premium is the difference between the meal price a restaurant lists on its own website and the base price on the delivery app. We believe most restaurants raise the price of their menu on delivery apps to offset the 15%-20% take rate delivery companies charge restaurants.
Delivery fees ranged from $1.59 to $3.09 on average. Because delivery fees remain constant on orders over $10, their contribution to the total meal price varies with the order size. Said another way, a $2.50 delivery fee on a $15 order is a 17% add-on compared to an 8% add-on for a $30 order. Service fees are determined as a percentage of the platform meal list price, usually around 15%. This means that the dollar amount paid in service fees increases as the order size grows.
While it’s not explicitly stated when the sales tax is applied, we think it’s applied after delivery, service, and regulation fees have been added, implying average tax rates of 6.4% to 8.3%. This is more or less in line with the MN sales tax of just under 7%.
A temporary regulation fee is currently being charged by both DoorDash and Uber. Many cities across the US, including Minneapolis, have capped service fees at 15% during the pandemic over concerns food delivery platforms are overcharging consumers. It appears DoorDash and Uber Eats are finding a way to mitigate this change. In the case of DoorDash, a $1.50 fee on a $22 meal base price is an extra 7% in fees. While we won’t speculate in depth on the legality of this apparent workaround, it at the very least suggests food delivery is a Wild West as it relates to regulation.
Putting it together, the average TMP premium ranged from 41% on Grubhub to 58% on DoorDash.
Importantly, our exercise does not include tips, which are set to 15%-25% by default. While consumers can opt out, our belief is that tipping is the norm. Adding insult to injury, gratuity is calculated from the total order price, which includes the above list of fees.
There’s little price consistency
Apart from the initial markup, which remained fairly consistent, we noticed a lack of fee consistency across delivery apps. While in aggregate the service fee was ~15% for each platform, within our sample of ten orders it varied from 10% to 19% depending on the individual restaurant (Uber Eats was the exception, charging 15% for all restaurants). For example, McDonald’s carried a 10% fee on both DoorDash and Grubhub, while Taco Bell carried a 19% fee on DoorDash but a 17% fee on Grubhub. Delivery platforms say their service fees are determined on a restaurant-by-restaurant basis, and we believe there is some pricing power for top brands.
Average delivery fees ranged from $1.59 on Grubhub to $3.09 on Uber Eats. We believe this variability is in part attributable to driver availability on each platform. The average tax was meaningfully higher on Grubhub compared to DoorDash and Uber Eats. While taxes are not our focus area, it appears there’s some flexibility in what platforms can charge beyond the standard Minnesota sales tax.
Time is money
In terms of cost of delivery, we found the markups to be egregious. That said, with food delivery, consumers are buying time. All said and done, we estimate it typically takes 30 minutes to drive and pick up a meal. Factoring in a 50% delivery premium on a $20 order means the customer is valuing their leisure time at $20/hour, and typically people value this higher than their work time. In other words, delivery is expensive and worth it for “time is money” consumers.
Delivery memberships only make sense for power users
Each of the delivery platforms offers a monthly membership:
- DashPass: $9.99/month for no delivery fees on order subtotals over $12 from eligible restaurants.
- Grubhub+: $9.99/month for no delivery fees on order subtotals over $12 from eligible restaurants.
- Uber Eats Pass: $9.99/month for no delivery fees and 5% off food orders over $15 from eligible restaurants.
While these memberships are advertised as providing “free delivery,” that’s deceptive. First, setting the minimum subtotal at $12 means many consumers likely add items to their orders simply to qualify for free delivery – a single customer ordering two Big Macs from McDonald’s or a chicken bowl from Chipotle won’t qualify for free delivery. And while memberships remove delivery fees, they still leave the initial markup, service and regulation fees, and gratuity.
Assuming an average delivery fee of $2.50 per order, subscribers must place at least five orders a month for it to make economic sense. Despite the high payoff threshold, DoorDash disclosed late last year that about 27% of its user base subscribes to DashPass. Under its current pricing, we find it hard to envision subscription adoption reaching 50%. Our prediction may be viewed as bearish given the success of Amazon Prime, which enjoys greater than 85% US household adoption.
What it would take to make DashPass the next Prime
Apart from the reliability and speed of package delivery, the magic of Prime is twofold: first, an expansive selection of Prime-eligible items, and second, no purchase minimum to qualify for free shipping on said Prime items. In plain English, this means you can buy anything from an iPhone charger to a bag of coffee to a single pack of envelopes for less than $8 and get free shipping.
For food delivery memberships to enjoy similar adoption rates as Prime, we believe four things are necessary:
- The universe of deliverable items expands to include things like convenience store items, alcohol, and basic household essentials. A larger selection of deliverable items means occasional users become regular users, increasing the value proposition of a monthly subscription.
- $5 or less minimum purchase order to qualify for free delivery on said items. This will lead to a wider range of possible orders, such as single item deliveries, that make sense from a consumer price standpoint.
- Priority delivery for members that reduces average wait times from 30-60 minutes currently, to 15-20 minutes. Shorter wait times increase convenience, and in turn, demand.
- Service and regulation fees are eliminated or materially reduced. At this point, a delivery membership shifts from a luxury service to a utility service.
In the end, food delivery is here to stay, but to achieve Amazon Prime-like adoption material changes need to be made.