Feb. 15 (Bloomberg) -- About seven years ago, on a late-night work binge with snow blowing outside their downtown Chicago office, software engineers Matt Maloney and Mike Evans wanted nosh delivered, stat. Rifling through grease-stained to-go menus left them uninspired. As the two toiled at coding searches for the rental real estate site Apartments.com, for which they worked, inspiration struck. Why not apply geographic radius searches -- the secret sauce that powered the rental site -- to food delivery?
In 2004, the duo founded GrubHub.com, which aggregates and organizes neighborhood restaurants, allowing prospective diners to order through the site and more recently, via mobile apps. The service is free for users who pay for the meals with cash, credit, or PayPal. For a prioritized listing with full menu, the ability to order directly through the GrubHub site, and access to GrubHub’s 24-7 customer service, “partner” restaurants pay an average 15.5 percent commission on each order. Restaurants that don’t partner with GrubHub can still list their telephone numbers and menus for free -- a service that GrubHub’s competitors don’t offer. Currently, 40 percent of GrubHub’s 13,000 listed restaurants have partnered.
Unlike its strongest rival, SeamlessWeb, which launched in 1999 and has traditionally focused on corporate catering, GrubHub was among the first to focus on individuals in residential areas and to target independent restaurants. It’s also the first online delivery site to offer an automated confirmation call system, the ability to order online from mobile devices, and the option to refuse such wasteful extras as utensils and napkins. Maloney, 35, who serves as chief executive officer, says GrubHub’s main competition is still the “paper menus that litter American cities.”
GrubHub operates a physical office in Chicago and employs sales reps who work out-of-home in 12 additional cities, including Philadelphia and San Francisco. By yearend, Maloney expects to double GrubHub’s current workforce, to 200, and to increase its presence to a total of 26 cities. He says GrubHub, which has landed just over $14 million in venture capital, took in $8.3 million in revenue from commissions on restaurant orders through the site in 2010. He forecasts $17 million in revenue for 2011. Maloney spoke recently to Bloomberg.com contributor Megan Shank.
Megan Shank: Tell me about the first few years.
Matt Maloney: [In 2004] we kicked off a neighborhood guide that grew until 2006, when we got our legs under us and had the concept for GrubHub that exists today -- which is online ordering for every restaurant that wants it, and we aggregate all the restaurants that have delivery.
We never doubted our vision. But there were [frustrating] times early on -- a bug in the website or something that temporarily stumped us. We dug in and solved it. We also adjusted our business model, [which was] originally a subscription model, a terrible idea. Restaurants didn’t want to pay for value they didn’t see in their hands. It was hard to bill restaurants on a monthly basis. And we weren’t very good sales people. So we changed it to a commission-based model. We stuck to our vision but we adjusted how we got it done.
Right now, we list over 13,000 restaurants on our site. Within the next three months, we’ll list over 80,000, with all menus keyed-in completely.
Q: How do you keep abreast of what restaurants want and what individual users want?
When you look around or watch the evening news, you know this is a hard time for small businesses. We placed more than $80 million in restaurant delivery food in our 13 major markets last year. Every week in Chicago we order delivery for the whole office. The restaurant owners and managers deliver it. They often get really emotional and have thanked us for helping keep their businesses open. Some have sent us flowers. We generate up to 20 percent of gross sales for some of these independent restaurants.
For customers, we measure their survey ratings and response after they engage with our service teams and create calculations for gift cards, reimbursement, and strategy. When things go wrong, we take responsibility to make it right because we take our service seriously. We also want to give back, so we’re taking suggestions from users about what actions we should take or to what charities we should donate to improve the communities we serve.
Q: Aside from search engine and e-mail marketing, social media, and search engine optimization, how do you promote the brand?
We’re leveraging in every way what’s out of our restaurants’ reach. We began doing some new things in 2010, like branded coffee sleeves, elevator ads, and our first Groupons in Philly, L.A., and New York. We’ve also been spending on transit, which is not a typical channel for a website like ours. People take the subway to work and back home, so you hit them twice in one day. And as they head home hungry after work, they see one of our cute ads. In one, there’s a cartoon of a scuba diver looking at a fish. His little word bubble says, “sushi!” The fish’s word bubble says, “s#!t.” Under it, it says one-click sushi ordering.
Q: How do you walk the line between being cute and being offensive?
It’s tricky. There are people in our organization who think we cross the line sometimes. I’m comfortable. At GrubHub, when you place a final order, there’s that naked cartoon guy sitting on the couch. It’s making fun of “no shoes, no shirt, no service” or “bank in your underwear.” Obviously no one wants to sit around and eat naked. We like to think of ourselves as respectfully irreverent.
Q: You launched new iPhone and Android apps in 2010. How will mobile development play a role in GrubHub’s growth?
Mobile orders constituted 2 percent of orders in September. Now they’re 10 percent. I think within two years, they’ll constitute 90 percent. I’ve transferred all ordering to my mobile phone.
Q: The mobile version of Bing integrates OpenTable and GrubHub to allow users to make a reservation or order without leaving the application. How did you work this out with Bing?
Bing contacted us a few months back. It was extremely interested in the work we were doing. We were able to incorporate our online ordering functionality through our API, which was beta tested with Bing. We’re seeing GrubHub orders placed through Bing and Bing has been pleased with the online ordering functionality we bring to their iPhone and Android applications.
Q: How will you stay ahead of the curve technologically?
It is a high bar to be hired as a developer at GrubHub. We have a 4 percent acceptance rate for applicants. We have a small team of 10 to 12 people coding for us, but they are the best programmers we’ve ever met.
We like to give our developers a lot of time to do cool stuff. We were building an Android app, but a different developer wanted to build another Android app, so he built one for us over the weekend. He came back on Monday and was like: “Hey guys, I just built this Android app -- you could integrate some of it into the real one.” We were like: “Wait a minute. You built an Android app for us over the weekend? Like Saturday and Sunday?” There were some really cool parts to it. Things we’d never thought of from a product perspective. Stuff like that makes it into the final product way more than you think it would.
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