The Growth of Doordash Advertising with Sponsored Search
When many Americans began quarantining in their homes in March of 2020, food delivery services skyrocketed. Businesses like DoorDash, Grubhub, and Uber Eats were at the spotlight of food delivery, but DoorDash has always been in the forefront of this crowded market. As of March 2021, DoorDash occupies an impressive 55% of the market share for online food delivery services. Although there are many reasons DoorDash has been so successful, their strong relationship with restaurants has helped them grow strategically. Especially during the pandemic, DoorDash has been a lifeline for restaurants by helping them grow their takeout sales and launching a disaster relief fund for small businesses. In the beginning of October, DoorDash expanded advertising opportunities to restaurants by selling ads as sponsored search results. They previously sold banner ads to companies offering free delivery or discounts, but it didn’t allow restaurants to use paid placement to surpass natural search results. The auction procedure that is used to sell search ads follow the second-price auction that we discussed in class.
In this bidding system, restaurants will pay for sponsored listings only if users click on the ad and orders from the restaurant. Each time a user searches for a restaurant or cuisine on the app, DoorDash will rank eligible ads based on bid and quality scores and the winner will be the restaurant with the highest score. If the user clicks on the ad of the winning restaurant and places an order within seven days of clicking the ad, the restaurant will pay an amount equal to the second place store’s bid in the auction. An interesting aspect of the bidding system is that a business can either set a custom bid or let DoorDash optimize their bid automatically which will supposedly “maximize returns”. It isn’t clear what factors determine what bid value is generated and although more efficient, this system reveals a potential loss of control for advertisers who opt in.
Overall, DoorDash’s implementation of sponsored listings is bound to generate additional revenue especially after growth has slowed after the pandemic’s peak. Yet, DoorDash wants to ensure that it doesn’t overwhelm users with too many sponsored ads because it would “mess with the consumer experience”. The Wall Street Journal reports that only one paid ad will be featured at the top of search results for restaurants, and two ads for other areas like convenience and grocery. By bolstering its ad opportunities but also balancing the interests of advertisers and users, DoorDash will solidify its brand image and continue to dominate the food delivery industry.
https://www.wsj.com/articles/doordash-introduces-search-page-ads-for-restaurants-11634032920